TAXATION LAW 2

Taxation Law 2
TABLE OF CONTENTS

I. Transfer Taxes 65
II. Value-
Value-Added Tax 78
III. Percentage Tax 99
IV. Excise Tax 103
103
V. Documentary Stamp Tax 106
VI. Remedies 110
110
VII. Local Taxation 128
VIII. Real Property Taxation 139
IX. Tariff and Customs Code 151

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I. TRANSFER TAXES who may exercise such rights. By reason of the

restriction the transferee is incapable of freely
enjoying or disposing of the property until the
-excise taxes imposed upon the privilege of
transferor’s death. The transfer may be regarded
gratuitously transmitting one’s property to
as having been intended to take effect in
another.
possession or enjoyment at the transferor’s
death.
Two Types of Transfer Taxes
Donor’s Tax Estate Tax
ILLUSTRATION:
Imposed upon the Imposed upon the X transfers his property to Y in naked ownership
privilege to give privilege to transmit and to Z in usufruct throughout Z’s lifetime
property to heirs subject to the condition that if Z predeceases X,
Transfer is between Transfer is from the the property shall return to X. If X dies during Z’s
the living deceased, through life, the value of the reversionary interest of X at
his/her estate, to the death is includible in his gross estate (see Articles
living 756-757 of the Civil Code). The transfer is
Transfer may take Transfer takes place taxable as intended to take effect at or after
place between only between natural death because the possibility of reversion to X
natural and juridical persons makes Z’s interest conditional as long as X lives.
persons NOTE: Transfer with retention or reservation of
certain rights is grouped by the Tax Code under
transfer in contemplation of death.
A. ESTATE TAX
c. Revocable transfers (Sec. 85C)
PRINCIPLES Transfers where the transferor has reserved the
right to alter, amend or revoke such transfer,
Definition regardless of WON the power is actually
-a graduated tax imposed upon the privilege of exercised during his lifetime, and WON the power
the decedent to transmit property at death and is should be exercised by him alone or in
based on the entire net estate. conjunction with someone else. The power to
-not a direct tax on the property transmitted or alter, amend or revoke shall be considered to
transferred although its amount is based thereon. exist on the date of the decedent’s death EVEN
THOUGH:
Applicable Law • the exercise of the power is subject to a
Estate taxation is governed by the statute in precedent giving of notice, or
force at the time of the death of the decedent. • the alteration, amendment or revocation
The estate tax accrues as of the death of the takes effect only on the expiration of a stated
decedent and the accrual of the tax is distinct period after the exercise of the power,
from the obligation to pay the same. Upon the whether or not on or before the date of the
death of the decedent, succession takes place decedent’s death notice has been given or the
and the right of the State to tax the privilege to power has been exercised.
transmit the estate vests instantly upon death. • If notice has not been given or the power
(Section 3, RR 2-2003) has not been exercised before the date of
his death, such notice shall be considered
Transfers Affected to have been given, or the power
1. Transfers Mortis Causa - Gratuitous exercised, on the date of his death.
transfers after death, either testate or
intestate. d. Transfers of property arising under a
general power of appointment (Sec. 85D)
2. Transfers Inter Vivos – Generally attract Gross estate shall include any property passed or
donor’s tax. However, certain transfers inter transferred under a general power of appointment
vivos are treated as testamentary exercised by the decedent:
dispositions and are accordingly included in • by will, or
the computation of the gross estate in order • by deed executed in contemplation of, or
to arrive at the proper estate tax liability. intended to take effect in possession or
enjoyment at, or after his death, or
These transfers are the following: • by deed under which he has retained for his
life or any period not ascertainable without
a. Transfers in contemplation of death (Sec. reference to his death or for any period which
85B) does not in fact end before his death
Term does not refer to the general expectation of o the possession or enjoyment of, or the
death which all entertain. The transfers referred right to the income from, the property, or
to are those impelled by the thought of death o the right, either alone or in conjunction
(i.e., the motivating factor or controlling motive with any person, to designate the persons
is the thought of death), regardless of whether who shall possess or enjoy the property or
the transferor was near the possibility of death or the income therefrom
not.
Q: What is a power of appointment?
b. Transfer with retention or reservation of The power or right to designate by will or by
certain rights (Sec. 85B) deed the person(s) who shall succeed to,
It involves cases where the owner transfers his possess or enjoy the property, or the income
property during life but still retains the economic therefrom, received from the estate of the
benefits – the possession or enjoyment of the prior decedent. It involves the person
property, or the power to designate the persons creating the power (donor) and the person to

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whom is given the right to exercise the power inures to the benefit of any individual,
(donee). provided that not more than 30% of the said
bequests, devises, legacies or transfers shall
Two Kinds of Appointment and their Effects: be used for administrative purposes

Kind of Nature Tax Effects Excluded Properties [DULUTS 200]

Appoint Implication 1. PROCEEDS of:
ment s a. Life insurance policy taken out
General DONEE has Makes DONEE - by the decedent upon his own life,
power to appointed holds the - when beneficiary is OTHER THAN the
appoint property, for appointed estate, executor or administrator,
any person all legal property - and designation is IRREVOCABLE
he chooses intents, the with all (Sec. 85E)
who shall property of the Thus, proceeds are INCLUDED in the
possess or the DONEE attributes gross estate:
enjoy the (includible in of • When beneficiary is the estate,
property his estate) ownershi executor or administrator, whether
without p, under designation is revocable or irrevocable
restriction the • When beneficiary is other than the
concept estate, executor or administrator, and
of owner designation is REVOCABLE
Special DONEE Not DONEE NOTE: According to the Insurance
must includible in holds the Code, the designation is presumed to
appoint the gross appointed be revocable, in case the designation
successor estate of the property of the beneficiary is not clear.
to the DONEE when in trust, b. group life insurance policy taken out
property he dies or under - by a company for its employees, (law
only within the only speaks of policies “taken out by the
a limited concept decedent upon his own life”)
group or of trustee c. life insurance policies-issued by the GSIS
class of to government officials or employees, as
persons they are exempt by law from taxes of all
kinds (PD 1146, as amended)
e. Transfers for insufficient consideration
(Sec. 85G) 2. Death benefits received from the SSS,
Transfers that are not bona fide sales of property accruing by reason of death (RA 1161, as
for an adequate and full consideration in money amended)
or money’s worth.
3. Amounts received from the Philippine and the
• If bona fide sale – no value shall be included U.S. Governments from the damages suffered
in the gross estate [Case B] during the last war (RA 227)
• If not a bona fide sale - the excess of the fair
market value at the time of death over the 4. Benefits received by beneficiaries residing in
value of the consideration received by the the Philippines under laws administered by the
decedent shall form part of his gross estate. U.S. Veterans Administration (RA 360)
[Case A]
• If inter vivos transfer is proven fictitious – 5. Properties held in Trust by the decedent
total value of the property at the time of 6. Transfers by way of bona fide Sales
death included in the gross estate.[Case C]
7. Separate or exclusive property of the surviving
Case A Case B Case C spouse is not deemed part of the gross estate of
FMV, transfer 1,500 2,000 2,500 the decedent spouse. (Sec. 85, NIRC)
FMV, death 2,000 2,500 2,000
Consideration 800 2,000 0 8. Net estates which are not in excess of
Received P200,000 are exempt from estate tax. (Sec. 84,
NIRC)
Value 1,200 0 2,000
Included in
the Gross
Estate GROSS ESTATE
Composition
Exempt Transfers [MTTB] (Sec. 87) The following properties and interest therein at
the time of decedent’s death:
a. Merger of the usufruct in the owner of the • Citizens and Resident Aliens – all properties,
naked title real or personal, tangible or intangible,
b. Transmission or delivery of the inheritance wherever situated
or legacy by the fiduciary heirs or legatee to • Non-resident Aliens – only properties situated
the fideicommisary in the Philippines provided that, with respect
c. Transmission from the first heirs, legatees to intangible personal property, its inclusion
or donees in favor of another beneficiary in in the gross estate is subject to the rule of
accordance with the desire of the testator reciprocity provided for under Sect 104, NIRC
d. All bequests, devises, legacies or transfers
to social welfare, cultural and charitable Q: What is “residence” for estate tax
institutions, no part of the income of which purposes?

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It refers to the permanent home, the place to availed of. Reciprocity has to be total. (CIR v.
which whenever absent, for business or pleasure, Fisher, 110 Phil 686)
one intends to return, and depends on facts and • Reciprocity in exemption does not require the
circumstances, in the sense that they disclose “foreign country” to possess international
intent. (Corre v. Tan Corre, 100 Phil 321) It is, personality in the traditional sense (i.e.,
therefore, not necessarily the actual place of compliance with the requisites of statehood).
residence. The term “residence” and “domicile” Thus, Tangier, Morroco (Collector v. Campos-
are synonymous and are used interchangeably Rueda, 42 SCRA 23) and California, a state in
without distinction. (Collector v. Lara, 102 Phil the American Union (Collector v. de Lara, 102
813; Velilla v. Posadas, 62 Phil 624). Phil 813) were held to be foreign countries
within the meaning of Section 104.
Q: What is the situs of intangible personal
property?
GR: situs is at the domicile or residence of the Valuation of the Gross Estate (§88 of the
owner. Exception: NIRC and §5 of RR 2-2003)
• When it is inconsistent with the express
provisions of statute, or GENERAL RULE: The properties comprising the
• Justice does not demand that it should be, as gross estate shall be valued based on FAIR
where the property has in fact a situs MARKET VALUE (FMV) as of the time of death.
elsewhere.
Real property-FMV as determined by the
CASE LAW: Collector v. Lara (102 Phil 813) – Commissioner OR FMV as shown in the schedule
When the owner of personal property, during his of values fixed by the provincial and city
lifetime, extended his activities with respect to assessors, whichever is HIGHER.
his interests so as to avail himself of the
protection and benefits of the laws of the Shares of Stock
Philippines, so as to bring his person or property o Listed shares – FMV is the arithmetic mean
within the reach of the Philippines, the reason for between the highest and lowest quotation at
a single place of taxation no longer obtains. His a date of death, OR the date nearest the date
property in the Philippines enjoys the protection of death, if none is available on the date of
of the government so that the right to collect the death itself
estate tax cannot be questioned. o Unlisted shares - COMMON shares are
valued based on BOOK VALUE; while
Q: What are the intangible properties which PREFERRED shares are valued at PAR VALUE
are considered by law as situated in the
Philippines? • Right to usufruct, use or habitation,
• Franchise which must be exercised in the annuity - the probable life of the beneficiary
Philippines in accordance with the latest basic standard
• Obligations or bonds issued by any mortality table is to be taken into account, to
corporation or sociedad anonima organized or be approved by the Secretary of Finance,
constituted in the Philippines upon recommendation of the Insurance
• Shares, obligations or bonds issued by any Commissioner.
foreign corporation 85% of the business of
which is located in the Philippines Decedent’s interest à Value to be included in
• Shares, obligations or bonds issued by any the gross estate is the extent of the interest
foreign corporation if such shares, obligations therein of the decedent at the time of his death
or bonds have acquired a business situs in
the Philippines
DEDUCTIONS [ELIT VTMSFH]
• Shares or rights in any partnership, business
or industry established in the Philippines
1. Expenses, Losses, Indebtedness and
Q: What is the reciprocity rule? (Sec. 104, Taxes [ELIT] [fjc cult]
NIRC)
There is reciprocity if the foreign country of which a. Funeral expenses (§86-A1) (max.
the decedent was a citizen and resident at the P2ook)
time of his death: Allowable deduction is whichever is lower of
• did not impose a transfer tax of any -the actual funeral expenses (WON paid)
character, in respect of intangible personal up to the time of interment, or
property of citizens of the Philippines not -an amount equal to 5% of the gross
residing in that foreign country; or estate, but in no case to exceed P200,000.
• allowed a similar exemption from transfer tax
in respect of intangible personal property NOTE: The unpaid portion of the funeral
owned by citizens of the Philippines not expenses incurred which is in excess of the
residing in that country P200,000 threshold is NOT allowed to be
[In sum, both states must exempt nonresidents claimed as a deduction under “claims against
(citizens of the other state) from transfer taxes in the estate” (see 1(c) below). (Sec. 6(A)(1) of
respect of intangible personal property.] RR 02-2003)
NOTE:
• For the reciprocity rule to apply, there must Examples of funeral expenses
be TOTAL reciprocity. (RR 2-2003, Sec. 6-A1)
[For instance,] in the Philippines, both estate o The MOURNING APPAREL of the surviving
and inheritance taxes are imposed on the spouse and unmarried minor children of
estate while in California only inheritance tax the deceased, bought and used on the
is imposed. The reciprocity rule may not be occasion of the burial

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o EXPENSES for the deceased’s WAKE, o Brokerage fees for selling property of the
including food and drinks estate
o PUBLICATION CHARGES for death notices
o TELECOMMUNICATIONS EXPENSES CASE LAW: Commissioner v. CA (328 SCRA 666)
incurred in informing relatives of the The notarial fee paid for the extrajudicial
deceased settlement is deductible since such settlement
o Cost of BURIAL PLOT, TOMBSTONES, effected a distribution of the estate to the lawful
MONUMENT or MAUSOLEUM but not their heirs. Attorney’s fees to be deductible from the
upkeep. In case the deceased owns a gross estate must be essential to the collection of
family estate or several burial lots, only assets, payment of debts or the distribution of
the value corresponding to the plot where property to the persons entitled to it
he is buried is deductible
o INTERMENT and/or CREMATION FEES c. Claims against the estate (§86-A1)
and CHARGES Claims – debts or demands of a
o All other expenses incurred for the pecuniary nature which could have been
performance of the RITES and enforced against the deceased in his
CEREMONIES incident to interment lifetime and could have been reduced to
simple money judgments. May arise out
Expenses NOT deductible as funeral of contract, tort or operation of law.
expenses
o Expenses incurred AFTER INTERMENT, Requisites for deductibility [PVN GF](RR
such as for prayers, masses, 2-2003, Sec. 6-A3):
entertainment, or the like 1) must be a PERSONAL OBLIGATION of the
o Any portion of the funeral and burial deceased existing at the time of his
expenses BORNE or DEFRAYED by death (except unpaid funeral expenses
RELATIVES and FRIENDS of the deceased and unpaid medical expenses, which are
classified into their own separate
ILLUSTRATIONS: categories)
o If five percent (5%) of the gross estate is 2) liability must have been contracted in
P220,000 and the amount actually GOOD FAITH and for adequate and full
incurred is P215,000, the maximum consideration in money or money’s worth
amount that may be deducted is only 3) the claim must be a debt or claim which
P200,000; is VALID IN LAW and ENFORCEABLE IN
o If five percent (5%) of the gross estate is COURT
P 100,000 and the total amount incurred 4) indebtedness NOT CONDONED by the
is P150,000 where P20,000 thereof is still creditor or the action to collect from the
unpaid, the only amount that can be decedent must not have prescribed.
claimed as deduction for funeral
expenses is P100,000. The entire Substantiation Requirements
P50,000 excess amount consisting of 1) The duly-notarized debt instrument, If
P30,000 paid amount and P20,000 the claim arose out of a debt instrument
unpaid amount can no longer be claimed 2) A statement showing the disposition of
as FUNERAL EXPENSES. Neither can the the proceeds of the loan, if the
P20,000 unpaid portion be deducted from indebtedness was incurred within 3 years
the gross estate as CLAIMS AGAINST THE before the death of the decedent.
ESTATE.
d. Claims against insolvent persons (§86-
b. Judicial expenses of testamentary and A1)
intestate proceedings (§86-A1) Deductible from the gross estate,
Allowable deductions are expenses provided that the value of the decedent’s
incurred, in the inventory-taking of interest in the claim is included in the
the assets comprising the gross estate, value of the gross estate.
their administration, the payment of
debts of the estate, as well as the e. Unpaid mortgages. losses and
distribution of the estate among the taxes(§86-A1 and RR 2-2003, Sec. 6-
heirs, A5)
DURING THE SETTLEMENT OF THE • UNPAID MORTGAGES – Deductible
ESTATE BUT NOT BEYOND THE LAST DAY from gross estate, provided:
PRESCRIBED BY LAW, or the extension o That the value of the decedent’s
thereof, FOR THE FILING OF THE ESTATE interest in the property encumbered
TAX RETURN (RR 2-2003, Sec. 6-A2) by such mortgage or indebtedness is
included in the value of the gross
Examples of judicial expenses estate
o Fees of executor or administrator o That the deduction shall be limited to
o Attorney’s fees the extent that they were contracted
o Court fees bona fide and for an adequate and full
o Accountant’s fees consideration in money or money’s
o Appraiser’s fees worth, if such unpaid mortgages or
o Clerk hire indebtedness were founded upon a
o Costs of preserving and distributing the promise or an agreement.
estate
o Costs of storing or maintaining property • LOSSES – deductible from the gross
of the estate estate if ALL of the following conditions
are satisfied:

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The losses the prior succession (Mr. B’s succession)

o were INCURRED DURING the was finally determined and paid
SETTLEMENT of the estate 5) No vanishing deduction on the property
o arose from FIRES, STORMS, was allowed to the estate of the prior
SHIPWRECK or OTHER CASUALTIES, decedent. (Illustration of how this
or from ROBBERY, THEFT or requirement may NOT be met: In the
EMBEZZLEMENT example above, if Mr. B received the
o are NOT COMPENSATED BY same properties as a donation from Mr. C
INSURANCE or otherwise in July 2002, a vanishing deduction on
o are not claimed as a deduction for the properties was claimed with respect
income tax purposes in an income tax to Mr. B’s estate. Thus, no more
return vanishing deduction may be claimed by
o were incurred NOT LATER THAN THE Mr. A’s estate)
LAST DAY FOR PAYMENT OF THE
ESTATE TAX Computation of vanishing deduction
Using the facts above, assume that Mr. A
• TAXES –Deductible from the gross estate inherited a car and a house from his father
IF: Mr. B. The FMV of the car was P120,000
o They have accrued as of the death of and the FMV of the house was P800,000 at
the decedent the time of Mr. B’s death. At the time Mr. A
o They were unpaid as of the time of inherited the land, it was subject to a
death mortgage of P80,000. Mr. A paid P70,000 of
NOTE: This deduction DOES NOT include the mortgage during his lifetime (leaving a
income tax upon income received after balance of P10,000). The FMV of the
death, or property taxes not accrued properties at the time of Mr. A’s death were
before his death, or the estate tax due P850,000 for the land and P70,000 for the
from the transmission of his estate. car. Mr. A’s gross estate amounted to
P3,200,000 while total deductions (excluding
2. Property previously taxed (Vanishing medical expenses, standard deductions,
deductions) (§86-A2) family home) amounted to P600,000.

Deduction allowed on the property left behind 1) First, compare the values of the
by the decedent which he had acquired property at the time of the prior
previously by inheritance or donation. decedent’s death and at the time of
the present decedent’s death. The
Previously, a transfer tax had already been lower amount shall be the initial
imposed on the property, either the estate basis.
tax (if property inherited) or the donor’s tax → in the example, the initial basis shall
(if property donated). Now that the recipient be P800,000 for the land and
of the inheritance or donation has died, the P70,000 for the car, for a total of
same property will again be subjected to a P870,000
transfer tax, the estate tax. Thus, to NOTE: The value used as initial basis
minimize the effects of a double tax on the is significant only for purposes of
same property within a short period of time, computing the amount of vanishing
i.e. five (5) years, the law allows a deduction deduction. The value included in the
to be claimed on the said property. decedent’s gross estate is ALWAYS
Example: Mr. A died in December 2003. In the fair market value at the time of
March 2003, Mr. B (Mr. A’s father) died and his death.
left Mr. A some properties as inheritance.
May vanishing deductions be claimed as 2) Then, the value in (1) shall be
deductions in computing Mr. A’s net taxable reduced by any payment made by
estate? the present decedent on any
YES, vanishing deductions shall be allowed if mortgage or lien on the property
the following conditions are met → Mr. A paid P70,000 of the mortgage.
(REQUISITES FOR DEDUCTIBILITY): [PINID] Thus, P870,000 less 70,000 is
P800,000
1) Death – the present decedent (Mr. A)
died within five years from the receipt of 3) The value as reduced in (2) shall be
the property from a prior decedent (Mr. further reduced by an amount equal
B) or donor; to:
2) Identity of the property – The property
with respect to which deduction is sought Value as reduced in (2) X Total amount of
can be identified as the one received Gross Estate deductions*
from the prior decedent or the donor, or
as the property acquired in exchange for * excluding family home, medical
the original property so received. expenses, standard deduction and
3) Inclusion of the property – The property amounts received under RA 4917
must have formed part of the gross → 800/3200 x 600,000 equals 150,000.
estate situated in the Philippines of the This will be deducted from P800,000,
prior decedent, or the total amount of the which gives a balance of P650,000
gifts of the donor
4) Previous taxation of the property – the 4) Finally, the remaining balance shall
donor's tax on the gift or estate tax on be multiplied by the corresponding
percentage:

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6. Medical expenses (§86-A6) (max. of

If received by inheritance or P5ook)
%
gift: All medical expenses (cost of medicine, hospital
within one (1) year prior to the bills, doctors’ fees, etc.) incurred (whether paid
100%
death of the present decedent or unpaid)
More than one year but not
80% more than two years prior to Requisites for Deductibility:
the death of the decedent - The expenses were incurred by the decedent
More than two years but not within one (1) year prior to his death
60% more than three years prior to - The expenses are duly substantiated with
the death of the decedent receipts
More than three years but not PROVIDED, that in no case shall the deductible
40% more than four years prior to medical expenses exceed Five Hundred Thousand
the death of the decedent Pesos (P500,000).
More than four years but not
20% more than five years prior to NOTE: Any amount of medical expenses incurred
the death of the decedent within one year from death in excess of P500,000
CANNOT be claimed as a deduction under “Claims
→ Since Mr. A received the inheritance in against the estate”. (RR 2-2003, Sec. 6-F)
March 2003 (within 1 year from his death
in December 2003), the balance of 7. Amounts received by heirs under R.A.
P650,000 shall be multiplied by 100%. 4917 (§86-A7)
Thus, the allowable vanishing deduction is
P650,000 Any amount received by the heirs from the
decedent’s employer as a consequence of the
3. Transfers for public purpose death of the decedent-employee in accordance
with RA No. 4917 (this law provides that
The whole amount of all the BEQUESTS, retirement benefits of private employees shall not
LEGACIES, DEVISES or TRANSFERS to or for the be subject to attachment, levy execution or any
use of the Government of the Republic of the tax) PROVIDED that such amount is included in
Philippines, or any political subdivision thereof, the gross estate of the decedent.
for exclusively public purposes shall be deductible
from gross estate, provided such amount or QUICK GLANCE:
value had been included in the gross estate. Resident or Non-resident alien
citizen decedent decedent
4. Family home (maximum of P1m)
It is the dwelling house, including the land GROSS ESTATE – GROSS ESTATE –
on which it is situated, where the husband and all property at the includes only that part
wife, or a head or the family, and members of time of death, of gross estate located
their family reside, as certified to by the wherever situated in the Philippines
Barangay Captain of the locality.
It is deemed constituted on the house and DEDUCTIONS DEDUCTIONS
lot from the time it is actually occupied as the § funeral § funeral expenses
family residence and considered as such for as expenses § judicial expenses
long as any of its beneficiaries actually resides § judicial § claims against the
therein. (Arts. 152 and 153, Family Code) expenses estate
Temporary absence from the constituted family § claims against § claims against
home due to travel or studies or work abroad, the estate insolvents
etc. does not interrupt actual occupancy. The § claims against § unpaid mortgage
family home is generally characterized by insolvents and debt
permanency, that is, the place to which, § unpaid § taxes and losses
whenever absent for business or pleasure, one mortgage and § transfers for public
still intends to return. (RR 2-2003, Sec. 6D) debt use
§ taxes and losses § vanishing
Requisites for Deductibility § transfers for deductions
1) The family home must be the actual public use § share in conjugal
residential home of the decedent and his § vanishing property
family at the time of his death, as certified deductions
by the barangay captain of the locality. § family home NOTE: To compute for
2) The total value of the family home must § standard total allowable
be included as part of the gross estate of deduction deductions of the first
the decedent § medical six items above, this
3) Allowable deduction must be in an amount expenses formula is used:
equivalent to the current FMV of the § amounts
family home as declared or included in the received under Gross World
gross estate but in no case shall the R.A. 4917 estate, expenses,
deduction exceed P1,000,000 § share in Phils losses,
conjugal X indebtedness
5. Standard deduction (§86-A5) (P1m) property Gross , taxes etc.
An amount equivalent to One million pesos estate,
(P1,000,000) shall be deducted from the gross world
estate without need of substantiation.
NOTE: No deduction shall be allowed in the case
of a non-resident decedent not a citizen of the

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Philippines, unless the executor, administrator, or 1,000,000 standard deduction). The

anyone of the heirs, as the case may be, includes Philippine estate tax on P500,000 is
in the return required to be filed under Section P15,000
90 of the Code the value at the time of the
decedent’s death of that part of his gross estate Solution – Limitation A:
not situated in the Philippines. (Section 86, NIRC)
To get tax credit per country under
Tax Rates Applicable: Limitation A, this formula is followed:
If the net estate is:
Net Estate in a Particular Country x Phil. estate
OF THE
BUT NOT tax = Tax credit
OVER TAX IS PLUS EXCES
OVER
S OVER
Net Estate – Worldwide
200,000 Exempt
The result after applying the formula
P 200,000 500,000 0 5% 200,000
above is compared to the tax actually
500,000 2,000,000 15,000 8% 500,000
paid for each foreign country. The lower
2,000,000 5,000,000 135,000 11% 2million of the two amounts for each foreign
5,000,000 10million 465,000 15% 5million country will be added to get the total tax
10,000,000 And Over 1,215,000 20% 10million credit allowed under Limitation A.

Tax Credit for Estate Taxes (§86-E) Amount

Allowed
Q: What is a tax credit? whichever
It is a remedy against international double is Lower)
taxation. To minimize the onerous effect of taxing Country G (300/1500 x
the same property twice, tax credit against 15,000) 3,000 3,000
Philippine estate tax is allowed for estate taxes Actually paid to 5,000
paid to foreign countries. Country G
Country H (150/1500 x
Q: Who may avail of tax credit? 15,000) 1,500 1,400
Only the estate of a decedent who was a citizen Actually paid to 1,400
or a resident of the Philippines at the time of his Country H
death can claim tax credit for any estate tax paid Tax credit allowed P 4,400
to a foreign country. under Limitation A

Q: What is the amount allowable as tax Solution – Limitation B:

credit?
GENERAL RULE: The estate tax imposed by the Net estate in all foreign countries. x Phil. estate
Philippines shall be credited with the amounts of tax = Tax credit
any estate tax imposed by the authority of a Net Estate – Worldwide
foreign country.
LIMITATIONS: The result after applying the formula
a. The amount of the credit in respect to the above is compared to the tax actually
tax paid to any country shall not exceed paid in total to foreign countries. The
the same proportion of the tax against lower of the two amounts will be added
which such credit is taken, which the to get the total tax credit allowed under
decedent's net estate situated within such Limitation B.
country taxable under the NIRC bears to
his entire net estate; (PER COUNTRY Amount
BASIS) and Allowed
(Lower)
b. The total amount of the credit shall not 450/1500 x 15,000 P 4,500
exceed the same proportion of the tax Total foreign income 6,400
against which such credit is taken, which taxes paid
the decedent's net estate situated outside Tax credit allowed P 4,500
the Philippines taxable under the NIRC under Limitation B
bears to his entire net estate. (OVERALL
BASIS)
Compare the tax credit allowed under Limitation
A and Limitation B. The lower of the two
ILLUSTRATION:
amounts is the final allowable tax credit. In this
Assume:
case, the amount computed under Limitation A
Net Estate – Philippines P (4,400) is lower, thus it becomes the final
(reduced by all allowable 1,050,000 allowable tax credit.
deductions, except
standard deduction) If there is only one foreign country involved, both
Country G Net Estate 300,000 Limitations will yield the same answer. To get
Country H Net Estate 150,000 the tax credit allowable, use the formula in
Tax paid/incurred: Limitation A. The resulting amount will be
Philippines 15,000 compared to the actual tax paid to the foreign
Country G 5,000 country. The lower amount will be the final
Country H 1,400 allowable tax credit.
(Source: Reyes, Income Tax Law and
Net taxable estate is P500,000 Accounting)
(1,050,000 + 300,000 + 150,000 –

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 TAXATION LAW 2

COMPLIANCE REQUIREMENTS § Itemized assets of the decedent with their

corresponding gross value at the time of
ESTATE TAX his death, or in the case of a nonresident,
not a citizen of the Philippines, of that
1. Person Liable for Payment part of his gross estate situated in the
Primarily, the estate, through the executor or Philippines;
administrator. Payment shall be made before the § Itemized deductions from gross estate
delivery of the distributive share in the allowed in Section 86; and
inheritance to any heir or beneficiary. If there § The amount of tax due whether paid or
are two or more executors or administrators, all still due and outstanding.
of them are severally liable for the payment of
the tax. III: When filed
The estate tax clearance issued by the GR: Filed within six (6) months from the
Commissioner or the Revenue District Officer decedent's death.
(RDO) having jurisdiction over the estate, will Exception: The Commissioner shall have
serve as the authority to distribute the remaining authority to grant, in meritorious cases, a
properties/share in the inheritance to the heir or reasonable extension not exceeding thirty (30)
beneficiary. days for filing the return

Subsidiarily, heirs or beneficiaries, for the IV: Where filed

payment of that portion of the estate which his Except in cases where the Commissioner
distributive share bears to the value of the total otherwise permits, the return shall be filed with:
net estate. The extent of his liability, however, § an authorized agent bank (AAB),
shall in no case exceed the value of his share in § or Revenue District Officer (RDO),
the inheritance. § Collection Officer, or
§ duly authorized Treasurer of the city or
2. Notice of Death municipality in which the decedent was
domiciled at the time of his death, or
A written Notice of Death must be given to the § if there be no legal residence in the
BIR Philippines, with the Office of the
-within two (2) months after the death of the Commissioner.
decedent or
-within a period after the executor or Payment of Estate Tax
administrator or executor qualifies as such:
1. In all cases of transfers subject to tax or I: When paid
2. Where, though exempt from tax, the gross At the time the return is filed by the executor,
value of the estate exceeds P20,000. administrator or the heirs.

ESTATE TAX RETURN Extension of Payment

I: When required The Commissioner may allow an extension of
1. When the estate is subject to estate tax, OR payment, if he finds that the payment on the due
2. When, though exempt from tax, the gross date of the estate tax or of any part thereof
value of the estate exceeds Two hundred would impose undue hardship upon the estate or
thousand pesos (P200,000), OR any of the heirs
3. Regardless of the gross value of the estate, → extension not to exceed five (5)
when the said estate consists of registered or years, in case the estate is settled judicially,
registrable property such as real property, → or two (2) years in case the estate is
motor vehicle, shares of stock or other similar settled extrajudicially
property for which a clearance from the Where the taxes are assessed by reason of
Bureau of Internal Revenue is required as a negligence, intentional disregard of rules and
condition precedent for the transfer of regulations, or fraud on the part of the taxpayer,
ownership thereof in the name of the no extension will be granted by the
transferee, Commissioner.
• If extension granted, the Commissioner
II: Contents may require the executor, or administrator,
The executor, or the administrator, or any of the or beneficiary, as the case may be, to
legal heirs, as the case may be, shall file a return furnish a BOND in such amount, not
under oath in duplicate, setting forth: exceeding DOUBLE the amount of the tax
1. The value of the gross estate of the decedent and with such sureties as the
at the time of his death, or in case of a Commissioner deems necessary,
nonresident, not a citizen of the Philippines, conditioned upon the payment of the said
of that part of his gross estate situated in the tax in accordance with the terms of the
Philippines; extension.
2. The deductions allowed from gross estate in
determining the net taxable estate; and Effects of granting an extension
3. Such part of such information as may at the • Payment of the amount in respect of which
time be ascertainable and such supplemental the extension is granted on or before the date
data as may be necessary to establish the of the expiration of the period of the
correct taxes. extension
4. For estate tax returns showing a gross • Suspension of the running of statute of
value exceeding Two million pesos limitations for deficiency assessment for the
(P2,000,000)→ there must be a statement period of any extension
duly certified to by a Certified Public • Any amount paid after the statutory due date
Accountant containing the following: of the tax, but within the extension period,

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 TAXATION LAW 2

shall be subject to interest but not to be due, and shall be entitled to a receipt or
surcharge. writing showing such discharge. (§92)

• Q: Can estate tax be paid in 2. Judge

installments? No judge shall authorize the executor or
Yes. In case the available cash of the estate is administrator to deliver a distributive share to
not sufficient to pay its total estate tax liability, any party interested in the estate, unless a
the estate may be allowed to pay the tax by certification from the BIR that the estate tax has
installment and a clearance shall be released only been paid is shown. (§94)
with respect to the property the
corresponding/computed tax on which has been 3. Register of Deeds
paid. (RR 2-2003) The Register of Deeds shall not register in the
registry of property any transfer of real property
Government Collection of Unpaid Estate Tax or real rights therein, or any mortgage, by way of
Due donation or mortis causa or inheritance, without
a certification from the BIR of payment of the
1. Filing of Action – The Government may file an estate tax, and they shall immediately notify the
action against all the heirs for the collection BIR of non-payment of tax discovered by them.
from each one of them the amount of the tax (§95)
proportionate to the inheritance received.
Hereditary property consists only of that part 4. Bank
which remains after the settlement of all If a bank has knowledge of the death of a person
lawful claims against the estate for the who maintained a joint account or deposit jointly
settlement of which the entire estate is first with another, it shall not allow any withdrawal by
liable. It achieves payment of the tax and a surviving depositor from the said joint account
adjustment of the shares of each heir in the unless the Commissioner has certified that the
distributed estate as lessened by the tax. estate tax has been paid.

2. Enforcement of Tax Lien – Another remedy, EXCEPTION: the administrator or any heir may,
pursuant to the lien created by Sec. 219 of with the authorization of the Commissioner,
the Tax Code upon all property and rights to withdraw an amount NOT EXCEEDING P20,000.
property belonging to the taxpayer, is by (§95)
subjecting said property of the estate which is
in the hands of an heir or transferee to the 5. Lawyer, Notary Public or any
payment of the tax due on the estate. This Government Officer
remedy seeks only the payment of the tax. As Any lawyer, notary public, or any government
a holder of property belonging to the estate, officer who, by reason of his official duties,
an heir is liable for the tax up to the amount intervenes in the preparation or acknowledgment
of the property in his hands. He is individually of documents regarding partition or disposal of
answerable for the part of the tax donations mortis causa, legacy or inheritance,
proportionate to the share he received from shall furnish the BIR with copies of such
the inheritance. His liability, however, cannot documents and any information whatsoever
exceed the amount of his share. After which may facilitate the collection of estate tax.
payment of the tax, he will have a right of (§95)
contribution from his co-heirs, to achieve an
adjustment of the proper share of each heir in 6. Debtor
the distributable estate. (Commissioner v. A debtor shall not pay his debts to the heirs,
Pineda, 21 SCRA 105) legatees, executor or administrator of his
creditor-decedent without a certification from the
BIR that the estate tax has been paid.
OBLIGATIONS OF EXECUTOR,
ADMINISTRATOR, OFFICERS, OTHERS EXCEPTION: if the credit is included in the
inventory of estate of the decedent. (§95)
1. Executor or Administrator
When the gross estate is more than P20,000, the 7. Corporate Secretary of other
executor, administrator or any of the legal heirs responsible officer
shall: No transfer to any new owner in the books of any
a) give a written notice of death to the BIR corporation, sociedad anonima, partnership,
within two months after the decedent’s business or industry organized or established in
death OR after the executor or administrator the Philippines, of any shares, obligations, bonds
shall have qualified or rights by way of donations mortis causa,
b) file the estate tax return within the time legacy or inheritance shall be made, UNLESS a
prescribed by law certification from the BIR that the estate tax has
c) pay the estate tax within the time prescribed been paid is shown. (§97)
by law
If the executor or administrator makes a written
application to the Commissioner for
determination of the amount of estate tax and
discharge from personal liability therefor, the
Commissioner shall notify the executor or
administrator of the amount of the tax. Upon
payment of the tax, the executor or administrator
shall be DISCHARGED from PERSONAL LIABILITY
for any deficiency in the tax thereafter found to

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ILLUSTRATIONS § Family home is conjugal or

community property
o Decedent is an unmarried head of a family Conjugal Exclusive Total
Real and
a. personal
properties 5,000,000 5,000,000
Real and personal properties 5,000,000
Family home 2000000 2,000,000
family home 2,000,000 Other exclusive
Gross estate 7,000,000 properties 2,000,000 2,000,000
Less: Deductions Gross estate 7,000,000 2,000,000 9,000,000
Ordinary deductions Less: Ordinary
Funeral expenses 200,000 Deductions
Funeral
Other deductions 1,300,000
expenses 200,000
(1,500,000) Other ded’ns 1,300,000
Special deductions Total
Family Home 1,000,000 Conjugal
Standard deduction 1,000,000 deductions (1,500,000) (1,500,000)
Medical expenses 500,000 Net estate b4
share of spouse 5,500,000 2,000,000 7,500,000
(2,500,000)
Less Share of surviving spouse `
Net taxable estate 3,000,000 1/2 of 5,500,000 (2,750,000)
NOTE: Net Estate b4 special ded'ns 4,750,000
Although the family home is valued at P2 million, Less: Special Deductions
the maximum allowable deduction for the family Family Home (1,000,000)
home is P1million only. Standard Deduction (1,000,000)
Medical Expenses (500,000)
Medical expenses are not included in the
Net Taxable Estate 2,250,000
deductions referred under Section 86(A)(1) of the
Code but are treated as a special item of
deduction under Section 86(A)(6) of the same § Family home is conjugal property,
Code. valued at P1,500,000
Conjugal Exclusive Total
Real and personal
o Decedent is a married man with a properties 5,000,000 5,000,000
surviving spouse Family home 1,500,000 1,500,000
§ Family home is exclusive property Other exclusive
properties 2,000,000 2,000,000
Conjugal Exclusive Total Gross estate 6,500,000 2,000,000 8,500,000
Real&personal Less: Ordinary
properties 5,000,000 5,000,000 Deductions
Family home 2,000,000 2,000,000 Funeral
Other expenses 200,000
exclusive Other
prop 2,500,000 2,500,000 deductions 1,300,000
Gross estate 5,000,000 4,500,000 9,500,000 Total Conjugal
Less: deductions (1,500,000) (1,500,000)
Ordinary Net estate b4
Deductions share of spouse 5,000,000 2,000,000 7,000,000
Funeral Less Share of surviving spouse `
expenses 200,000 1/2 of 5,000,000 (2,500,000)
Other Net Estate b4 special ded'ns 4,500,000
deductions 1,300,000 Less: Special Deductions
Total Family Home (750,000)
Conjugal Standard Deduction (1,000,000)
deductions (1,500,000) (1,500,000) Medical Expenses (500,000)
Net estate b4 Net Taxable Estate 2,250,000
share of
spouse 3,500,000 4,500,000 8,000,000
Less Share of surviving NOTE: Only 750,000 is allowed as a deduction for
spouse ` the family home, considering that it was conjugal
1/2 of 3,500,000 (1,750,000) property valued at P1,500,000. This value is
Net Estate b4 special ded'ns 6,250,000 subdivided into P750,000, which belonged to the
Less: Special Deductions decedent, and P750,000, which belonged to the
Family Home (1,000,000) surviving spouse. The part owned by the
Standard Deduction (1,000,000) decedent (P750,000) is compared with the
Medical Expenses (500,000)
P1,000,000 maximum deduction, the lower of the
Net Taxable Estate 3,750,000
two amounts being the allowable deduction.

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B. Donor’s Tax national elections constitutes a donation, thus,

subject to gift taxes. However, the SC noted
PRINCIPLES that succeeding cases shall be governed by RA
7166 enacted by Congress on Nov. 25, 1991.
Definition The RA provides in Sec 13 that political/electoral
contributions, duly reported to the Commission
Not defined under the Tax Reform Act of 1997 . A
on Elections, are NOT subject to the payment of
“gift” is merely subjected to donor’s tax.
any gift tax.
GIFT or DONATION- “an act of liberality
PROPERTIES INCLUDED
whereby a person disposes gratuitously of a thing
or right in favor of another who accepts it.” (Art
Classes of Donors and their Gross Gift
725, Civil Code)
1. Citizens or Residents of the Philippines – all
REQUISITES for a gift to be subject to
properties located not only within the
donor’s tax: [ACID]
Philippines but also in foreign countries
1. The donor must have CAPACITY
2. There must be an INTENT TO DONATE
2. Nonresident Alien – all real and tangible
3. There must be DELIVERY, either actual or
properties within the Philippines, and
constructive
intangible personal property, unless there is
4. The donee must ACCEPT the donation
reciprocity, in which case it is not taxable
Kinds of Donations
Q: What are the intangible properties which
1. Donations inter vivos – a donation made
are considered by law as situated in the
between living persons, which is perfected the
Philippines?
moment the donor knows of the acceptance
1. Franchise which must be exercised in the
of the gift by the donee21; subject to donor’s
Philippines
tax
2. Obligations or bonds issued by any
2. Donations mortis causa – a donation which
corporation or sociedad anonima organized or
takes effect upon the death of the donor;
constituted in the Philippines
subject to estate tax
3. Shares, obligations or bonds issued by any
foreign corporation 85% of the business of
Q: What are considered donations for tax
which is located in the Philippines
purposes?
4. Shares, obligations or bonds issued by any
1. Sales, exchanges and other transfers of
foreign corporation if such shares, obligations
property for less than an adequate and full
or bonds have acquired a business situs in
consideration in money or money’s worth
the Philippines
2. Condonation or remission of debt where the
5. Shares or rights in any partnership, business
debtor did not render service in favor of the
or industry established in the Philippines
creditor
è Noteworthy, the element of donative intent is
Rule on Reciprocity (Sec 104, NIRC)
conclusively presumed in transfers of property for
There is reciprocity if the foreign country of which
less than an adequate or full consideration in
the decedent was a citizen and resident at the
money or money’s worth. However, real
time of his death:
property considered capital assets under the Tax
1. did not impose a transfer tax of any
Code are excepted from this rule. (Sec 100 in
character, in respect of intangible personal
relation to Sec 24(d)) Under Section 24(d), the
property of citizens of the Philippines not
fair market value itself, if higher than the gross
residing in that foreign country; or
selling price, is the base for computing the capital
2. allowed a similar exemption from transfer tax
gains tax imposed upon the sale of such capital
in respect of intangible personal property
assets. Thus, what the seller avoids in the
owned by citizens of the Philippines not
payment of the donor’s tax, it pays for in the
residing in that country
capital gains tax.
This rule applies to the transmission by gift of
intangible personal property located or with a
Applicable Law
situs within the Philippines of a nonresident alien.
The law in force at the time of the perfection/
completion of the donation (Sec 11, RR 2-2003)
EXEMPTIONS
NOTE: Any contribution in cash or in kind to any
candidate, political party or coalition of parties for • Deductible from gross gifts in order to arrive at
campaign purposes shall be governed by the the taxable net gifts.
Election Code, as amended. (Sec. 99(C), NIRC) • Not to be treated as exclusions from the gross
gifts of the donor.
CASE LAW: Abello v. CIR (Feb. 23, 2005)— The
contributions of the ACCRA partners to the 1. Dowries or donations made on account of
campaign funds of Sen. Angara during the 1987 marriage before its celebration or within one
year thereafter by parents to each of their
legitimate, recognized natural, or adopted
• 21
In the case of donations of immovable property, children to the extent of the first P10,000.
they must be made in a public document specifying However, this exemption may not be availed
therein the property donated. The acceptance may be of by a non-resident not a citizen of the
made in the same Deed of Donation or in a separate public
document, but it shall not take effect unless it is done Philippines.
during the lifetime of the donor. If the acceptance is made Q: Can both parents making a donation
in a separate instrument, the donor shall be notified to a child in consideration of marriage
thereof in an authentic form, and this step shall be noted
in both instruments.
avail of the P10,000 deduction?

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Yes. If both spouses made the gift, then the “Net Gifts”
gift is taxable one-half to each donor spouse. “Net Gift” is the net economic benefit from the
Separate donor’s tax returns must be filed; transfer that accrues to the donee.
husband and wife are considered as separate Accordingly, if a mortgaged property is
and distinct taxpayers for purposes of donor’s transferred as a gift, but imposing upon the
tax. (Section 12, RR 2-2003) However, where donee the obligation to pay the mortgage
there is failure to prove that the donation was liability, then the net gift is measured by
actually made by both spouses, the donation deducting from the fair market value of the
is taxable as an exclusive act of the husband property the amount of the mortgage assumed.
(Tang Ho v. BTA, 97 Phil 890), without (Section 11, RR 2-2003)
prejudice to the right of the wife to question
the validity of the donation without her COMPUTATION
consent pursuant to the provisions of the Civil How is donor’s tax computed?
Code and the Family Code. (Section 12, This general formula shall be followed:
supra)
Gross gifts made
2. Gifts made to or for the use of the National
Less: Deductions from the gross gifts
Government or any entity created by any of
Net gifts made
its agencies which is not conducted for profit,
Multiplied by applicable rate
or to any political subdivision of the said
Donor’s tax on the net gifts
Government
If there were several gifts made during the year,
3. Gifts in favor of an educational and/or
this formula is followed:
charitable, religious, cultural or social welfare
corporation, institution, accredited non-
Gross gifts made on this date
government organization, trust or
Less: Deductions from the gross gifts
philanthropic organization or research
Net gifts made on this date
institution or organization, provided not more
Add: all prior net gifts during the year
than 30% of said gifts will be used by such
Aggregate net gifts
donee for administration purposes
Multiplied by applicable rate
Donor’s tax on the aggregate net gifts
Q: What is a non-profit educational
Less: donor’s tax paid on prior net gifts
and/or charitable corporation, etc?
Donor’s tax due on the net gifts to date
It is a school, college or university and/or
charitable corporation, accredited NGO, trust
or philanthropic organization and/or research RATES OF TAX
institution or organization: The applicable donor’s tax rate is dependent
• Incorporated as a non-stock entity, upon the relationship between the donor and the
• Paying no dividends, donee.
• Governed by trustees who receive no
compensation, and 1. If the donee is a stranger to the donor,
• Devoting all its income, whether students’ the tax rate is equivalent to 30 % of the net
fees or gifts, donations, subsidies or other gifts.
forms of philanthropy, to the
accomplishment and promotion of the A stranger for purposes of the donor’s
purposes enumerated in its Articles of tax
Incorporation a. a person who is not a brother, sister
(whether by whole or half-blood), spouse,
4. Encumbrances on the property donated if ancestor or lineal descendant, or
assumed by the donee in the deed of b. a person who is not a relative by
donation consanguinity in the collateral line within
the fourth degree of relationship. (Sec.
5. Donations made to entities exempted under 99(B))
special laws, e.g.: Note that donations made between
o Aquaculture Department of the Southeast business organizations and those made
Asian Fisheries Development Center of the between an individual and a business
Philippines organization shall be considered as
o Development Academy of the Philippines donations made to a stranger (RR 2-
o Integrated Bar of the Philippines 2003)
o International Rice Research Institute
o National Museum 2. If the donee is not a stranger to the
o National Library donor, the tax for each calendar year shall
o National Social Action Council be computed on the basis of the total net
o Ramon Magsaysay Foundation gifts made during the calendar year:
o Philippine Inventor’s Commission
o Philippine American Cultural Foundation
o Task Force on Human Settlement on the
donation of equipment, materials and
services

6. Donations to persons not strangers where the

total of such net gifts for the calendar year is
not more than P100,000.00

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Over But not Tax Is Plus Of the Correspon 124,000 P 204,000 P254,000
Over Excess ding
Over Donor’s
Tax (refer
0 100,000 Exempt
to
100,000 200,000 0 2% 100,000 schedule)
200,000 500,000 2,000 4% 200,000 Tax Due / 124,000 Donor’s Tax Donor’s Tax
500,000 1 million 14,000 6% 500,000 Payable P 204,000 P 254,000
Less: Tax Less: Tax
1 million 3 million 44,000 8% 1 million
Previously Previously
3 million 5 million 204,000 10% 3 million Paid paid
124,000 (124k+80k)
5 million 10 M 404,000 12% 5 million
204,000
10 M 1,004,000 15% 10 million Tax Due Tax Due
P80,000 P50,000

Note: A legally adopted child is entitled to all the

rights and obligations provided by law to VALUATION
legitimate children, and therefore, a donation to
him shall not be considered as a donation made
to a stranger. • If the gift is made in property, the fair
market value at that time will be
OBJECT OF TAXATION considered the amount of gift.
• Real Property
• Donor’s tax shall be imposed whether the
transfer is in trust or otherwise, whether the taxable base = FMV as determined by the
gift is direct or indirect and whether the Commissioner of BIR (Zonal Value) or FMV as
property is real or personal, tangible or shown in the latest schedule of values of the
intangible. provincial and city assessor (Market Value
• The computation of the donor’s tax is on a per Tax Declaration), whichever is higher.
cumulative basis over a period of one If there is no zonal value, the taxable
calendar year base is the FMV that appears in the latest tax
declaration
Illustrations: • Improvement
1. Donation to son by parents on account of value of improvement is the construction
marriage (P100,000): cost per building permit and/or occupancy permit
• Husband plus 10% per year after year of construction, or
the FMV per latest tax declaration.
Net Taxable Gift = P50,000 – 10,000 =
P40,000
Tax Due = None, since P40,000 is below the TAX CREDIT
P100,000 threshold
• Wife – same as above A situation may arise when the property given as
a gift is located in a foreign country and the
2. Donation to son and daughter-in-law by donor may be subject to donor’s tax twice on the
same property: first, by the Philippine
parents on account of marriage (P100,000):
• Husband government and second, by the foreign
o Gift pertaining to the son government where the property is situated. The
Net Taxable Gift = P25,000 – 10,000 = remedy of claiming a tax credit is, therefore,
P15,000 aimed at minimizing the burdensome effect of
Tax Due = None, since P15,000 is below double taxation by allowing the taxpayer to
the P100,000 threshold deduct his foreign tax from his Philippine tax,
o Gift pertaining to the daughter-in-law subject to the limitations provided by law.
Net Taxable Gift = P25,000
Tax Due = P25,000 x 30% = P7,500 Q: Who may claim tax credit?
• Wife – same as above Tax credit for donor’s tax may be claimed only by
a resident citizen, non-resident citizen and
3. Donations to donees not considered strangers resident alien.
for tax purposes were made on:
January 30, 2002 – P 2,000,000 Q: What are the limitations on the tax
March 30, 2002 -- 1,000,000 credit?
August 15, 2002 -- 500,000 1. NET GIFT (foreign country) X PHIL DONOR’S
ENTIRE NET GIFTS TAX
After the After the After the
first second third 2. NET GIFT(all foreign countries)X PHILDONOR’S
donation donation donation ENTIRE NET GIFTS TAX
Net 2,000,000 January January
Taxable Donation - Donation - NOTE: The computation of the donor’s tax credit
Gift P2,000,000 P2,000,000 is the same as the computation for estate tax
March March credit.
Donation - Donation -
1,000,000 1,000,000 COMPLIANCE REQUIREMENTS
Total August
P3,000,000 Donation -
500,000
DONOR’S TAX RETURN
Total
P3,500,000 I. Who Files

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Every person, whether natural or juridical, II. VALUE-

VALUE-ADDED TAX22
resident or non-resident, who transfers or causes
to transfer property by gift, whether in trust or
otherwise, whether the gift is direct or indirect I. CONCEPT
and whether the property is real or personal,
tangible or intangible. VAT is a percentage tax imposed at every
stage of the distribution process on the sale,
Contents of the Donor’s Tax Return barter, or exchange, or lease of goods or
1. Each gift made during the calendar year properties, and on the performance of service in
which is to be included in computing net gifts; the course of trade or business, or on the
2. The deductions claimed and allowable; importation of goods, whether for business or
3. Any previous net gifts made during the same non-business purposes.
calendar year;
4. The name of the donee; It is a business tax levied on certain
5. Relationship of the donor to the donee; and transactions involving a wide range of goods,
6. Such further information as the Commissioner properties, and services, such tax being payable
may require. by the seller, lessor, or transferor. The tax is so-
called because it is imposed on the value not
When Filed previously subjected to VAT (De Leon, “The
Filed within thirty (30) days after the date the National Internal Revenue Code Annotated,”
gift is made or completed and the tax due 2000 edition)
thereon shall be paid at the same time that the
return is filed. It is also an excise tax, or a tax on the privilege
of engaging in the business of selling goods or
Where Filed and Paid services, or in the importation of goods.
Unless the Commissioner otherwise permits, it
shall be filed and the tax paid to an authorized The taxpayer (seller) determines his tax liability
agent bank, the Revenue District Officer, by computing the tax on the gross selling price or
Revenue Collection Officer or duly authorized gross receipt (output tax), and subtracting or
Treasurer of the city or municipality where the crediting the earlier VAT on the purchase or
donor was domiciled at the time of the transfer, importation of goods or on the sale of service
or if there be no legal residence in the (input tax) against the tax due on his own sale.
Philippines, with the Office of the Commissioner.
In the case of gifts made by a non-resident, the VAT payable to BIR = OUTPUT TAX – INPUT TAX
return may be filed with the Philippine Embassy
or Consulate in the country where he is domiciled Computation of the VAT Payable:
at the time of the transfer, or directly with the Gross taxable sales/receipts xxx
Office of the Commissioner. Less: Sales returns xxx
Sales allowances xxx
Sales discounts xxx (xxx)
Net sales xxx
Multiply with the VAT rate 12%
Output tax (12% of Net sales) xxx

Input tax carried over from previous period xxx

Domestic purchases xxx
Importations xxx
Total xxx
Input tax (12% of Total) xxx

Total Input tax (xxx)

VAT payable (Output tax less input tax) xxx

(All amounts in the formula must be NET of VAT)

II. NATURE & CHARACTERISTICS

• It is an indirect tax, the amount of which may

be shifted to or passed on the buyer,
transferee, or lessee of the goods, properties
or services. (Sec. 105)
• This rule shall likewise apply to existing
contracts of sale or lease of goods, properties
or services at the time of the effectivity of RA
No. 9337. –RR 16-200523

22
Credits: 2008 AD, C2005
23
Revenue Regulations (RR) No. 4-2007 dated February 7,
2007 introduced changes to RR No. 16-2005. SUCH as: “SEC.
4.106-1. VAT on Sale of Goods or Properties. – VAT is imposed
and collected on every sale, barter or exchange, or transactions
“deemed sale” of taxable goods or properties at the rate of
twelve percent (12%) (starting February 1, 2006) of the gross
selling price or gross value in money of the goods or properties
sold, bartered, or exchanged, or deemed sold in the
Philippines.”

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Constitutionality of VAT the 70% limitation on the creditable input tax, 5-

year amortization of input tax on purchase of
ABAKADA Guro Party List, et. al. v Ermita capital goods, or the 5% final withholding tax by
the government.
The validity of raising the VAT rate from 10% to
12% by the President was upheld by SC. It is equitable: The law is equipped with a
threshold margin (P1.5M). Also, basic marine
The assailed provisions of RA 9337 are those that and agricultural products in their original state
say that the President, upon the recommendation are still not subject to tax. Congress also
of the Sec. of Finance, shall raise the rate of VAT provided for mitigating measures to cushion the
to 12% when VAT as a percentage of the GDP of impact of the imposition of the tax on those
the previous year exceeds 2 4/5% and when the previously exempt. Excise taxes on petroleum
deficit as a percentage of the previous year’s GDP products and natural gas were reduced.
exceeds 1 ½%. Percentage tax on domestic carriers was
removed. Power producers are now exempt from
This is NOT an undue delegation of legislative paying franchise tax.
power. It is simply a delegation of ascertainment
of facts upon which enforcement and VAT, by its very nature, is regressive. BUT the
administration of the increased rate under the Constitution does not really prohibit the
law is contingent. It is the ministerial duty of imposition of indirect taxes (which is essentially
the President to immediately impose the 12% regressive). What it simply provides is that
rate upon the existence of any of the conditions Congress shall “evolve a progressive system of
specified by Congress.24 taxation”. In Tolentino v. Sec. of Finance, the
Court said that direct taxes are to be preferred,
Another assailed provision is Sec. 8 amending and as much as possible, indirect taxes should be
Sec. 110(B), which imposes a limitation on the minimized… but not avoided entirely because it is
amount of input tax (70% of the output tax) that difficult, if not impossible, to avoid them.
may be credited against the output tax. The
Court says this does not violate due process. The Tolentino v. Guingona
excess input tax, if any, is retained in a business’
books of accounts and remains creditable in the Regressivity is not a negative standard for
succeeding quarter/s. In addition, Sec. 112(B) courts to enforce. What Congress is required by
allows a VAT-registered person to apply for the the Consti to do is to “evolve a progressive
issuance of a tax credit certificate or refund for system of taxation.” This provision is placed in
any unused input taxes, to the extent that such the Consti as moral incentives to legislation, not
input taxes have not been applied against the as judicially enforceable rights.
output taxes. Such unused input tax may be
used in payment of his other internal revenue The Consti mandate to “evolve a progressive
taxes.25 system of taxation” simply means that direct
The input tax is NOT a property or a property taxes are to be preferred as much as possible,
right within the constitutional purview of the due and indirect taxes should be minimized. Resort
process clause. A VAT-registered person’s to indirect taxes should be minimized but
entitlement to the creditable input tax is a mere not avoided entirely. Also, the regressive
statutory privilege. The right to credit input tax effects are corrected by the zero rating of certain
as against the output tax is clearly a privilege transactions and through the exemptions. The
created by law, a privilege that also the law can transactions which are subject to VAT are those
remove, or in this case, limit. which involve goods and services which are used
or availed of mainly by higher income groups (
[Note: This limitation of creditable input tax has real properties held primarily for sale to
been eliminated by RA 9361, effective December customers, right or privilege to use patent,
2006. Pls refer to the discussion on input taxes copyright...)
on page30.]

With respect to Sec. 8, amending Sec. 110 (A), III. TRANSACTIONS SUBJECT TO VAT
which provides for 60-month amortization of the A. Any sale, barter or exchange of goods and
input tax on capital goods purchased: It is not properties, or similar transactions in the
oppressive, arbitrary, and confiscatory. The course of trade or business
taxpayer is not permanently deprived of his B. Any sale of services, or similar transactions,
privilege to credit the input tax. For whatever is in the course of trade or business
the purpose, it involves executive economic C. Any lease of goods and properties or similar
policy and legislative wisdom in which the Court transactions, in the course of trade or
cannot intervene. business
D. Any importation of goods, whether in the
The tax law is uniform: it provides a standard course of trade or business or not
rate of 0% or 10% (or 12% now) on all goods or
services. The law does not make any distinction RMC 9-2006: Reimbursable expenses
as to the type of industry or trade that will bear
Transactions and amounts that are subject to
24
VAT:
The rate was indeed increased to 12%, effective Feb. 1,
1. If the reimbursable expenses and/or
2006, as per Revenue Memorandum (RMC) No. 7-06, dated
January 31, 2006 advanced payments for certain expenses
25
This, however, is not accurate. The option to apply for tax (e.g. arrastre, wharfage, documentation,
credit certificate or refund is available to the VAT taxpayer only trucking, handling charges, storage fees,
in case his VAT registration is cancelled, unless he is subject to
VAT zero-rate.
duties and taxes, etc.) made by brokers on

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 TAXATION LAW 2

behalf of their customers are receipted with Exception:

the broker’s VAT official receipt. 1. When the sales do not exceed P100,000
2. Any advanced payment for expenses incurred (meaning not considered to be in the
(e.g. transportation, overtime and facilitation course of trade or business but only for
fee to facilitate the clearing of goods through subsistence, even if he, in the course of
customs) for the benefit of brokers, trade or business, (1) sells, barters,
notwithstanding that the same is reimbursed exchanges goods or properties, (2) leases
by their customers. goods or properties, and (3) renders
services; hence, he is not liable for either
Reimbursable expenses and/or advanced VAT or percentage tax)
payments shall NOT be subject to VAT on the
part of the broker if the following 2. Services as defined in this Code rendered
conditions/procedures are complied with: in the Philippines by nonresident foreign
1. The reimbursable expenses and/or advanced persons shall be considered as being
payments EXCEPT those incurred for the rendered in the course of trade or business.
benefit of the brokers, are receipted RR 16-2005 clarifies this: Non-resident
separately using NON-VAT Official persons who perform services in the
Acknowledgment Receipts to be issued by the Philippines are deemed to be in the
brokers to the Customers upon collection of course of trade or business, even if
the reimbursements or advances previously performance is NOT regular.
recorded as “Receivable For Cash Advances
on Behalf of Customers”, which recording was B. Any person who imports goods
done upon payment, on behalf of customers, RR 16-2005: … the importer, whether
of the advances to the third-party service an individual or corporation and
providers who issued official receipts in the whether or not made in the course of
name of the customers and not of the brokers his trade or business, shall be liable to
2. The third-party service providers to whom the pay VAT.
advanced payments or reimbursable
expenses of the customers have been paid by
the brokers shall issue receipts in the name of RATES IN GENERAL [12%, 0%]
the Customers
3. The brokers shall record the reimbursable A. 12% VAT
expenses of or the advanced payments on
behalf of Customers under the account i. SALE OF GOODS OR PROPERTIES (§ 106, A)
“Receivable for Cash Advances on Behalf of
Customers” • On sale, barter, exchange of goods or
4. For liquidation purposes, the brokers shall properties
attach the original copy of all said official
receipts issued by the third-party service Rate: 12% VAT (beginning 1 February 2006,
providers in the name of the customers to the RMC No. 7-06)
NON-VAT official acknowledgment receipts of
the brokers issued to their Customers upon Basis: Of gross selling price or gross value in
payment by the latter of the reimbursable money of the goods or properties
expenses
PROVIDED, That the President, upon the
*The Customers may be able to claim input recommendation of the Sec. of Finance, shall,
tax for the services of the third-party service effective January 1, 2006, raise the rate of value-
providers that are subject to VAT if the same added tax to 12%, after any of the following
are receipted by the third-party service conditions has been satisfied:
providers’ VAT official receipts evidencing the 1. Value-added tax collection as a percentage of
latter’s reporting of the same for VAT Gross Domestic Product (GDP) of the previous
purposes. year exceeds 2 4/5%; or
2. National government deficit as a percentage of
GP of the previous year exceeds 1 ½%.
IV. PERSONS LIABLE (Sec. 105)
Who Pays: Paid by SELLER
A. Any person who, in the course of trade or
business26, Goods or properties- all tangible and intangible
(1) sells, barters, exchanges goods or objects which are capable of pecuniary
properties, (2) leases goods or properties, estimation, including:
and (a)Real properties held primarily for sale to
(3) renders services. customers or held for lease in the ordinary
course of trade or business
(b) The right or the privilege to use patent,
copyright, design, or model, plan, secret
formula or process, goodwill, trademark,
26
The phrase “in the course of trade or business” trade brand or other like property or right;
means the regular conduct or pursuit of a commercial (c)The right or the privilege to use in the
or an economic activity, including transactions Philippines of any industrial, commercial or
incidental thereto, by any person regardless of whether scientific equipment
or not the person engaged therein is a non-stock, The right or the privilege to use motion
nonprofit organization (irrespective of the disposition of picture films, films tapes and discs
its net income and whether or not it sells exclusively to
(e) Radio, television, satellite transmission
members or their guests), or government entity. Sec
105 and cable television time

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TRANSACTIONS DEEMED SALE (subject to

Gross Selling Price (GSP)- The total amount of 12% VAT) (§ 106, B) [DR TC]
money or its equivalent which the purchaser pays
or is obligated to pay to the seller in (1) Transfer, use or consumption not in the
consideration of the sale, barter or exchange of course of business of goods properties
the goods or properties, excluding the value- originally intended for sale or for use in the
added tax. The excise tax, if any, on such goods course of business
or properties shall form part of the gross selling (e.g. when a VAT-registered person
price…xxx…. withdraws goods from his business for his
personal use.- RR 16-2005)
1) The consideration stated in the sales
document, or (2) Distribution or transfer to:
2) The fair market value (FMV), (a) Shareholders or investors as share in
Whichever is HIGHER the profits of the VAT-registered persons;
FMV- whichever is the HIGHER of: or
a) FMV as determined by the (b)Creditors in payment of debt;
Commissioner (zonal value), or (NOTE: Property dividends which
b) FMV as shown in schedule of constitute stocks in trade or properties
values of the Provincial & City primarily held for sale or lease declared
assessors (real property tax out of retained earnings on or after Jan.
declaration) 1, 1996 and distributed by the company
If GSP is based on the zonal value or to its shareholders shall be subject to
market value of the property, the zonal VAT based on the zonal value or FMV at
or market value shall be deemed the time of the distribution, whichever is
INCLUSIVE of VAT. applicable. - RR 16-2005)
If the VAT is not billed separately, the
selling price stated in the sales document (3) Consignment of goods if actual sale is not
shall be deemed to be INCLUSIVE of VAT. made within 60 days following the date
such goods were consigned; and
(NOTE: Consigned goods returned by the
RR 16-2005: consignee within the 60-day period are not
• Sale of Real Property on installment plan deemed sold. - RR 16-2005)
Sale of real property by a real estate dealer,
the initial payments of which in the year of sale (4) Retirement from or cessation of business,
(down payment + all payments actually or with respect to inventories of taxable goods
constructively received during the year of sale) existing as of such retirement or cessation.
do not exceed 25% of the gross selling price. (with respect to ALL goods on hand,
However, in the case of sale of real properties on whether capital goods, stock-in-trade,
the deferred-payment basis, not on the supplies or materials, as of the date of such
installment plan, (meaning the initial payments in retirement or cessation, whether or not the
the year of sale exceed 25% of the gross selling business is continued by the new owner or
price), the transaction shall be treated as cash successor. Examples are change of
sale which makes the entire selling price taxable ownership of the business (e.g. when a sole
in the month of sale. proprietorship incorporates, or the
proprietor sells his entire business) and
The real estate dealer shall be subject to VAT on dissolution of a partnership and creation of
the installment payments, including interest and a new partnership which takes over the
penalties, actually and/or constructively received business. - RR 16-2005)
by the seller.
TAX BASE on transactions deemed sale
Sale of residential lot exceeding P1.5M, Output tax = market value of the goods deemed
residential house and lot or other residential sold as of the time of the occurrence of the
dwellings exceeding P2.5M, where the instrument transactions.
of sale is executed on or after July 1, 2005, shall
be subject to [12%] VAT. Where the instrument CHANGES IN OR CESSATION OF STATUS OF
of sale was executed prior to July 1, 2005, the A VAT-REGISTERED PERSON (12% VAT) (§
price needs only to exceed P1M for the 106, C)
installment sale of residential house and lot or
other residential dwellings to be subject to 10% VAT shall apply to goods disposed of or existing
VAT. as of a certain date if under the circumstances to
be prescribed in rules and regulations to be
Transmission of property to a trustee shall NOT promulgated by the Secretary of Finance, upon
be subject to VAT IF the property is to be merely recommendation of the Commissioner, the status
held in trust for the trustor and/or beneficiary. of a person as a VAT-registered person changes
However, IF the property transferred is one for or is terminated…xxx….
sale, lease or use in the ordinary course of trade
or business AND the transfer constitutes a RR 16-2005:
completed gift, the transfer is subject to VAT as a
deemed sale transaction. The transfer is a 1) Subject to output tax—applicable to
completed gift if the transferor divests himself goods/properties originally intended for sale
absolutely of control over the property, i.e., or use in business and capital goods which
irrevocable transfer of corpus and/or irrevocable are existing as of the occurrence of the
designation of beneficiary. following:

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a) Change of business activity from VAT The tax due on such importation shall constitute
taxable status to VAT-exempt status. a lien on the goods superior to all charges or
b) Approval of a request for cancellation of liens on the goods, irrespective of the possessor
registration due to reversion to exempt thereof. (as amended by RA 9337)
status
c) Approval of a request for cancellation of iii. SALE OF SERVICES & USE/LEASE
registration due to a desire to revert to OF PROPERTIES (§ 108, A)
exempt status AFTER the lapse of 3
consecutive years from the time of • On sale or exchange of services, use of lease
registration by a person who voluntarily properties
registered despite being exempt under
Sec. 109 (2) Rate: 12% (as amended)
d) Approval of request for cancellation of
registration of one who commenced Basis: gross receipts derived from the sale or
business with the expectation of gross exchange of services, including the use of lease
sales/receipts exceeding P1.5M but who of properties.
failed to exceed this amount during the
first 12 months of operation PROVIDED, That the President, upon the
recommendation of the Sec. of Finance, shall,
2) NOT subject to output tax effective January 1, 2006, raise the rate of value-
a) Change of control of a corporation by the added tax to 12%, after any of the following
acquisition of the controlling interest of conditions has been satisfied:
such corporation by another stockholder 1. Value-added tax collection as a percentage of
or group of stockholders. Gross Domestic Product (GDP) of the previous
b) Change in the trade or corporate name of year exceeds 2 4/5%; or
the business 2. National government deficit as a percentage of
c) Merger or consolidation of corporations. GP of the previous year exceeds 1 ½%.
The unused input tax of the dissolved
corporation, as of the date of merger or Sale or Exchange of Services
consolidation, shall be absorbed the The performance of all kinds of services in the
surviving or new corp. Philippines for others for a fee, remuneration or
consideration, including those performed or
TAX BASE in case of retirement/cessation of rendered by: (CLIMB-SCHERD-TFF)
business 1. Construction and service contractors;
Tax Base= acquisition cost or current market 2. stock, real estate, commercial, customs and
price of the goods or properties, whichever is immigration Brokers;
lower. 3. Lessors of property, whether personal or real;
warehousing services;
4. lessors or distributors of cinematographic
ii. IMPORTATION OF GOODS (§107, A) Films;
• On every importation of goods (WON goods 5. persons engaged in Milling, processing,
are for use in business) manufacturing or repacking goods for others;
6. proprietors, operators or keepers of Hotels,
Rate: 12% (as amended) motels, rest-houses, pension houses, inns,
resorts;
Basis: total value used by the Bureau of 7. proprietors or operators of Restaurants,
Customs in determining tariff and customs refreshment parlors, cafes and other eating
duties, plus customs duties, excise taxes, if any, places, including clubs and caterers;
and other charges, 8. Dealers in securities;
Where the customs duties are determined 9. lending Investors;
on the basis of the quantity or volume of the 10. Transportation contractors on their transport
goods, the value-added tax shall be based on the of goods or cargoes, including persons who
landed cost plus excise taxes, if any. transport goods or cargoes for hire and other
domestic common carriers by land relative to
PROVIDED, That the President, upon the their transport of goods or cargoes;
recommendation of the Sec. of Finance, shall, 11. Common carriers by air and sea relative to
effective January 1, 2006, raise the rate of value- their transport of passengers, goods or
added tax to 12%, after any of the following cargoes from one place in the Philippines to
conditions has been satisfied: another place in the Philippines;
1. Value-added tax collection as a percentage of 12. sales of Electricity by generation companies,
Gross Domestic Product (GDP) of the previous transmission, and distribution companies;
year exceeds 2 4/5%; or 13. services of Franchise grantees of electric
2. National government deficit as a percentage of utilities, telephone and telegraph, radio and
GP of the previous year exceeds 1 ½%. television broadcasting and all other franchise
grantees except those under Section 119 of
Who Pays: Paid by the importer prior to the this Code and non-life insurance companies
release of such goods from customs custody (except their crop insurances), including
surety, fidelity, indemnity and bonding
Transfer of Goods by Tax-Exempt Persons companies;
(§107, B) 14. and Similar services regardless of whether or
If importer is tax-exempt, the subsequent not the performance thereof calls for the
purchasers, transferees or recipients of such exercise or use of the physical or mental
imported goods shall be considered as importers faculties.
who shall be liable for the tax on importation.

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The phrase 'sale or exchange of services' functions who make a practice of lending
shall likewise include: (A- FACT-PIE) money for themselves or others at interest
1. The lease or the use of or the right or
privilege to use any Copyright, patent, design 4. Subject to VAT: Franchise grantees of electric
or model plan, secret formula or process, utilities, telephone and telegraph, radio
goodwill, trademark, trade brand or other like and/or TV broadcasting and all other
property or right franchise grantees (including PAGCOR and its
2. The lease or the use of, or the right to use of licensees/franchisees) EXCEPT franchise
any industrial, commercial or, scientific grantees of radio and/or TV broadcasting
Equipment; whose annual gross receipts of the preceding
3. The supply of scientific, technical, industrial year do not exceed P10M (which shall be
or commercial knowledge or Information; subject to 3% franchise tax under Sec. 119,
4. The supply of any Assistance that is ancillary subject to optional registration), and
and subsidiary to and is furnished as a means franchise grantees of gas and water facilities
of enabling the application or enjoyment of (under Sec. 109, subject to 2% franchise
any such property, or right as is mentioned in tax). With respect to franchise grantees of
subparagraph (2) or any such knowledge or telephone and telegraph services, amounts
information as is mentioned in subparagraph received for overseas dispatch, message, or
(3); conversation originating from the Philippines
5. The supply of services by a nonresident are subject to the percentage tax under Sec.
person or his employee in connection with the 120 and hence exempt from VAT.
use of Property or rights belonging to, or the
installation or operation of any brand, 5. In a lease contract, the advance payment by
machinery or other apparatus purchased from the lessee may be:
such nonresident person; a) a loan to the lessor from the lessee –
6. The supply of technical Advice, assistance or NOT subject to VAT
services rendered in connection with technical b) an option money for the property – NOT
management or administration of any subject to VAT
scientific, industrial or commercial c) a security deposit to insure the faithful
undertaking, venture, project or scheme; performance of certain obligations of the
7. The lease of motion picture Films, films, tapes lessee to the lessor – NOT subject to
and discs; and VAT. BUT if the security deposit is applied
8. The lease or the use of or the right to use to rental, it shall be subject to VAT at the
radio, television, satellite transmission and time of its application.
cable television Time. d) or pre-paid rental – subject to VAT when
received, irrespective of the accounting
Lease of Properties method employed by the lessor
- subject to the tax herein imposed irrespective
of the place where the contract of lease or 6. On transportation:
licensing agreement was executed if the property • All receipts from service, hire, or
is leased or used in the Philippines. operating lease of transportation
equipment not subject to the percentage
'Gross Receipts' -the total amount of money or tax on domestic common carriers and
its equivalent representing the contract price, keepers of garages shall be subject to
compensation, service fee, rental or royalty, VAT. (Pls refer to Sec. 117 for other
including the amount charged for materials percentage taxes.
supplied with the services and deposits and
advanced payments actually or constructively Common Transporting Kind of Tax
received during the taxable quarter for the carrier carrier Liability
services performed or to be performed for By land Persons Domestic 3%, Sec.
another person, excluding value-added 117
tax…xxx…. (as amended by RA 9337, Goods/cargo Domestic 12% VAT
underscored parts amended or added by RA By sea Domestic Domestic
9337) trip - 12%
VAT
Notes: (unless otherwise indicated, from RR 16- International
2005) trip – zero-
Whether rated
transporting International 3%, Sec.
1. Persons engaged in milling, processing, persons or 118
manufacturing or repacking goods for others By air
goods/cargo
Domestic Domestic
are subject to VAT, EXCEPT palay into rice, flight -
corn into corn grits, and sugarcane into raw 12% VAT
sugar International
flight –
2. For dealers in securities, “gross receipts” zero-rated
means gross selling price less cost of the International 3%, Sec.
securities sold. RR 7-95: Pre-need 118
companies are considered dealers in
securities. 7. Sale of electricity by generation,
transmission, and distribution companies
3. Lending investors – all persons OTHER than shall be subject to 12% VAT, EXCEPT sale of
banks, non-bank financial intermediaries, power or fuel generated through renewable
finance companies and other financial sources of energy, such as, but not limited
intermediaries NOT performing quasi-banking to, biomass, solar, wind hydropower,

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geothermal, ocean energy, and other be considered an export-oriented enterprise

emerging energy sources using technologies upon accreditation under the rules &
such as fuel cells and hydrogen fuels, which regulations of Export Development Act, RA
shall be subject to 0% rate of VAT (zero- 7844 (RR 7-95)
rated). The universal charge passed on and
collected by distribution companies and 4) Sale of Gold to the Bangko Sentral ng
electric cooperatives shall be excluded from Pilipinas (BSP);
the computation of gross receipts.
5) Those considered export sales under the
8. Insurance and reinsurance commissions, as Omnibus Investment Code of 1987, and
opposed to premiums, whether life or non- other special laws (ex. Bases Conversion &
life, are subject to VAT. Non-life insurance Development Act of 1992)
premiums are subject to VAT. Life insurance Under Omnibus Investment Code:
premiums are NOT subject to VAT, for they a) Phil. port FOB value of export products
are subject to percentage tax. exported directly by a registered export
producer
b) Net selling price of export products sold
B. 0% VAT (ZERO-RATED by a registered export producer to
TRANSACTIONS) another export producer, or to an export
trader that subsequently exports the
A zero-rated sale by a VAT-registered person is a same (only when actually exported by
taxable transaction for VAT purposes, but shall the latter)
not result in any output tax. Constructive Exports:
a) sales to bonded manufacturing
Input tax on purchases of goods, properties or warehouses of export-oriented
services related to such zero-rated sale shall be manufacturers
available as tax credit or refund. (RR 16- b) sales to export processing zones
2005)27 c) sales to registered export traders
operating bonded trading warehouses
i. ZERO-RATED SALE OF GOODS OR supplying raw materials in the
PROPERTIES (§ 106, (2)) manufacture of export products under
guidelines to be set by the Board in
consultation with the BIR and Bureau of
A. Export sales (IF-GONE) Customs
d) sales to diplomatic missions and other
1) The sale and actual shipment of goods from agencies and/or instrumentalities granted
the Philippines to a Foreign country… AND tax immunities, of locally manufactured,
paid for in acceptable foreign currency or its assembled or repacked products, whether
equivalent in goods or services, AND paid for in foreign currency or not.
accounted for in accordance with the rules Provided that export sales of registered
and regulations of the BSP export traders may include commission
income, and that exportation of goods on
2) Sale of raw materials or packaging materials consignment shall not be deemed export
to a Nonresident buyer for delivery to a sales until the export products consigned
resident local export-oriented enterprise to are in fact sold by the consignee, and
be used in manufacturing, processing, provided finally that sales by a VAT-
packing or repacking in the Philippines of the registered supplier to a
said buyer's goods AND paid for in acceptable manufacturer/producer whose products
foreign currency AND accounted for in are 100% exported are considered export
accordance with the rules and regulations of sales. A certification to his effect must
the BSP be issued by the Board of Investment
which shall be good for 1 year unless
3) Sale of raw materials or packaging materials subsequently re-issued. (RR 16-2005)
to Export-oriented enterprise whose export
sales exceed seventy percent (70%) of total 6) The sale of goods, supplies, equipment and
annual production. Any enterprise whose fuel to persons engaged in International
export sales exceed 70% of the total annual shipping or international air transport
production of the preceding taxable year shall operations. (added by RA 9337) Provided,
that the same is limited to goods, supplies,
equipment and fuel pertaining to or
27
Thus, the benefit of being zero-rated vis-à-vis being exempt attributable to the transport of goods and
is that enterprises which enjoy zero-rating of transactions can
avail of input taxes on purchases of goods, properties, or
passengers from a port in the Phil. directly to
services (as either tax credit or refund, there being no output a foreign port without docking or stopping at
tax against which input tax can be credited). In mathematical any other port in the Phil., and that if any
terms, the enterprises enjoy 100% of their input taxes. portion of such fuel, goods, or supplies is
On the other hand, exempt enterprises cannot avail of these
input taxes; instead, these input taxes form part of used for purposes other than that mentioned
cost/expense. Thus, the net benefit these enterprises get from here, such portion of fuel, goods, and
their exempt transactions is 35% (in the case of corporations), supplies shall be subject to 12% VAT.
or to the extent that they can be used as deductions from
income in the computation of income tax payable (subject to
rules in income taxation). B. Foreign Currency Denominated Sale - sale
to a nonresident of goods, except those
There is therefore a 65% difference (100% in the case of zero- mentioned in Sections 149 and 150 (automobiles
rated transactions, less 35% in exempt transactions). [Editor’s
note] and non-essential goods like jewelry, perfume,
and yachts), assembled or manufactured in the

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 TAXATION LAW 2

Philippines for delivery to a resident in the

Philippines, paid for in acceptable foreign RMC 74-99: Tax Treatment of Sales of Goods
currency AND accounted for in accordance with and Services Made by Suppliers from Western
the rules and regulations of the BSP. Territory to a PEZA registered enterprise and Sale
Transactions made by PEZA registered
Sales of locally manufactured or assembled enterprises Within and Without the Zone
goods for household and personal use to Filipinos
abroad and other non-residents of the Philippines
as well as returning Overseas Filipinos under the CROSS- BORDER DOCTRINE (adhered to by
Internal Export Program of the government paid Phil VAT law)
for in convertible foreign currency AND accounted
for in accordance with the rules and regulations NO VAT shall be imposed to form part of
of the BSP shall also be considered export sales. the cost of goods destined for CONSUMPTION
OUTSIDE of the territorial border of the taxing
C. Sales to persons or entities whose authority. Hence, actual export of goods and
exemption under special laws or services from the Phil to a foreign country must
international agreements to which the be free from VAT. Conversely, those destined for
Philippines is a signatory effectively use or consumption WITHIN the Phil shall be
subjects such sales to zero rate. e.g. imposed with the 10% VAT. (now 12%, as
a) sales to enterprises duly registered & amended)
accredited with the
i) Subic Bay Metropolitan Authority,
ii) Philippine Economic Zone Authority Tax Treatment of Sales Made:
(PEZA), A. By VAT registered Supplier from Customs
b) international agreements to which the Territory to a PEZA registered enterprise
Phil. is signatory, such as
i. Asian Development Bank (ADB), 1) if the buyer is a PEZA registered
ii. International Rice Research Institute enterprise which is subject to the 5%
(IRRI) special tax regime
(a) Sale of Goods – this shall be treated
Section 6 of RR 4-2007, dated February 7, as INDIRECT EXPORT, hence
2007: considered SUBJECT TO 0% VAT.
The term effectively zero-rated sale of goods (b) Sale of Service – this shall be treated
and properties shall refer to the local sale of SUBJECT TO 0% VAT under the
goods and properties by a VAT-registered person “cross border doctrine”
to a person or entity who was granted indirect
tax exemption under special laws or international
agreement. 2) if the buyer is a PEZA registered
enterprise which is NOT embraced by
NOTE: RR 4-2007 removed the distinction the 5% tax regime
between automatic and effectively zero- (a) Sale of Goods – this shall be
rated transactions found in prior Revenue treated as INDIRECT EXPORT,
Regulations (including RR 16-2005) with respect hence considered SUBJECT TO
to prior application. The following line in RR 16- 0% VAT.
2005 has been DELETED by RR 4-2007: (b) Sale of Service – this shall be
“Other cases of zero-rated sales shall require treated SUBJECT TO 0% VAT
prior application with the appropriate BIR office under the “cross border
for effective zero-rating. Without an approved doctrine”
application for effective zero-rating, the
transaction otherwise entitled to zero-rating shall
NOTE: Any sale of goods, property or
be considered exempt. The foregoing rule
services made by a VAT registered supplier
notwithstanding, the Commissioner may
from the Customs Territory* to any
prescribe such rules to effectively implement the
registered enterprise operating in the
processing of applications for effective zero-
ecozone, REGARDLESS of the class or type
rating.”
of the latter’s PEZA registration, is actually
qualified and thus LEGALLY ENTITLED TO
CIR vs. Seagate Technology (Philippines)
THE 0% VAT. Accordingly, all sales of goods
February 11, 2005
or property to such enterprise made by a
The BIR regulations additionally requiring an
VAT registered supplier from the Customs
approved prior application for effective zero
Territory shall be treated SUBJECT TO 0%
rating cannot prevail over the clear VAT nature of
VAT.
Seagate’s transactions (subject to zero-rating, as
an entity registered with the PEZA). “Customs Territory” means the national
Other than the general registration of a taxpayer territory of the Phil OUTSIDE of the proclaimed
the VAT status of which is aptly determined, no boundaries of the ECOZONES.
provision under our VAT law requires an
additional application to be made for such
taxpayer’s transactions to be considered B. By a VAT-Exempt Supplier from the Customs
effectively zero-rated. An effectively zero- Territory to a PEZA registered enterprise
rated transaction does not and cannot
become exempt simply because an Sale of goods, property and services by VAT-
application therefor was not made or, if Exempt supplier from the Customs Territory
made, was denied. to a PEZA registered enterprise shall be
treated EXEMPT FROM VAT, regardless of

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 TAXATION LAW 2

whether or not the PEZA registered buyer is 9337]; Provided, however, that the services
subject to taxes under the NIRC or enjoying referred to herein shall not pertain to those
the 5% special tax regime. made to common carriers by air and sea
relative to their transport of passengers,
goods or cargoes from one place in the Phil.
C. By a PEZA Registered Enterprise to another place in the Phil., the same being
subject to 12% VAT under Sec. 108
1) Sale of Goods by a PEZA registered 5) Services performed by subcontractors and/or
enterprise to a buyer from the Customs contractors in processing, converting, of
Territory (ie domestic sales) -- this case manufacturing goods for an enterprise whose
shall be treated as a technical export sales exceed seventy percent (70%)
IMPORTATION made by the buyer. Such of total annual production.
buyer shall be treated as an IMPORTER 6) Transport of passengers and cargo by air or
thereof and shall be imposed with the sea vessels from the Philippines to a foreign
corresponding VAT. country [as added by RA 9337]; (pls see
2) Sale of Services by a PEZA registered table on page 29) and;
enterprise to a buyer from the Customs 7) Sale of power or fuel generated through
Territory – this is NOT embraced by the renewable sources of energy such as, but not
5% special tax regime, hence, such seller limited to, biomass, solar, wind, hydropower,
shall be SUBJECT TO 10% VAT. geothermal, ocean energy, and other
emerging energy sources using technologies
such as fuel cells and hydrogen fuels. [as
3) Sale of Goods by a PEZA registered added by RA 9337] Zero-rating shall apply
enterprise to Another PEZA registered strictly to the sale of power or fuel generated
enterprise (ie Intra-ECOZONE Sales of through renewable sources of energy, and
Goods) – this shall be EXEMPT from VAT. shall not extend to the sale of services
related to the maintenance or operation of
4) Sale of Services by ECOZONE enterprise, plants generating said power.
to Another ECOZONE enterprise (Intra-
ECOZONE enterprise Sale of Service)
(a) if PEZA registered seller is subject to RR 4-2007 removed the distinction between
5% special tax regime – EXEMPT automatic and effectively zero-rated transactions
from VAT found in prior Revenue Regulations (inc. RR 16-
(b) if PEZA registered seller is subject to 2005) with respect to prior application.
taxes under NIRC (ie not subject to
5% special tax regime) – subject to
0% VAT pursuant to “cross border C. FINAL WITHHOLDING VAT-5% (§
doctrine” 114, C)

The Government or any of its political

ii. ZERO-RATED SALE OF SERVICES & subdivisions, instrumentalities or agencies,
USE/LEASE OF PROPERTIES (§ 108, including government-owned or -controlled
B) corporations (GOCCs) shall, before making
payment on account of each purchase of goods
and services which are subject to the VAT
Zero-rated transactions imposed in Sections 106 and 108 of this Code,
deduct and withhold a final VAT at the rate of
1) Processing, manufacturing or repacking five percent (5%) of the gross payment thereof:
goods for other persons doing business
outside the Philippines which goods are Provided, That the payment for lease or use of
subsequently exported, where the services properties or property rights to nonresident
are paid for in acceptable foreign currency owners shall be subject to ten percent (10%)
AND accounted for in accordance with the withholding tax at the time of payment.
rules and regulations of the BSP The payor or person in control of the payment-
2) Services other than those mentioned in the considered as the withholding agent.
preceding paragraph rendered to a person The VAT withheld shall be remitted within ten
engaged in business conducted outside the (10) days following the end of the month the
Philippines or to a nonresident person not withholding was made.
engaged in business who is outside the [NOTE: This 5% final VAT withheld by the
Philippines when the services are performed, government is an innovation of RA 9337.]
the consideration for which is paid for in
acceptable foreign currency AND accounted RR 16-2005: The 5% final VAT shall represent
for in accordance with the rules and the net VAT payable of the seller. The remaining
regulations of the BSP 5% (or 7%, with the raise of VAT to 12%)
3) Services rendered to persons or entities effectively accounts for the standard input VAT,
whose exemption under special laws or in lieu of the actual input VAT directly attributable
international agreements to which the or ratably apportioned to such sales. (This
Philippines is a signatory effectively subjects means that where the 5% final VAT applies, the
the supply of such services to zero percent basic formula of output tax less input tax does
(0%) rate [as amended by RA 9337] not apply.) Should actual input VAT exceed 7%
4) Services rendered to persons engaged in of the gross payments, the excess may form part
international shipping or international air of the sellers’ expense or cost. On the other
transport operations, including leases of hand, if actual input VAT is less than 7% of gross
property for use thereof [as amended by RA

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 TAXATION LAW 2

payment, the difference must be closed to (g) Importation of passenger and/or cargo
expense or cost, in effect reducing it. vessels of more than five thousand tons
(5,000) whether coastwise or ocean-going,
However, 12% shall be withheld with respect to including engine and spare parts of said
the following: vessel to be used by the importer himself as
1) Lease or use of properties or property rights operator thereof; [DELETED]
owned by non-residents
(h) Importation of personal and household
2) Services rendered to local insurance
effects belonging to the residents of the
companies, with respect to reinsurance
Philippines returning from abroad and
premiums payable to non-residents; and
nonresident citizens coming to resettle in the
3) Other services rendered in the Philippines by
Philippines: Provided, That such goods are
non-residents.
exempt from customs duties under the Tariff
and Customs Code of the Philippines;
V. TRANSACTIONS EXEMPT FROM VAT (i) Importation of professional instruments
(§ 109) and implements, wearing apparel, domestic
animals, and personal household effects
(amendments introduced by RA 9337 indicated, (except any vehicle, vessel, aircraft,
text in ALL CAPS added by RA 9337) machinery other goods for use in the
manufacture and merchandise of any kind in
SEC. 109. Exempt Transactions. – commercial quantity) belonging to persons
coming to settle in the Philippines, for their
1) SUBJECT TO THE PROVISIONS OF
own use and not for sale, barter or exchange,
SUBSECTION (2) HEREOF, The following shall be
accompanying such persons, or arriving
exempt from the value-added tax:
within ninety (90) days before or after their
(a) Sale of nonfood agricultural products; arrival, upon the production of evidence
marine and forest products in their original satisfactory to the Commissioner, that such
state by the primary producer or the owner persons are actually coming to settle in the
of the land where the same are produced; Philippines and that the change of residence
[DELETED BY RA 9337] is bona fide;
(b) Sale of cotton seeds in their original (j) Services subject to percentage tax under
state; and copra; [DELETED] Title V;
(c) Sale or importation of agricultural and (k) Services by agricultural contract growers
marine food products in their original state, and milling for others of palay into rice, corn
livestock and poultry of or kind generally into grits and sugar cane into raw sugar;
used as, or yielding or producing foods for
(l) Medical, dental, hospital and veterinary
human consumption; and breeding stock and
services subject to the provisions of Section
genetic materials therefor.
17 of Republic Act No. 7716, as amended
Products classified under this paragraph and EXCEPT THOSE RENDERED BY
paragraph (a) shall be considered in their PROFESSIONALS: [AMENDED]
original state even if they have undergone
(m) Educational services rendered by private
the simple processes of preparation or
educational institutions, duly accredited by
preservation for the market, such as freezing,
the Department of Education, Culture and
drying, salting, broiling, roasting, smoking or
Sports (DECS) Department of Education
stripping.
(DEPED), the Commission on Higher
Polished and/or husked rice, corn grits, raw Education (CHED), THE TECHNICAL
cane sugar and molasses, ordinary salt, AND EDUCATION AND SKILLS DEVELOPMENT
COPRA shall be considered in their original AUTHORITY (TESDA), and those rendered by
state; [AMENDED] government educational institutions;
[AMENDED]
(d) Sale or importation of fertilizers; seeds,
seedlings and fingerlings; fish, prawn, (n) Sale by the artist himself of his works of
livestock and poultry feeds, including art, literary works, musical compositions and
ingredients, whether locally produced or similar creations, or his services performed
imported, used in the manufacture of finished for the production of such works; [DELETED]
feeds (except specialty feeds for race horses,
(o) Services rendered by individuals
fighting cocks, aquarium fish, zoo animals
pursuant to an employer-employee
and other animals generally considered as
relationship;
pets);
(p) Services rendered by regional or area
(e) Sale or importation of coal and natural
headquarters established in the Philippines by
gas, in whatever form or state, and
multinational corporations which act as
petroleum products (except lubricating oil,
supervisory, communications and
processed gas, grease, wax and petrolatum)
coordinating centers for their affiliates,
subject to excise tax imposed under Title VI;
subsidiaries or branches in the Asia-Pacific
[DELETED]
Region and do not earn or derive income
(f) Sale or importation of raw materials to be from the Philippines;
used by the buyer or importer himself in the
(q) Transactions which are exempt under
manufacture of petroleum products subject to
international agreements to which the
excise tax, except lubricating oil, processed
Philippines is a signatory or under special
gas, grease, wax and petrolatum; [DELETED]
laws, except those under Presidential Decree

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 TAXATION LAW 2

Nos. 66, 529 [Petroleum Exploration calendar year thereafter, the amount of Eight
Concessionaires under the Petroleum Act of thousand pesos (P8,000) JANUARY 31, 2009
1949] and 1590; [AMENDED] AND EVERY THREE (3) YEARS THEREAFTER,
THE AMOUNT HEREIN STATED shall be
(r) Sales by agricultural cooperatives duly
adjusted to its present value using the
registered with the Cooperative Development
Consumer Price Index as published by the
Authority to their members as well as sale of
National Statistics Office (NS0); [AMENDED]
their produce, whether in its original state or
processed form, to non-members; their (y) Sale, importation, printing or publication
importation of direct farm inputs, machineries of books and any newspaper, magazine
and equipment, including spare parts thereof, review or bulletin which appears at regular
to be used directly and exclusively in the intervals with fixed prices for subscription
production and/or processing of their and sale and which is not devoted principally
produce; to the publication of paid advertisements;
and
(s) Sales by electric cooperatives duly
registered with the Cooperative Development [RA 9337 ADDED THE FOLLOWING TWO
authority or National Electrification SUBSECTIONS]
Administration, relative to the generation and
(S) SALE, IMPORTATION OR LEASE OF
distribution of electricity as well as their
PASSENGER OR CARGO VESSELS AND
importation of machineries and equipment,
AIRCRAFT, INCLUDING ENGINE, EQUIPMENT
including spare parts, which shall be directly
AND SPARE PARTS THEREOF FOR DOMESTIC
used in the generation and distribution of
OR INTERNATIONAL TRANSPORT
electricity; [DELETED]
OPERATIONS;
(t) Gross receipts from lending activities by
(T) IMPORTATION OF FUEL, GOODS, AND
credit or multi-purpose cooperatives duly
SUPPLIES BY PERSONS ENGAGED IN
registered with the Cooperative Development
INTERNATIONAL SHIPPING OR AIR
Authority whose lending operation is limited
TRANSPORT OPERATIONS;
to their members; [AMENDED]
(U) Services of banks, non-bank financial
(u) Sales by non-agricultural, non- electric
intermediaries performing quasi-banking
and non-credit cooperatives duly registered
functions and other non-bank financial
with the Cooperative Development Authority:
intermediaries; and
Provided, That the share capital contribution
of each member does not exceed Fifteen (z) Sale or lease of goods or properties or
thousand pesos (P15,000) and regardless of the performance of services other than the
the aggregate capital and net surplus ratably transactions mentioned in the preceding
distributed among the members; paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Five
(v) Export sales by persons who are not
hundred fifty thousand pesos (P550,000)
VAT-registered;
ONE MILLION FIVE HUNDRED THOUSAND
(w) Sale of real properties not primarily held PESOS (P1,500,0000: Provided, That not
for sale to customers or held for lease in the later than January 31st of the calendar year
ordinary course of trade or business or real subsequent to the effectivity of Republic Act
property utilized for low-cost and socialized No. 8241 and each calendar year thereafter,
housing as defined by Republic Act No. 7279, the amount of Five hundred fifty thousand
otherwise known as the Urban Development pesos (550,000) JANUARY 31, 2009 AND
and Housing Act of 1992, and other related EVERY THREE (3) YEARS THEREAFTER, THE
laws, house and lot and other residential AMOUNT HEREIN STATED shall be adjusted
dwellings valued at One million pesos to its present value using the Consumer Price
(P1,000,000) and below RESIDENTIAL LOT Index, as published by the National Statistics
VALUED AT ONE MILLION FIVE HUNDRED Office (NSO). [AMENDED]
THOUSAND PESOS (P1,500,000) AND
The foregoing exemptions to the contrary
BELOW, HOUSE AND LOT, AND OTHER
notwithstanding, any person whose sale of goods
RESIDENTIAL DWELLINGS VALUED AT TWO
or properties or services which are otherwise not
MILLION FIVE HUNDRED THOUSAND PESOS
subject to VAT, but who issues a VAT invoice or
(P2,500,000) AND BELOW: Provided, That
receipt therefor shall, in addition to his liability to
not later than January 31st of the calendar
other applicable percentage tax, if any, be liable
year subsequent to the effectivity of this Act
to the tax imposed in Section 106 or 108 without
and each calendar year thereafter, the
the benefit of input tax credit, and such tax shall
amount of One million pesos (P1,000,000)
also be recognized as input tax credit to the
shall be adjusted to its present value
purchaser under Section 110, all of this Code.
JANUARY 31, 2009 AND EVERY THREE (3)
[DELETED]
YEARS THEREAFTER, THE AMOUNTS HEREIN
STATED SHALL BE ADJUSTED TO THEIR
(2) A VAT-REGISTERED PERSON MAY ELECT
PRESENT VALUES using the Consumer Price
THAT SUBSECTION (1) NOT APPLY TO ITS SALE
Index, as published by the national Statistics
OF GOODS OR PROPERTIES OR SERVICES:
Office (NSO); [AMENDED]
PROVIDED, THAT AN ELECTION MADE UNDER
(x) Lease of a residential unit with a monthly THIS SUBSECTION SHALL BE IRREVOCABLE FOR
rental not exceeding TEN THOUSAND PESOS A PERIOD OF THREE (3) YEARS FROM THE
(10,000) Eight thousand pesos (P8,000); QUARTER THE ELECTION WAS MADE. [ADDED BY
Provided, That not later than January 31st of RA 9337]
the calendar year subsequent to the
effectivity of Republic Act No. 8241 and each

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 TAXATION LAW 2

Notes on exempt transactions (from RR 16- and other similar services rendered by
2005): persons who are not accredited by the
DepED, CHED, and/or TESDA. [RR 16-2005]
VAT-EXEMPT TRANSACTIONS
- Refer to sale of goods or properties and/or 9. Services rendered by individuals pursuant to
services and the use or lease of properties that is an employer-employee relationship;
NOT subject to VAT (output tax) and the seller is
10. Services rendered by regional or area
not allowed any tax credit of VAT (input tax) on
headquarters established in the Philippines by
purchases. The person making the exempt sale
multinational corporations which act as
of goods, properties or services shall not bill any
supervisory, communications and coordinating
output tax to his customers because the said
centers for their affiliates, subsidiaries or
transaction is not subject to VAT.
branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;
1. Sale/ import of agricultural, marine food
11. Transactions which are exempt under
products in original state; of livestock and poultry
international agreements to which the Philippines
Original state even if they have undergone the is a signatory or under special laws, except those
simple processes of preparation or preservation under Presidential Decree No., 529 [Petroleum
for the market, such as freezing, drying, salting, Exploration Concessionaires under the Petroleum
broiling, roasting, smoking or stripping. Act of 1949]; [AMENDED]
Polished and/or husked rice, corn grits, raw cane 12. Sales by agricultural cooperatives duly
sugar and molasses, ordinary salt, AND COPRA registered with the Cooperative Development
shall be considered in their original state; Authority to their members as well as sale of
[AMENDED] their produce. Exemption includes importation of
direct farm inputs, machineries and equipment,
Livestock or poultry does not include fighting
including spare parts thereof, to be used directly
cocks, race horses, zoo animals and other
and exclusively in the production and/or
animals generally considered as pets. [RR 16-
processing of their produce.
2005]
Original state –including preservation using 13. Gross receipts from lending activities by
advanced technological means of packaging, such credit or multi-purpose cooperatives duly
as shrink wrapping in plastics, vacuum packing, registered with the Cooperative Development
tetra-pack, and other similar packaging methods. Authority; [AMENDED]
[RR 16-2005]
14. Sales by non-agricultural, non- electric and
non-credit cooperatives duly registered with the
2. Sale/ import of fertilizers; seeds, seedlings and Cooperative Development Authority are exempt
fingerlings; fish, prawn, livestock and poultry BUT their importation of machineries and
feeds equipment, including spare parts thereof, to be
used by them are SUBJECT to VAT.
3. Import of personal and household effects of
Phil resident returning from abroad and
15. Export sales by persons who are not VAT-
nonresident citizens coming to resettle in the
registered;
Philippines
4. Import of professional instruments and 16. Sale of real properties – the ff. sales are
implements, wearing apparel, domestic animals, exempt:
and personal household effects belonging to (1) Sale of real properties NOT primarily held for
persons coming to settle in the Philippines, for sale to customers or held for lease in the
their own use and not for sale, barter or ordinary course of trade or business.
exchange (2) Sale of real properties utilized for low-cost
housing as defined by RA No. 7279,
otherwise known as the "Urban
5. Services subject to percentage tax under Title Development and Housing Act of 1992" and
V:[refer to percentage tax, next part] other related laws, such as RA No. 7835 and
RA No. 8763. “Low-cost housing" refers to
6. Services by agricultural contract growers and housing projects intended for homeless low-
milling for others of palay into rice, corn into grits income family beneficiaries, undertaken by
and sugar cane into raw sugar; the Government or private developers,
7. Medical, dental, hospital and veterinary which may either be a subdivision or a
services EXCEPT THOSE RENDERED BY condominium registered and licensed by the
PROFESSIONALS: [AMENDED] Housing and Land Use Regulatory
Laboratory services are exempted. If the Board/Housing (HLURB) under BP Blg. 220,
hospital or PD No. 957 or any other similar law, wherein
clinic operates a pharmacy or drug store, the sale the unit selling price is within the selling
of price ceiling per unit of P750,000.00 under
drugs and medicine is subject to VAT. [RR 16- RA No. 7279, and other laws, such as RA
2005] No. 7835 and RA No. 8763.
(3) Sale of real properties utilized for socialized
8. Educational services rendered by private housing as defined under RA No. 7279, and
educational institutions, duly accredited by other related laws, such as RA No. 7835 and
DEPED, CHED, TESDA, and those rendered by RA No. 8763, wherein the price ceiling per
government educational institutions; [AMENDED] unit is P225,000.00 or as may from time to
“Educational services” does not include time be determined by the HUDCC and the
seminars, in-service training, review classes NEDA and other related laws. "Socialized

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 TAXATION LAW 2

housing" refers to housing programs and dwelling places (e.g., dormitories, rooms
projects covering houses and lots or home and bed spaces) except motels, motel
lots only undertaken by the Government or rooms, hotels and hotel rooms.
the private sector for the underprivileged The term 'unit' shall mean an apartment
and homeless citizens which shall include unit in the case of apartments, house in
sites and services development, long-term the case of residential houses; per person
financing, liberated terms on interest in the case of dormitories, boarding
payments, and such other benefits in houses and bed spaces; and per room in
accordance with the provisions of RA No. case of rooms for rent. [RR 16-2005]
7279and RA No. 7835 and RA No. 8763.
"Socialized housing" shall also refer to 18. Sale, importation, printing or publication of
projects intended for the underprivileged books and any newspaper, magazine review or
and homeless wherein the housing package bulletin which appears at regular intervals with
selling price is within the lowest interest fixed prices for subscription and sale and which is
rates under the Unified Home Lending not devoted principally to the publication of paid
Program (UHLP) or any equivalent housing advertisements;
program of the Government, the private
sector or non-government organizations. 19. SALE, IMPORTATION OR LEASE OF
(4) Sale of residential lot valued at P1.5M and PASSENGER OR CARGO VESSELS AND
below, or house & lot and other residential AIRCRAFT, INCLUDING ENGINE, EQUIPMENT
dwellings valued at P2.5M and below, where AND SPARE PARTS THEREOF FOR DOMESTIC OR
the instrument of sale/transfer/disposition INTERNATIONAL TRANSPORT
was executed on or after July 1, 2005; [to OPERATIONS;[added by RA 9337]
be adjusted every 3 years from Jan 31, The exemption from VAT on the importation and
2009]; If two or more adjacent residential local purchase of passenger and/or cargo vessels
lots are sold or disposed in favor of one shall be limited to those of 150 tons and above,
buyer, for the purpose of utilizing the lots as including engine and spare parts of said vessels;
one residential lot, the sale shall be exempt Provided, further, that the vessels to be imported
from VAT only if the aggregate value of the shall comply with the age limit requirement, at
lots does not exceed P1.5M. Adjacent the time of acquisition counted from the date of
residential lots, although covered by the vessel's original commissioning, as follows:
separate titles and/or separate tax (i) for passenger and/or cargo vessels,
declarations, when sold or disposed to one the age limit is 15 years old, (ii) for
and the same buyer, whether covered by tankers, the age limit is 10 years old, and
one or separate Deed of Conveyance, shall (iii) for high-speed passenger crafts, the
be presumed as a sale of one residential lot. age limit is 5 years old [RR 16-2005]
[RR 16-2005]
20. IMPORTATION OF FUEL, GOODS, AND
17. Lease of residential units with a monthly SUPPLIES BY PERSONS ENGAGED IN
rental per unit not exceeding P10K, INTERNATIONAL SHIPPING OR AIR TRANSPORT
regardless of the amount of aggregate OPERATIONS; [added by RA 9337]
rentals received by the lessor during the
Provided, that the said fuel, goods and supplies
year.
shall be used exclusively or shall pertain to the
Lease of residential units where the monthly
transport of goods and/or passenger from a port
rental per unit exceeds 10K but the
in the Philippines directly to a foreign port
aggregate of such rentals of the lessor during
without stopping at any other port in the
the year do not exceed One Million Five
Philippines; Provided, further, that if any portion
Hundred Pesos P1.5M shall likewise be
of such fuel, goods or supplies is used for
exempt from VAT, however, the same shall
purposes other than that mentioned in this
be subjected to three percent (3%)
paragraph, such portion of fuel, goods and
percentage tax.
supplies shall be subject to 10% VAT [RR 16-
In cases where a lessor has several
2005]
residential units for lease, some are leased
out for a monthly rental per unit of not
exceeding P10K while others are leased out 21. Services of banks, non-bank financial
for more than P10K per unit, his tax liability intermediaries performing quasi-banking
will be as follows: functions and other non-bank financial
a. The gross receipts from rentals not intermediaries; and
exceeding P10K per month per unit shall
be exempt from VAT regardless of the 22. Sale or lease of goods or properties or the
aggregate annual gross receipts. performance of services other than the
b. The gross receipts from rentals exceeding transactions mentioned in the preceding
P10K per month per unit shall be subject paragraphs, the gross annual sales and/or
to VAT IF the aggregate annual gross receipts do not exceed the amount
receipts from said units only (not ofP1,500,0000: [to be adjusted every 3 years
including the gross receipts from units from Jan 31, 2009] [AMENDED]
leased for not more than P10K) exceeds For purposes of the threshold of P1,5M, the
P1.5M. Otherwise, the gross receipts will husband and the wife shall be considered
be subject to the 3% tax imposed under separate taxpayers. However, the aggregation
Section 116 of the Tax Code. rule for each taxpayer shall apply. For instance,
The term 'residential units' shall refer to if a professional, aside from the practice of his
apartments and houses & lots used for profession, also derives revenue from other lines
residential purposes, and buildings or of business which are otherwise subject to VAT,
parts or units thereof used solely as the same shall be combined for purposes of

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 TAXATION LAW 2

determining whether the threshold has been Invoice or if so included, these should
exceeded. The VAT-exempt sales shall NOT be be clearly indicated in the VAT
included in determining the threshold. [RR 16- Invoice as reimbursable expenses.
2005]

c) Importation of Goods
VI. DETERMINING THE VAT BASE VAT Base = total value (used by Bureau
of Customs in determining tariff and
a) Sale of Goods customs duties) + customs duties +
VAT Base = gross selling price or gross excise tax (if any) + other charges
value in money of the goods sold or
exchanged In case the valuation used by Bureau of
Customs in computing customs duties is
Gross selling price shall include: by volume or quantity, the LANDED
• charges for packaging, delivery & COST* shall be the tax base.
insurance
• excise taxes if goods are subject *LANDED COST = invoice amount +
to excise tax customs duties + freight + insurance +
other charges + excise tax (if any)
For transactions deemed sale, the output tax
shall be based on the market value of the goods NOTE: The VAT on importation shall be
deemed sold as of the time of the occurrence of paid by the importer PRIOR to the release
the transactions. However, in case of retirement of such goods from customs custody.
or cessation of business, the tax base shall be (RR 16-2005)
the acquisition cost or the current market price of
the goods or properties, whichever is LOWER. VII. INPUT TAXES

In the case of a sale where the gross selling price (amendments introduced by RA 9337 indicated,
is unreasonably lower than the fair market value, text in ALL CAPS added by RA 9337)
the actual market value shall be the tax base.
CREDITABLE INPUT TAX (§ 110, A)
b) Sale of Services
VAT Base = Gross Receipts (1) Any INPUT TAX evidenced by a VAT
invoice or official receipt issued in accordance
“Gross receipts” means the total amount with Section 113 hereof on the following
of money or its equivalent representing transactions shall be creditable against the
the contract price, compensation, service OUTPUT TAX:
fee, rental or royalty, including the (a) Purchase or importation of goods:
amount charged for materials supplied (i) For sale; or
with the services and deposits and (ii) For conversion into or intended to
advance payments actually or form part of a finished product for sale
constructively received during the taxable including packaging materials; or
quarter for the services performed or to (iii) For use as supplies in the course of
be performed for another person, business; or
excluding VAT. (iv) For use as materials supplied in the
sale of service; or
“Constructive receipt” occurs when the
(v) For use in trade or business for
money consideration or its equivalent is
which deduction for depreciation or
placed at the control of the person who
amortization is allowed under this Code,
rendered the service without restrictions
except automobiles, aircraft and yachts.
by the payor. Examples:
[AMENDED]
1) deposit in banks which are made
(b) Purchase of services on which a VAT has
available to the seller of services
been actually paid.
without restrictions
2) issuance by the debtor of a notice to
(2) Input tax on domestic purchase OR
offset any debt or obligation and
IMPORTATION of goods or properties shall be
acceptance thereof by the seller as
creditable: [AMENDED]
payment for services rendered
(a) To the purchaser upon consummation of
3) transfer of the amounts retained by
sale and on importation of goods or
the contractee to the account of the
properties; and
contractor.
(b) To the importer upon payment of the
value-added tax prior to the release of the
Reimbursable expenses may be
goods from the custody of the Bureau of
EXCLUDED from the tax base IF the ff.
Customs.
conditions are complied with:
Provided, That the input tax on goods purchased
1) the expenses are supported by
or imported in a calendar month for use in
invoices/receipts in the name of the
trade or business for which deduction for
customer
depreciation is allowed under this Code, shall
2) the expenses are paid or will be paid
be spread evenly over the month of acquisition
to a 3rd party
and the fifty-nine (59) succeeding months if
3) there is no mark-up on the amounts
the aggregate acquisition cost for such goods,
billed, and
excluding the VAT component thereof, exceeds
4) the reimbursable expenses should
One million pesos (P1,000,000):
NOT be included in the Seller’s VAT

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 TAXATION LAW 2

Provided, however, That if the estimated useful Determination of Creditable Input Tax (§
life of the capital good is less than five (5) 110, C)
years, as used for depreciation purposes, then
the input VAT shall be spread over such a - The sum of the excess input tax carried over
shorter period: from the preceding month or quarter and the
Provided, finally, that in the case of purchase of input tax creditable to a VAT-registered person
services, lease or use of properties, the input during the taxable month or quarter shall be
tax shall be creditable to the purchaser, lessee reduced by the amount of claim for refund or tax
or licensee upon payment of the compensation, credit for value-added tax and other
rental, royalty or fee. [AMENDED] adjustments, such as purchase returns or
allowances and input tax attributable to exempt
(3) A VAT-registered person who is also sale.
engaged in transactions not subject to the value- The claim for tax credit referred to includes not
added tax shall be allowed tax credit as follows: only those filed with the BIR but also those filed
(a) Total input tax which can be directly with other government agencies, such as the
attributed to transactions subject to Board of Investments the Bureau of Customs.
value-added tax; and
(b) A ratable portion of any input tax Transitional Input Tax Credits (§ 111, A)
which cannot be directly attributed to
either activity. Any person liable for VAT or who elects to be a
VAT-registered person shall be allowed INPUT
INPUT TAX- the VAT due from or paid by a VAT- TAX in his beginning inventory of goods,
registered person in the course of his trade or materials and supplies
business on importation of goods or local § equivalent to eight percent (8%) TWO
purchase of goods or services, including lease or PERCENT (2%) of the value of such
use of property, from a VAT-registered person. It inventory OR
includes the transitional input tax determined in § the actual VAT paid on such goods,
accordance with Section 111 of this Code. materials and supplies, whichever is
higher,
It includes input taxes which can be directly which shall be creditable against the OUTPUT
attributed to transactions subject to the VAT plus TAX. [AMENDED]
a ratable portion of any input tax which cannot
be directly attributed to either the taxable or [NOTE: subject to the filing of an inventory
exempt activity. Input tax must evidenced by a according to rules and regulations prescribed by
VAT invoice or official receipt issued by a VAT- the Secretary of finance, upon recommendation
registered person in accordance with Secs. 113 of the Commissioner]
and 237 of the Tax. [RR 16-2005]
Presumptive Input Tax Credits (§ 111, B)
OUTPUT TAX- the VAT due on the sale or lease
of taxable goods or properties or services by any (1) Persons or firms engaged in the processing
person registered or required to register under of sardines, mackerel and milk, and in
Section 236 of this Code. manufacturing refined sugar and cooking oil AND
PACKED NOODLE BASED INSTANT MEALS, shall
EXCESS OUTPUT OR INPUT TAX (§ 110, C) be allowed a presumptive input tax, creditable
against the output tax, equivalent to one and
If at the end of any taxable quarter: one-half percent (1 1/2%) FOUR PERCENT (4%)
§ the output tax exceeds the input tax, the of the gross value in money of their purchases of
excess shall be paid by the VAT-registered primary agricultural products which are used as
person. inputs to their production. [AMENDED]
§ the input tax exceeds the output tax, the
excess shall be carried over to the succeeding "Processing" shall mean pasteurization, canning
quarter or quarters: and activities which through physical or chemical
Provided, however, that any input tax process alter the exterior texture or form or inner
attributable to the purchase of capital goods or to substance of a product in such manner as to
zero-rated sales by a VAT-registered person may prepare it for special use to which it could not
at his option be refunded or credited against have been put in its original form or condition.
other internal revenue taxes, subject to the
provisions of Section 112.28 [AMENDED] (2) Public works contractors shall be allowed a
presumptive input tax equivalent to one and one-
half percent (1 1/2%) of the contract price with
28
As amended by RA 9361. RA 9337, effective July 1, 2005, respect to government contracts only in lieu of
amended this subsection to read as follows: “If at the end of actual input taxes therefrom. [DELETED]
any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters: Provided, That the input REFUNDS OR TAX CREDITS OF INPUT TAX
tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: Provided, however,
Zero-Rated Sales (§ 112, A)
That any input tax attributable to zero-rated sales by a VAT- Any VAT-registered person, whose sales are
registered person may at his option be refunded or credited zero-rated or effectively zero-rated may apply
against other internal revenue taxes, subject to the provisions
of Section 112.” HOWEVER, this was again amended by
Congress through RA 9361 passed on Nov. 21, 2006. RR 2-
2007, dated January 11, 2007, provides that this regulation after its publication) except VAT returns covering taxable
enforcing the amendment introduced by RA 9361 shall take quarters ending earlier than December 2006.
effect immediately and shall apply to the quarterly VAT returns
to be filed after the effectivity of RA 9361 (which is 15 days

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 TAXATION LAW 2

for the issuance of a tax credit certificate or In proper cases, the Commissioner of Internal
refund of creditable input tax due or paid Revenue shall grant a tax credit
attributable to such sales, except transitional certificate/refund for creditable input taxes
input tax, to the extent that such input tax has within one hundred twenty (120) days from the
not been applied against output tax: [within date of submission of complete documents in
two (2) years after the close of the taxable support of the application filed in accordance
quarter when the sales were made] with subparagraph (a) above.
PROVIDED, however, That in the case of zero- In case of full or partial denial of the claim for
rated sales under Section 106(A)(2)(a)(1), (2) tax credit certificate/refund as decided by the
and (B) and Section 108 (B)(1) and (2), the Commissioner of Internal Revenue, the
acceptable foreign currency exchange proceeds taxpayer may appeal to the Court of Tax
thereof had been duly accounted for in Appeals (CTA) within thirty (30) days from the
accordance with the rules and regulations of receipt of said denial, otherwise the decision
the Bangko Sentral ng Pilipinas (BSP): shall become final. However, if no action on
PROVIDED, further, That where the taxpayer is the claim for tax credit certificate/refund has
engaged in zero-rated or effectively zero-rated been taken by the Commissioner of Internal
sale and also in taxable or exempt sale of Revenue after the one hundred twenty (120)
goods of properties or services, and the day period from the date of submission of the
amount of creditable input tax due or paid application with complete documents, the
cannot be directly and entirely attributed to any taxpayer may appeal to the CTA within 30
one of the transactions, it shall be allocated days from the lapse of the 120-day period. [RR
proportionately on the basis of the volume of 16-2005]
sales.
PROVIDED, FINALLY, THAT FOR A PERSON Manner of Giving Refund (§ 112, E)-
MAKING SALES THAT ARE ZERO-RATED UNDER Refunds shall be made upon warrants drawn by
SECTION 108 (B)(6), THE INPUT TAXES SHALL the Commissioner or by his duly authorized
BE ALLOCATED RATABLY BETWEEN HIS ZERO- representative without the necessity of being
RATED AND NON-ZERO-RATED SALES. countersigned by the Chairman, Commission on
[AMENDED] audit, the provisions of the Administrative Code
of 1987 to the contrary notwithstanding:
(B) Capital Goods. - A VAT-registered person Provided, That refunds under this paragraph shall
may apply for the issuance of a tax credit be subject to post audit by the Commission on
certificate or refund of input taxes paid on capital Audit.
goods imported or locally purchased, to the
extent that such input taxes have not been Notes from RR 16-2005:
applied against output taxes. The application may
be made only within two (2) years after the close Apportionment of Input Tax on Mixed
of the taxable quarter when the importation or Transactions. — A VAT-registered person who is
purchase was made. [DELETED] also engaged in transactions not subject to VAT
shall be allowed to recognize input tax credit on
Cancellation of VAT Registration. (§ 112, C) transactions subject to VAT as follows:
A person whose registration has been cancelled 1. All the input taxes that can be directly
due to retirement from or cessation of attributed to transactions subject to VAT may
business, or due to changes in or cessation of be recognized for input tax credit; Provided,
status under Section 106(C) of this Code may, that input taxes that can be directly
within two (2) years from the date of attributable to VAT taxable sales of goods
cancellation, apply for the issuance of a tax and services to the Government or any of its
credit certificate for any unused input tax which political subdivisions, instrumentalities or
may be used in payment of his other internal agencies, including government-owned or
revenue taxes. controlled corporations (GOCCs) shall not be
Provided, however, that he shall be entitled to a credited against output taxes arising from
refund if he has no internal revenue tax sales to non-Government entities; and
liabilities against which the tax credit certificate 2. If any input tax cannot be directly attributed
may be utilized. to either a VAT taxable or VAT-exempt
transaction, the input tax shall be pro-rated
Where to file the claim for refund/tax credit to the VAT taxable and VAT-exempt
certificate (§ 112, D) transactions and only the ratable portion
Claims for refunds/tax credit certificate shall be pertaining to transactions subject to VAT may
filed with the appropriate BIR office (Large be recognized for input tax credit.
Taxpayers Service (LTS) or Revenue District
Office (RDO)) having jurisdiction over the Illustration: ERA Corporation has the following
principal place of business of the taxpayer; sales during the month:
Provided, however, that direct exporters may
also file their claim for tax credit certificate with Sale to private entities subject to 12% 100,000.00
the One Stop Shop Center of the Department of Sale to private entities subject to 0% 100,000.00
Finance; Provided, finally, that the filing of the Sale of exempt goods 100,000.00
claim with one office shall preclude the filing of Sale to gov't. subjected to 5% final
the same claim with another office. VAT w/holding 100,000.00
Total sales for the month 400,000.00
Period within which refund or tax credit
certificate/refund of input taxes shall be The following were its input taxes (or passed on
made by its VAT suppliers):
(§ 112, D) Input tax on taxable goods (12%) 5,000.00
Input tax on zero-rated sales 3,000.00

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 TAXATION LAW 2

Input tax on sale of exempt goods 2,000.00 All creditable input taxes29 xxx
Input tax on sale to government 4,000.00 (as illustrated in the previous example
Input tax on depreciable capital good to be P18K) during the month or quarter
not attributable to any specific activity
any amount of input tax carried-over xxx
(monthly amortization for 60 months) 20,000.00
from the preceding month or quarter

A. The creditable input tax for the month shall Less:

be computed as follows: amount of claim for VAT refund
Input tax on sale subject to 12% P5,000.00 or tax credit certificate
Input tax on zero-rated sale (whether filed with the BIR,
3,000.00 the Department of Finance,
Ratable portion of the input tax not directly the Board of Investments, BOC) (xxx)
attributable to any activity, computed below
other adjustments (purchases returns
or allowances) (xxx)
Taxable sales (0% and 12%) X Amount of
——————————— input tax xxx
Total Sales not directly
attributable
VIII. SUBSTANTIATION REQUIREMENTS
P200,000.00
—————----- X P20,000.00 = P10,000.00 RR 16-2005: Substantiation of Input Tax
400,000.00 Credits

Total creditable input tax for the month (a) INPUT TAXES must be substantiated and
(P5,000+ P3,000 +P10,000) P18,000.00 supported by the following documents, and must
be reported in the information returns required
B. The input tax attributable to sales to to be submitted to the Bureau:
government for the month shall be computed as (1) For the importation of goods — import
follows: entry or other equivalent document showing
actual payment of VAT on the imported
Input tax on sale to gov't. P4,000.00 goods.
(2) For the domestic purchase of goods
Ratable portion of the input tax not directly and properties— invoice showing the
attributable to any activity, computed as follows: information required under Secs. 113 and
237 of the Tax Code.
Taxable sales to government X Amount of (3) For the purchase of real property —
——————————— input tax public instrument i.e., deed of absolute
Total Sales not directly sale, deed of conditional sale,
attributable contract/agreement to sell, etc., together
with VAT invoice issued by the seller.
P100,000.00 X P20,000.00 = P5,000.00 (4) For the purchase of services— official
————— receipt showing the information required
400,000.00 under Secs. 113 and 237 of the Tax Code.
A cash register machine tape issued to a
Total input tax attributable to sales to registered buyer shall constitute valid proof
government P9,000.00 (P4,000 + P5,000) of substantiation of tax credit only if it shows
– These amounts are not available for input tax the information required under Secs. 113 and
credit but may be recognized as cost or expense. 237 of the Tax Code.
That is because as far as sales to government are
concerned, there is a VAT that is finally withheld (b) TRANSITIONAL INPUT TAX shall be supported
(at 5%). by an inventory of goods as shown in a
detailed list to be submitted to the BIR.
C. The input tax attributable to VAT-exempt
sales for the month shall be computed as follows: (c) Input tax on "deemed sale" transactions shall
Input tax on VAT-exempt sales P2,000.00 be substantiated with the invoice required
Ratable portion of the input tax not directly (please refer to the table on page 46).
attributable to any activity, computed below:
(d) Input tax from payments made to non-
VAT-exempt sales X Amount of residents (such as for services, rentals and
——————— input tax royalties) shall be supported by a copy of the
Total Sales not directly attributable Monthly Remittance Return of Value Added Tax
Withheld (BIR Form 1600) filed by the resident
P100,000.00 X P20,000.00 = P5,000.00 payor in behalf of the non-resident evidencing
—————--- remittance of VAT due which was withheld by the
400,000.00 payor.

Total input tax attributable to P7,000.00 (e) Advance VAT on sugar shall be supported by
VAT-exempt sales (P2,000+ P5,000) the Payment Order showing payment of the
- These amounts are not available for input tax advance VAT.
credit but may be recognized as cost or expense.

29
Determination of Input Tax Creditable Remember, this does NOT include input tax attributable to
exempt sales, and input tax attributable to sales subject to final
during a Taxable Month or Quarter. — withholding VAT

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IX. INVOICING REQUIREMENTS (§ 113) Invoicing & Recording Deemed Sale

Transactions.
A VAT-registered person shall issue: Transaction Invoicing
(1) A VAT invoice for every sale, barter or Requirement
exchange of goods or properties; and Transfer, use or Memorandum entry in
(2) A VAT official receipt for every lease of consumption not in the subsidiary sales
goods or properties, and for every sale, the course of business journal to record
barter or exchange of services. of goods or properties withdrawal of goods for
originally intended for personal use
Information Contained in the VAT Invoice or sale or for use in the
VAT Official Receipt: course of business
(1) A statement that the seller is a VAT- Distribution or Invoice, at the time of
registered person, followed by his taxpayer's transfer to the transaction, which
identification number (TIN); shareholders/investors should include all the
(2) The total amount which the purchaser pays or or creditors info prescribed in Sec.
is obligated to pay to the seller with the 113(B)
indication that such amount includes the Consignment of goods Invoice, at the time of
value-added tax: Provided, That: if actual sale is not the transaction, which
(a) The amount of the tax shall be shown as made within 60 days should include all the
a separate item in the invoice or receipt; info prescribed in Sec.
(b) If the sale is exempt from value-added 113(B)
tax, the term "VAT-exempt sale" shall be
written or printed prominently on the Retirement from or An inventory shall be
invoice or receipt; cessation of business prepared and submitted
(c) If the sale is subject to zero percent with respect to all to the RDO who has
(0%) value-added tax, the term "zero- goods on hand jurisdiction over the
rated sale" shall be written or printed taxpayer’s principal
prominently on the invoice or receipt; place of business not
(d) If the sale involves goods, properties or later than 30 days after
services some of which are subject to retirement or cessation
and some of which are VAT zero-rated or from the business. An
VAT-exempt, the invoice or receipt shall invoice shall be prepared
clearly indicate the breakdown of the for the entire inventory,
sale price between its taxable, exempt which shall be the basis
and zero-rated components, and the of the entry into the
calculation of the value-added tax on subsidiary sales journal.
each portion of the sale shall be shown The invoice need not
on the invoice or receipt: "Provided, That enumerate the specific
the seller may issue separate invoices or items appearing in the
receipts for the taxable, exempt, and inventory regarding the
zero-rated components of the sale. description of the goods.
(3) The date of transaction, quantity, unit cost If the business is to be
and description of the goods or properties or continued by the new
nature of the service; and owners or successors,
(4) In the case of sales in the amount of one the entire amount of
thousand pesos (P1,000) or more where the output tax on the
sale or transfer is made to a VAT-registered amount deemed sold
person, the name, business style, if any, shall be allowed as input
address and taxpayer identification number taxes.
(TIN) of the purchaser, customer or client.
…xxx…. X. ACCOUNTING REQUIREMENTS (§ 113, B)

Notes from RR 16-2005: Notwithstanding the provisions of Section 233, all

persons subject to VAT under Sections 106 and
Only VAT-registered persons are required to print 108 shall, in addition to the regular accounting
their TIN followed by the word "VAT" in their records required, maintain a subsidiary sales
invoice or official receipts. Said documents shall journal and subsidiary purchase journal on
be considered as a "VAT Invoice" or VAT official which the daily sales and purchases are recorded.
receipt. All purchases covered by The subsidiary journals shall contain such
invoices/receipts other than VAT Invoice/VAT information as may be required by the Secretary
Official Receipt shall not give rise to any input of Finance.
tax. ...xxx….
VAT invoice/official receipt shall be prepared at
least in duplicate, the original to be given to the RR 16-2005: A subsidiary record in ledger
buyer and the duplicate to be retained by the form shall be maintained for the acquisition,
seller as part of his accounting records. purchase or importation of depreciable assets or
capital goods which shall contain, among others,
information on the total input tax thereon as well
as the monthly input tax claimed in VAT
declaration or return.

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XI. CONSEQUENCES OF ISSUING The cancellation of registration will be

ERRONEOUS VAT INVOICE OR VAT effective from the first day of the
OFFICIAL RECEIPT (§ 113, D) following month.
[Added by RA 9337] Persons Required to Register for VAT (§ 236,
G)
(1) If a person who is not a VAT-registered
person issues an invoice or receipt showing (1) Any person who, in the course of trade or
his Taxpayer Identification Number (TIN), business, sells, barters or exchanges goods
followed by the word "VAT": or properties, or engages in the sale or
(a) The issuer shall, in addition to any exchange of services, shall be liable to
liability to other percentage taxes, be liable register for Value-added tax if:
to: (a) His gross sales or receipts for the
(i) The tax imposed in Section 106 or past twelve (12) months, other than
108 without the benefit of any input tax those that are exempt under section 109
credit; and (a) to (u), have exceeded One million five
(ii) A 50% surcharge under Section 248 hundred thousand pesos (P1,500,000);
(B) of this code; or
(b) The VAT shall, if the other requisite (b) There are reasonable grounds to
information required under Subsection (B) believe that his gross sales or receipts for
hereof is shown on the invoice or receipt, the next twelve (12) months, other than
be recognized as an input tax credit to the those that are exempt under Section 109
purchaser under Section 110 of this Code. (A) to (U), will exceed one million five
(2) If a VAT-registered person issues a VAT hundred thousand pesos (P1,500,000).
invoice or VAT official receipt for a VAT- (2) Every person who becomes liable to be
exempt transaction, but fails to display registered under paragraph (1) of this
prominently on the invoice or receipt the Subsection shall register with the Revenue
term "VAT-exempt Sale", the issuer shall be District Office which has jurisdiction over the
liable to account for the tax imposed in head office or branch of that person, and
Section 106 or 108 as if Section 109 did not shall pay the annual registration fee
apply. prescribed in Subsection (B) hereof. If he
fails to register, he shall be liable to pay the
Transitional Period (§ 113, E) - tax under Title IV as if he were a VAT-
Notwithstanding Subsection (B) hereof, taxpayers registered person, but without the benefit of
may continue to issue VAT invoices and VAT input tax credits for the period in which he
official receipts for the period July 1, 2005 to was not properly registered.
December 31, 2005, in accordance with Bureau
of Internal Revenue administrative practices that Optional Registration for Value-added Tax of
existed as of December 31, 2004. Exempt Person. (§ 236, H)
(1) Any person who is not required to
Under sub-par(2), clarification: If a VAT- register for Value-added tax under
registered person issues a VAT invoice or VAT Subsection (G) hereof may elect to register
official receipt for a VAT-exempt transaction, but for Value-added tax by registering with the
fails to display prominently on the invoice or Revenue District Office that has jurisdiction
receipt the words "VAT-exempt sale", the over the head office of that person, and
transaction shall become taxable and the issuer paying the annual registration fee in
shall be liable to pay VAT thereon. The purchaser Subsection (B) hereof.
shall be entitled to claim an input tax credit on (2) Any person who elects to register under
his purchase. (RR 16-2005) this Subsection shall not be entitled to cancel
his registration under Subsection (F)(2) for
XIII. REGISTRATION REQUIREMENTS (§ 236, F) the next three (3) years.
For purposes of Title IV of this Code, any
Cancellation of Registration. - person who has registered value-added tax
(1) General Rule. - The registration of any as a tax type in accordance with the
person who ceases to be liable to a tax provisions of Subsection (C) hereof shall be
type shall be cancelled upon filing with the referred to as a "VAT-registered person" who
Revenue District Office where he is shall be assigned only one Taxpayer
registered, an application for registration Identification Number (TIN). … xxx….
information update in a form prescribed (amended by RA 9337)
therefor;

(2) Cancellation of VAT Registration. - IF RR 16-2005:

(a) He makes written application and can
demonstrate to the Commissioner's Annual registration fee = P500.00
satisfaction that his gross sales or
receipts for the following twelve (12) Once registered as a VAT person, the taxpayer
months, other than those that are shall be liable to output tax and be entitled to
exempt under Section 109 (A) TO (U), input tax credit beginning on the first day of the
will not exceed One million five hundred month following registration.
thousand pesos (P1,500,000); or
(b) He has ceased to carry on his trade or Non-VAT or VAT-exempt persons are also
business, and does not expect to required to register as NON-VAT persons and pay
recommence any trade or business the annual registration fee of P500.00 for every
within the next twelve (12) months. separate or distinct establishment or place of
business before the start of such business and

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 TAXATION LAW 2

every year thereafter on or before the 31st day of * quarterly return of the amount of his gross
January. Individuals engaged in business where sales or receipts within twenty-five (25) days
the gross sales or receipts do NOT exceed after the close of each taxable quarter30
P100,000.00 during any 12-month period, and prescribed for each taxpayer:
cooperatives other than electric cooperatives, are NOTE: VAT paid on a monthly basis31
required to register but will not be made to pay
the P500.00 fee. Short Period Return
Franchise grantees of radio and television Any person, whose registration has been
broadcasting whose gross annual receipt for the cancelled in accordance with Section 236, shall
preceding calendar year exceeded P10M shall file a return and pay the tax due thereon within
register within 30 days from the end of the twenty-five (25) days from the date of
calendar year. Franchise grantees of the same cancellation of registration:
whose annual gross receipts do not exceed P10M Provided, That only one consolidated return shall
derived from the business covered by the law be filed by the taxpayer for his principal place of
granting the franchise may opt for VAT business or head office and all branches.32
registration. This option, once exercised, shall be
irrevocable (as opposed to VAT-exempt persons, Persons Required to Submit Summary Lists
in general, who choose to be VAT-registered, in of Sales/Purchases. —
which case VAT registration cannot be cancelled (1) Persons Required to Submit Summary Lists of
for 3 years only). Sales. — All persons liable for VAT such as
manufacturers, wholesalers, service-providers,
Any person who is VAT-registered but enters into among others, with quarterly total sales/receipts
transactions which are exempt from VAT (mixed (net of VAT) exceeding Two Million Five Hundred
transactions) may opt that the VAT apply to his Thousand Pesos (P2,500,000.00).
transactions which would have been exempt. (2) Persons Required to Submit Summary Lists of
Purchases. — All persons liable for VAT such as
Cancellation of VAT registration: manufacturers, service-providers, among others,
A VAT-registered person may cancel his with quarterly total purchases (net of VAT)
registration for VAT as provided for in Sec. 236 exceeding One Million Pesos (P 1,000,000.00).
(F) (2), and also in the following instances:
1. A change of ownership, in the case of a When and Where to File the Summary Lists of
single proprietorship; Sales/Purchases.
2. Dissolution of a partnership or corporation; shall be submitted in diskette form to the RDO or
3. Merger or consolidation with respect to the LTDO or LTAD having jurisdiction over the
dissolved corporation(s); taxpayer, on or before the twenty-fifth (25th)
4. A person who has registered prior to day of the month following the close of the
planned business commencement, but failed taxable quarter (VAT quarter. However,
to actually start his business taxpayers under the jurisdiction of the LTS, and
those enrolled under the EFPS, shall, through
Some instances where taxpayer will update his electronic filing facility submit their Summary List
registration by submitting a duly accomplished of Sales/Purchases to the RDO/LTDO/LTAD, on or
Registration Update Form: before the thirtieth (30th) day of the month
1. A person's business has become exempt in following the close of the taxable quarter.
accordance with Sec. 109
2. A change in the nature of the business itself Information that Must be Contained in the
from sale of taxable goods and/or services to Quarterly Summary List of Sales to be
exempt sales and/or services; Submitted: the monthly total sales generated
3. A person whose transactions are exempt from regular buyers/customers, regardless of the
from VAT who voluntarily registered under amount of sale per buyer/customer, as well as
VAT system, who after the lapse of three from casual buyers/customers with individual
years after his registration, applies for
cancellation of his registration as such; and
30
4. A VAT-registered person whose gross sales or The term "taxable quarter" shall mean the quarter
receipts for three consecutive years did not that is synchronized to the income tax quarter of the
exceed P1,500,000.00 beginning July 1, taxpayer (i.e., the calendar quarter or fiscal quarter).
2005, which amount shall be adjusted to its [RR 16-2005]
31
present value every three years using the The monthly VAT Declarations (BIR Form 2550M) of
Consumer Price Index, as published by the taxpayers whether large or non-large shall be filed and
NSO. the taxes paid not later than the 20th day following the
Upon updating his registration, the taxpayer shall end of each month.
become liable to the percentage tax imposed in The return for withholding of VAT shall be filed and the
withholding VAT paid on or before the tenth (10th) day
Sec. 116 of the Tax Code. A short period return
of the following month. [RR 16-2005]
for the remaining period that he was VAT-
registered shall be filed within twenty five (25) 32
Any person who retires from business with due notice
days from the date of cancellation of his
to the BIR office where the taxpayer (head office) is
registration. registered or whose VAT registration has been cancelled
shall file a final quarterly return and pay the tax due
thereon within twenty five (25) days from the end of
XIV. FILING OF RETURNS & PAYMENT OF VAT the month when the business ceases to operate or
when VAT registration has been officially cancelled;
VAT RETURNS(§ 114) Provided, however, that subsequent monthly
declarations/quarterly returns are still required to be
filed if the results of the winding up of the
- Filed by person liable to pay the VAT
affairs/business of the taxpayer reveal taxable
transactions. [RR 16-2005]

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 TAXATION LAW 2

sales amounting to P100,000.00 or more. For this For the claimed input tax arising from services
purpose, the term "regular buyers/customers" rendered in the Philippines by nonresidents, no
shall refer to buyers/customers who are engaged summary list is required to be submitted.
in business or exercise of profession AND those
with whom the taxpayer has transacted at least 6 Once any of the taxable quarters total sales
transactions regardless of amount per transaction and/or purchases exceed the threshold amounts
either in the previous year or current year. The as provided above, VAT taxpayer shall be
term "casual buyers/customers", on the other required to submit the summary lists for the next
hand, shall refer to buyers/customers who are 3 succeeding quarters, regardless of whether or
engaged in business or exercise of profession not such succeeding taxable quarter sales and/or
BUT did not qualify as regular buyers/customers purchases exceed the herein set threshold
as defined in the preceding statement. amounts of P2,500,000.00 for sales and
P1,000,000.00 for purchases.
The Quarterly Summary List of Sales to Regular
Buyers/Customers and Casual Buyers/Customers Penalties in case of failure to submit quarterly
and Output Tax shall reflect the following: summary list of sales and purchases.
(1) BIR-registered name of the buyer who is A person who fails to file, keep or supply
engaged in business/exercise of profession; a statement, list, or information required herein
(2) TIN of the buyer (Only for sales that are on the date prescribed therefor shall pay, upon
subject to VAT); notice and demand by the Commissioner of
(3) Exempt Sales; Internal Revenue, an administrative penalty of
(4) Zero-rated Sales; P1,000.00 for each such failure, unless it is
(5) Sales Subject to VAT (exclusive of VAT); shown that such failure is due to reasonable
(6) Sales Subject to Final VAT Withheld; and cause and not to willful neglect. For this
(7) Output Tax (VAT on sales subject to 10%). purpose, the failure to supply the required
(The total amount of sales shall be system- information for each buyer or seller of goods and
generated) services shall constitute a single act or omission
punishable hereof. However, the aggregate
Information that must be Contained in the amount to be imposed for all such failures during
Quarterly Summary List of Purchases a taxable year shall not exceed P25,000.00.
(1) The Quarterly Summary List of Local In addition to the imposition of the
Purchases and Input Tax administrative penalty, willful failure by such
a. BIR-registered name of the person to keep any record and to supply the
seller/supplier/service-provider; correct and accurate information at the time or
b. Address of seller/supplier/service- times as required herein, shall be subject to the
provider; criminal penalty under the relevant provisions
c. TIN of the seller; of the Tax Code (e.g., Sec. 255, Sec. 256, etc.,),
d. Exempt Purchases; upon conviction of the offender.
e. Zero-rated Purchases; The imposition of any of the penalties under the
f. (i) Purchases Subject to VAT (exclusive of Tax Code and the compromise of the criminal
VAT) — on services; penalty on such violations, notwithstanding, shall
(ii) Purchases Subject to VAT (exclusive not in any manner relieve the violating taxpayer
of VAT) — on capital goods; and from the obligation to submit the required
(iii) Purchases Subject to VAT (exclusive documents.
of VAT) — on goods other than capital goods Finally, the administrative penalty shall be
(iv) Purchases Subject to Final VAT imposed at all times, upon due notice and
Withheld demand by the Commissioner of Internal
g. Creditable Input Tax; and (to be Revenue. A subpoena duces tecum for the
computed not on a per supplier basis submission of the required documents shall be
but on a per month basis) issued on the second offense. A third offense
h. Non-Creditable Input Tax (to be shall set the motion for a criminal prosecution of
computed not on a per supplier basis the offender.
but on a per month basis)
(The total amount of purchases shall be
system-generated) XV. ENFORCEMENT MEASURES
(2) The Quarterly Summary List of
Importations. — RR 16-2005:
(a) The import entry declaration number; Administrative and Penal Provisions. —
(b) Assessment/Release Date;
(c) The date of importation; (a) Suspension of business operations. — In
(d) The name of the seller; addition to other administrative and penal
(e) Country of Origin; sanctions provided for in the Tax Code and
(f) Dutiable Value; implementing regulations, the Commissioner of
(g) All Charges Before Release From Internal Revenue or his duly authorized
Customs' Custody; representative may order suspension or closure
(h) Landed cost: of a business establishment for a period of not
(i) Exempt; less than five (5) days for any of the following
(ii) Taxable (Subject to VAT); violations:
(i) VAT paid; (1) Failure to issue receipts and invoices.
(j) Official Receipt (OR) Number of the OR (2) Failure to file VAT return as required
evidencing payment of the tax; and under the provisions of Sec. 114 of the Tax
(k) Date of VAT payment Code.
(3) Understatement of taxable sales or
receipts by 30% or more of his correct

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 TAXATION LAW 2

taxable sales or receipt for the taxable III. PERCENTAGE TAXES

quarter.
(4) Failure of any person to register as
TAX ON PERSONS EXEMPT FROM VAT (Sec.
required under the provisions of Sec. 236 of
116, NIRC)
the Tax Code.
• 3% of gross quarterly sales or receipts.
(b) Surcharge, interest and other penalties.
Q: Who are liable?
— The interest on unpaid amount of tax, civil
GENERAL RULE: Any person who are exempt
penalties and criminal penalties imposed in Title
from VAT and who is not a VAT-registered
XI of the Tax Code shall also apply to violations
person.
of the provisions of Title IV of the Tax Code.
§ Those whose gross annual sales and
receipts does not exceed P1.5M are
exempted from VAT
EXCEPTION:
• Cooperatives shall be exempt from the
3% GRT.
• Those earning LESS THAN P100,000
which is neither covered by percentage
tax nor by VAT.

TAX ON DOMESTIC CARRIERS AND KEEPERS

OF GARAGES (Sec. 117, NIRC)
• 3% of quarterly gross receipts
• Gross receipts of common carriers
derived from INCOMING and OUTGOING
freight is NOT subject to local taxes
under the Local Gov’t Code.

Q: Who are covered? (ReCoLaKe no BA)

1. Cars for Rent or hire driven by lessee;
2. Transportation Contractors, including
persons who transport passengers for
hire;
3. Other domestic carriers by LAND;
4. Keepers of garages.
EXCEPT:
1. Owners of Bancas
2. Owners of Animal-drawn two-wheeled
vehicles

Minimum quarterly gross receipts:

Jeepneys
Manila and other cities P2,400
Provincial P1,200
Public Utility Bus
Not exceeding 30 passengers P3,600
> 30 but not > 50 passengers P6,000
Exceeding 50 passengers P7,200
Taxis
Manila and other cities P3,600
Provincial P2,400
Car for hire (with chauffeur) P3,000
Car for hire (w/o chauffeur) P1,800

TAX ON INTERNATIONAL CARRIERS (Sec.

118, NIRC)
• 3% of their quarterly gross receipts.
• To be subject to this percentage tax, they
MUST BE DOING BUSINESS IN THE
PHILIPPINES.

Q: Who are liable?

1. International air carriers
2. International shipping carriers
• Amendment introduced by RA 9337 (July
2005):

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 TAXATION LAW 2

4. News services (which deals EXCLUSIVELY

with the collection of news and
Common Transporting Kind of Tax dissemination to the public)
carrier carrier Liability
By land Persons Domestic 3%, Sec. TAX ON BANKS AND NON-BANK FINANCIAL
117 INTERMEDIARIES PERFORMING QUASI-
Goods/cargo Domestic 12% VAT
BANKING FUNCTIONS (Sec. 121, NIRC)
By sea Domestic Domestic
tax on gross receipts derived from sources within
trip - 12%
VAT the Philippines by all banks and non-bank
International financial intermediaries
trip – zero-
rated Definitions (from RR 09-04, Sec 2):
Whether International 3%, Sec.
transporting 118 Non-bank Financial Intermediaries refer to
By air persons or Domestic Domestic persons or entities whose principal functions
goods/cargo flight - 12% include the lending, investing or placement of
VAT
funds or evidences of indebtedness or equity
International
flight –
Deposited with them, Acquired by them or
zero-rated otherwise Coursed through them, either for their
International 3%, Sec. own account or for the account of others. (LIP –
118 DAC)

TAX ON FRANCHISES (Sec. 119) Quasi-banking Activities refer to the borrowing

of funds from 20 or more personal or corporate
Q: Who are liable? lenders at any one time for purposes of relending
1. Radio and broadcasting companies or purchasing receivables and other similar
a. annual gross receipts of the obligations.
preceding year does not exceed
P10M Exception:
b. 3% of gross receipts derived from If borrowing of funds is for LIMITED PURPOSE of
business covered by law granting the financing their own needs or the needs of their
franchise. agents or dealers.
c. The franchisee has the option to
register as VAT taxpayer and pay the Receipts Maturity Rate
VAT instead. 1. interest, commissions, maturity 5%
d. once option is exercised, it is discounts from lending period is 5yrs
IRREVOCABLE. activities and financial or less
leasing bases on
2. Electric, gas and water utilities remaining maturities of maturity 1%
2% of gross receipts derived from business instruments: period is
covered by the law granting the franchise. more than
5yrs
* Under RA 9337, electric companies are now 2. dividends & equity 0%
subject to VAT and not percentage tax. shares in net income of
subsidiaries
OVERSEAS COMMUNICATIONS TAX (Sec. 3. royalties, rentals of 7%
120) property (real/personal),
• 10% of the amount paid for the services. profits from exchange and
• Levied upon EVERY overseas dispatch, all other items treated as
message or conversation TRANSMITTED gross income under sec.
FROM THE PHILIPPINES by: 32)
- telephone 4. net trading gains on 7%
- telegraph foreign currency, debt
- telewriter exchange securities, derivatives &
- wireless other similar financial
- other communication equipment instruments
services. [Note: rates in #s 3 & 4 are as amended by RA
9337]
Q: Who are liable?
Payable by: the person paying for the services COMPUTING FOR THE NET TRADING GAINS:
rendered
Payable to: the person rendering the service, Cumulative Total of the net trading gain/loss
who will in turn pay the taxes at the end of since the first month of the applicable taxable
the quarter. year
LESS: figures already reflected in the previous
Q: Who are exempted? (D’ GIN) months of the same year
1. Government and any of its political FIGURE TO BE REPORTED IN THE MONTHLY
subdivisions and instrumentalities; PERCENTAGE TAX
2. Diplomatic services (any embassy and
consular offices of a foreign gov’t) Net Trading Loss
3. International Organizations (if bases in - may only be deducted from the net trading
the Phils. and enjoying privileges, gain to arrive at the total gross receipts tax
exemptions and immunities pursuant to due.
an international agreement)

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- cannot be deducted on net trading gain 1. Premiums Refunded within 6 months after
earned on any taxable year other than the payment on account of rejection of risks
year it was incurred 2. Premiums paid upon reinsurance by a
- may not be carried over to the succeeding company that has Already paid the tax.
taxable year. 3. Premiums collected or received by any
branch of a domestic corporation, firm or
association doing business OUTSIDE the
RULE ON PRETERMINATION: Phils. on account of any life insurance of
In case the maturity period of an instrument the insured who is a NON-RESIDENT, if any
is shortened by pretermination, the maturity tax on such premiums is imposed by the
period shall be reckoned to end as of the foreign country where the branch is
date of pretermination for purposes of established.
classifying the transaction and applying the 4. Premiums collected or received on account
correct rate of tax. (RR 09-04, Sec. 5) of any reinsurance, if the insured of
personal insurance, RESIDES OUTSIDE THE
CASE LAW: China Bank v. CTA (GR 146749, PHILS., if any tax on such premiums is
June 10, 3003) – The 20% withholding tax on imposed by the foreign country where the
interest income shall form part of the gross original insurance has been issued or
receipts in computing gross receipts tax on perfected.
banks. ‘Gross Receipts’ is commonly understood 5. Portions of premiums collected or received
as the entire receipts without any deductions. by insurance companies on VARIABLE
CONTRACTS in excess of the amounts
TAX ON OTHER NON-BANK FINANCE necessary to insure the lives of variable
INTERMEDIARIES (Sec. 122, NIRC) contract owners.
• tax on gross receipts derived by other non-
bank finance intermediaries, DOING Variable Contracts —benefits under the
BUSINESS IN THE PHILIPPINES, from: contract vary as to reflect investment results of
- interest any segregated portfolios of investments.
- commissions (PD612)
- discounts from lending activities
- financial leasing CASE LAW: CIR v. Insular Life Assurance (CA
• tax is based on the remaining maturities of GR SP 46516) – MUTUALIZED LIFE INSURANCE
the instruments from which receipts are COMPANY is not subject to premium tax or DST
derived on policies as cooperatives. If a mutualized
MATURITY RATES life insurance company satisfies all the
maturity period is 5 5% elements of ‘cooperative’ [1. managed by
yrs or less members; 2. operated with money collected from
maturity period is 3% members; 3. has for its main purpose the mutual
more than 5 yrs protection of members and not for profit] as
defined in Sec. 123, it shall not be subject to
[Note: The same rule on pretermination applies.] premiums tax.

However, RR 10-2004 has classified TAX ON AGENTS OF FOREIGN INSURANCE

pawnshops as under “NON-BANK FINANCIAL COMPANIES (Sec. 124, NIRC)
INTERMEDIARIES”, thus are now subject to 5%
gross receipts tax. The revenue regulation also • 10% of total premiums collected.
required pawnshops to register, from VAT
taxpayers, as percentage taxpayers. Q: Who are liable?
GENERAL RULE: Tax shall be levied upon every
TAX ON LIFE INSURANCE PREMIUMS (Sec. FIRE, MARINE OR MISCELLANEOUS INSURANCE
123, NIRC) AGENT authorized to procure policies of insurance
as he may have previously been legally
• 5% of total premiums collected (whether authorized to transact on risks located in the
in money, notes, credits or any substitute Phils FOR COMPANIES NOT AUTHORIZED TO
for money). TRANSACT BUSINESS IN THE PHILS.
EXCEPTION: Premiums paid on reinsurance.
Q: Who are liable?
GENERAL RULE: Every person, company or • where an owner of property obtains
corporation DOING LIFE INSURANCE BUSINESS insurance DIRECTLY from foreign insurance
OF ANY SORT IN THE PHILIPPINES. companies NOT authorized to transact
EXCEPTION: Purely cooperative companies or insurance business in the Phils., he shall pay
associations. a tax of 5% on the premiums paid.

Cooperative companies or associations are AMUSEMENT TAXES (Sec. 125, NIRC)

such as are
§ conducted by the members thereof Q: Who are liable?
§ with the money collected from among The proprietor, lessee or operator of cockpits,
themselves and cabarets, night or day clubs, boxing exhibitions,
§ solely for their own protection and professional basketball games, Jai-Alai and
§ NOT for profit. racetracks.

PREMIUMS NOT INCLUDED IN THE TAXABLE Q: When to pay?

RECEIPTS: V- ROAR

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 TAXATION LAW 2

§ return should be filed and tax paid within • covers sale, barter, exchange of shares of
20 days after the end of every stock of CLOSELY HELD CORPORATIONS
quarter • tax shall be paid by the issuing
§ corporation in the primary offering or by
SOURCE RATES the seller in the secondary offering
Cockpits 18% • tax base is the GSP/GVM
cabarets, night or day clubs 18% • levied in accordance with the proportion
boxing exhibitions 10% of shares sold, bartered, exchanged or
professional basketball games (in 15% disposed, to the total outstanding shares
lieu of all other percentage taxes) after the listing in the local stock
Jai-Alai & racetracks (WON they 30% exchange:
charge for admissions)
NUMBER OF SHARES RATES
EXEMPTION: If boxing exhibition is a World or up to 25% of all 4% GSP/GVM
Oriental Championship in any division featuring shares
at least 1 Filipino contender and promoted >25% but not over 2% GSP/GVM
by a Filipino or by a corporation with at 33.33%
least 60% Filipino equity. Over 33.33% 1% GSP/GVM
Closely Held Corporation—any corporation at
Tax Base: GROSS RECEIPTS least 50% in value of the outstanding capital
n it embraces ALL the receipts of the stock or at least 50% of the total combined
proprietor, lessee or operator of the voting power of all classes of stock entitled to
amusement place; including income from vote is owned directly or indirectly by or for
TV, radio and motion picture rights. not more than 20 individuals.

RMC 08-88 transferred the EXCLUSIVE Rules to be applied to determine whether the
JURISDICTION to levy tax on gross receipts from corporation is closely held:
ADMISSIONS to places of amusement to the 1. Stock owned directly or indirectly by
local government. corporations, partnerships, estates or trusts
shall be considered as actually owned by
TAX ON WINNINGS (Sec. 126, NIRC) its stockholders, partners or
beneficiaries in proportion to their shares as
Q: Who are liable? individuals.
1. every person who wins in horse races 2. An individual is considered the constructive
2. owners of winning race horses owner of the stock owned by members of his
family (includes only brothers and sisters—
SOURCE RATES whole/half-blood, spouse, ancestors and
winnings or dividends (bases on the 10% lineal descendants)
actual amount paid to winner for 3. A person having an option to acquire stock
every winning ticket AFTER is considered the actual owner of such stock
deducting the cost of the ticket)
winnings from double, 4% C. Return on Capital Gains realized from sale of
forecast/quinella and trifecta bets Shares of Stocks
prizes, in case of owners of race 10% 1. return on capital gains realized from sale
horses of shares of stock listed and traded in the
local stock exchange
• tax shall be WITHHELD by the operator, • it is the duty of every stockbroker who
manager or person in charge of the horse effected the sale to collect the tax and
races before paying the dividends or remit it to the BIR within 5 banking days
prizes from date of collection and to submit to
• return shall be filed and tax paid within the secretary of the stock exchange a
20 days from the date tax was deducted true and complete return
and withheld
2. return on public offerings of shares of
TAX ON SALE, BARTER OR EXCHANGE OF stocks
SHARES OF STOCK LISTED AND TRADED • the corporate issuer shall file the return
THROUGH THE LOCAL STOCK EXCHANGE OR and pay the tax within 30days from the
THROUGH INITIAL PUBLIC OFFERING (IPO) date of listing of the shares in the local
(Sec. 127, NIRC) stock exchange.

A. Through the Local Stock Exchange [Note: Both IPOs and sales of stock through
• ½ of 1% of the GROSS SELLING PRICE the local exchange are EXEMPT from capital
or GROSS VALUE IN MONEY (GSP/GVM) gains tax and from regular individual or
of the shares of stocks sold, bartered, corporate income tax. Also, such tax is not
exchanged or otherwise disposed of deductible from income tax.]
through the local stock exchange OTHER
THAN THE SALE BY A DEALER IN PAYMENT OF PERCENTAGE TAXES
SECURITIES.
• Tax shall be paid by seller or Q: When to file return and pay?
transferor. Persons subject to percentage taxes shall file
a QUARTERLY RETURN and PAY the tax due
B. Through IPO within 25 days after the end of each taxable
quarter. (Sec. 128 (A)(1), NIRC)

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However, RR 6-2001 has changed the IV. EXCISE TAX

period from 25 days after end of quarter to
Goods Subject to Excise Tax
10 days after end of the month.
(Sec. 129, NIRC)
• Goods manufactured or produced in the
Exception: Persons…
Philippines for domestic sale or consumption
• whose VAT registration is cancelled and
or other disposition
become liable under Sec 116
• Things imported
- liable for the tax due from the
NOTE:
date of cancellation of
• Excise tax is imposed in addition to VAT.
registration.
• The tax attaches even on articles illicitly
• retiring from business
made, or the production of which is
- must file a return and pay within
prohibited or punished by law.
20 days from closing of the
business.
Two Classifications of Excise Tax:
• Specific tax- tax is based on weight or
Q: Where to file?
volume capacity or other physical unit of
At the option of the person liable, he may file
measurement
- a separate return for each branch or
place of business, or
• Ad valorem tax - tax is based on selling
- a consolidated return
price or other specified value of the good
with:
Purpose and justification of excise taxes:
- authorized agent bank,
1. To curtail consumption of certain
- Revenue District Office,
commodities, excessive or indiscriminate use
- Collection Agent or City/Mun. Treasurer
of which is considered harmful to the
where the business or principal place of
individual or community.
business is located.
2. To protect a domestic industry the products
of which face competition from similar
• The Commissioner may prescribe
imported articles
- rules and regulations altering the time
and manner of payment prescribed
3. To distribute the tax burden in proportion to
herein.
the benefit derived from a particular
- a minimum amount of gross receipts
government service.
where it is found that a person:
1. has failed to issue receipts or
4. To raise revenue
invoices
2. does not file a return, or
When Excise Taxes Accrue
3. if records of the books of
• As to domestic products –as soon as the
accounts do not correctly reflect
articles are produced, or come into
the declarations in the return.
existence as in the case of distilled spirits
(Sec. 141) and manufactured and other fuel
oils (Sec. 148)

• As to imported articles –as soon as the

articles are brought into the Philippine
jurisdiction with the intention to unload them
here.

Filing of Return and Payment of Excise Tax

on DOMESTIC Products (Sec. 130)

(A) Persons liable to file a return, filing of return

on removal and payment of tax

1. Person Liable to File a Return-such

person shall file a separate return for
each place of production setting forth,
among others: DAT
o Description and quantity or volume
of products removed
o Applicable tax base
o Tax due
- in the case of indigenous petroleum,
natural gas or liquefied natural gas
à excise tax shall be paid by first
buyer, purchaser or transferee
for local sale, barter or transfer
- export products
à excise tax shall be paid by
owner, lessee, concessionaire or
operator of the mining claim

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 TAXATION LAW 2

- should domestic products be in the locality where it was

removed from the place of mined, extracted or quarried
production without the payment of
tax, the owner or possessor shall be (B) Determination of Gross Selling Price of Goods
liable for the tax due Subject to Ad Valorem Tax

2. Time of Filing of Return and Payment of Gross Selling Price= Price - VAT
Tax
GENERALLY: return shall be filed and - PRICE: That at which the goods are sold
excise tax shall be paid by the at wholesale in the place of production or
manufacturer or producer before through their sales agents to the public
removal of the domestic products from - If the goods are sold in another
place of production unless otherwise establishment where the manufacturer is
specifically allowed the owner or in the profits of which he
has an interest, wholesale price there
EXCEPTIONS:
PRODUCT TIME OF PAYMENT NOTE: if price < cost of manufacture +
nonmetallic mineral or upon removal of such expenses incurred until the goods are finally
mineral products and products from locality sold à a proportionate margin of the profit
quarry sources where mined and (which is not less than 10% of such
extracted manufacturing costs + expenses) shall be
locally produced or within 15 days after added to the GSP
extracted metallic end of the calendar
mineral or mineral quarter when such (C) Manufacturer’s or Producer’s Sworn
products products were Statement
removed subject to It shall show:
conditions prescribed - different goods and products
by rules and manufactured or produced,
regulations to be - their corresponding GSP or market value
promulgated by - Costs of manufacture or production +
Secretary of Finance, expenses incurred or to be incurred until
upon recommendation goods are sold
of the Commissioner
(D) Credit for Excise Tax on Goods Actually
taxpayer shall file Exported
bond ≈ amount of In case goods produced or manufactured are
excise tax due removed and actually exported without
IMPORTED mineral or before their removal returning to the Philippines:
mineral products, from customs duty - GENERAL RULE à any excise tax paid
whether metallic or shall be credited or refunded upon
nonmetallic submission of proof of actual exportation
and upon receipt of the foreign exchange
payment
3. Place of Filing of Return and Payment of - EXCEPTION (i.e., NOT credible): mineral
Tax (GENERAL RULE) products
§ any authorized agent bank or Revenue o EXCEPTION TO EXCEPTION: coal &
Collector Officer, or coke
§ duly authorized City or Municipal
Treasurer Payment of Excise Tax on IMPORTED
Articles (Sec. 131)
4. Exceptions (TO GENERAL RULE SET OUT
ABOVE) (A) Persons Liable
IN GENERAL: Sec of Finance, upon - Paid by:
recommendation of Commissioner, may § owner or importer to the Customs
by rules and regulations prescribe: Officers before release from the
customhouse, OR
a. time of filing the return at intervals § person found in possession of articles
for a particular class or classes of which are exempt from excise taxes
taxpayer other than those legally entitled to
exemption
b. manner and time of payment under a - In case tax-free articles brought in by
tax prepayment, advance deposit and exempted persons or entities or
other similar schemes agencies are subsequently sold,
IN THE SPECIFIC CASES of: transferred or exchanged in the Philippines
§ minerals, mineral products or à purchaser or recipients shall be
quarry resources where the place considered importers and shall be liable for
of extraction is different from the duty and internal revenue tax due
place of processing or production, - Importation of cigar, cigarettes, distilled
or spirits and wines even if destined to tax
§ metallic minerals processed and duty-free shops shall be subject to all
abroad, applicable taxes, EXCEPT: (not subject to
à file and pay at the Revenue tax)
District Office having jurisdiction

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 TAXATION LAW 2

1. such are brought directly into Subic Tax on Alcohol Products

Special Economic and Freeport Zone; Definition
Cagayan Special Economic Zone and a. distilled spirits – substance known as ethyl
Freeport; Zamboanga City Special alcohol, ethanol or spirits of wine including
Economic Zone and not transshipped to whiskey, brandy, rum, gin and vodka, from
any other port in the Philippines whatever source, by whatever process
produced
2. importation done by government- b. wines – all alcoholic beverages produced by
owned and operated duty free shop like fermentation without distillation from the
DFP, PROVIDED such products are juice of any kind of fruit; and fortified
labeled ‘tax and duty free’ and ‘not for beverages
resale’ c. fermented liquor – alcoholic beverages
produced by fermentation without distillation
EXCEPTION TO THE EXCEPTION: if such of grain or malt (beer, lager, ale, porter)
products are eventually introduced to
Philippine customs territory, then such Sec. 141 Distilled Spirits (Rates of tax à as
articles shall be deemed imported into per RR 3-2006)
Phil and be subject to all import and (for rates see Sec. 141)
excise taxes - Medicinal preparations, flavoring extracts,
other preparations except toilet preparations,
NOTE: Removal and transfer from one Freeport wherein distilled products form chief
to another Freeport shall not be deemed an ingredient
introduction to Phil territory. **same tax as chief ingredient
- Tax shall proportionally increase for any
VIOLATIONS: strength of spirit taxed over proof spirits.
- cigar, cigarettes, distilled spirits and wines in - Tax shall attach as soon as it is in existence
duty free shops which are NOT LABELED AS whether it is subsequently separated as pure
REQUIRED, as well as or impure spirits or transformed into any
- those articles obtained from duty free shops other substance either in the process of
and subsequently FOUND IN NON DUTY FREE original production or by any subsequent
SHOPS FOR RESALE process.

PENALTY: Sec. 142 Wines (Rates of tax à as per RR 3-

- articles shall be confiscated and perpetrator 2006)
punished (for rates see sec. 142)
- tax due on any such goods, products, Fortified wines
machinery, equipment and other similar articles - containing more than 25% of alcohol by
shall constitute a lien on the article itself which volume
shall be superior to all other liens - natural wines to which distilled spirits are
added to increase their alcoholic strength
(B) Rate and Basis of the Excise Tax on Imported - taxed as distilled spirits
Articles
Sec. 143 Fermented Liquor (Rates of tax à
Unless otherwise specified, imported articles as per RR 3-2006)
shall be subject to the same rate and basis Beer, lager beer, ale. Porter and other fermented
of excise taxes applicable to locally liquor
manufactured articles except tuba, basi, tapuy and similar domestic
fermented liquors
Exemption / Conditional Tax-Free Removal (For rates, see sec. 143)
of Certain Articles PENAL PROVISIONS:
a. denatured wine/spirits for treatment of
tobacco leaf VIOLATION BY: PENALTY
b. domestic denatured alcohol rendered Brewer or importer who summary cancellation
unfit for oral intake, but VAT should be knowingly misdeclares or withdrawal of his
paid or misrepresents in his permit
c. petroleum products sold to: sworn statement any
§ international carriers (Philippine or pertinent data or
foreign carriers) on their use or information
consumption outside the Philippines,
Corporation, association fined treble the
provided there is reciprocity
or partnership amount of deficiency
§ exempt entities covered by tax treaties,
taxes + surcharges +
conventions, international agreements,
interest
provided there is reciprocity
Person liable for acts or criminally liable and
§ entities which are by law exempted from
omissions prohibited penalized under Sec
direct & indirect taxes
under this section 254
d. removal of spirits under bond for
those who willfully abet liable same as
rectification
or aid in the principal
e. removal of fermented liquors to bonded
commission of such act
warehouse
or omission
f. removal of damaged liquors
offender not citizen of deported after service
g. removal of tobacco products entirely unfit
Phil of sentence
for chewing/smoking

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Tax on Tobacco Products V. DOCUMENTARY STAMP TAX

- Definition General Principles
a. cigar – all rolls of tobacco or any DEFINITION: Tax on documents, instruments
substitute wrapped in leaf tobacco and papers evidencing the acceptance,
b. cigarette – all rolls of finely-cut leaf assignment, sale or transfer of an obligation,
tobacco or any substitute wrapped in right or property thereto
paper or any other material
NATURE: It is an excise or privilege tax imposed
Sec. 144 Tobacco Products (Rates of tax à on the privilege to enter into the transaction.
as per RR 3-2006) o It is only paid once.
(for rates, see Sec. 144) o The amount of DST depends on the
nature of the document and the value
Sec. 145 Cigars and Cigarettes (Rates of tax appearing upon its face.
à as per RR 3-2006) o If the transaction is subsequently annulled or
(for rates, see sec. 145) invalidated, the tax may be refunded since
PENAL PROVISIONS: Same with Wines and the law presupposes a valid transaction.
Spirits
Q: Who are required to file the Documentary
Stamp Tax Declaration Return?
Tax on Petroleum Products a) In case of constructive affixture of
documentary stamps, by the persons
Sec. 148 Manufactured Oils and other Fuels making, signing, issuing, accepting or
(Rates of tax à 1997 NIRC, as amended by RA transferring documents, instruments, loan
9337 [2005]) agreements and papers, acceptances,
(for rates, see sec. 148) assignments, sales and conveyances of the
obligation, right or property incident thereto
wherever the document is made, signed,
Tax on Miscellaneous Articles issued, accepted or transferred when the
obligation or right arises from Philippine
sources or the property is situated in the
On Automobiles (Sec. 148 of the NIRC, as Philippines at the same time such act is done
amended by RA 9224) or transaction had;
NATURE: Ad valorem tax on automobiles based
on manufacturer’s or importer’s selling price (net b) By metering machine user who imprints the
excise tax and VAT) Documentary Stamp Tax due on the taxable
documents; and
NET SELLING PRICE RATE
c) By Revenue Collection Agent, for remittance
Up to P600T 2% of sold loose documentary stamps.

P600T – P1.1M P12,000 + 2% in NOTE: Wherever one party to the taxable

excess of P600T document enjoys exemption from the tax
imposed, the other party who is not exempt
P1.1M – P2.1 M P112T + 40% in will be the one directly liable to file Documentary
excess of P1.1M Stamp Tax Declaration and pay the applicable
stamp tax.
over P2.1M P512T + 60% in
excess of P2.1M Q: What are the implications of failure to
stamp taxable documents?
NOTE: The untaxed document will:
• imported cars NOT for sale, tax shall be o not be recorded,
based on total landed value + transaction o not be admitted or used in evidence in court
value + customs duty + other charges until the requisite stamp or stamps have been
• cars used exclusively in Freeport zones affixed thereto and cancelled
are exempt o Not be notarized (No notary public or other
officer authorized to administer oaths will add
Sec. 150 Non Essential Goods his jurat or acknowledgment to any document
Sec. 151 Mineral Products subject to Documentary Stamp Tax unless
the proper documentary stamps are affixed
thereto and cancelled.

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TAX RATES APPLICABLE (1997 NIRC, as amended by RA 9243 [2004])

Document Taxable Unit Tax Due Per Unit Taxable Base
Debentures & Certificates of Indebtedness
DELETED by RA 9243
Original Issue of Shares of Stock with par P200.00 or fraction 1.00 Par value of shares of stocks
value thereof
P200.00 or fraction 1.00 -actual consideration for the
Original Issue of Shares of Stock without thereof issuance of shares of stocks
par value P200.00 or fraction 1.00 -Actual value represented by
Stock Dividends thereof each share
Sales, Agreements to Sell, Memoranda of P200.00 or fraction 0.75 Par value of such due-bills,
Sales, Deliveries or Transfer of Due-bills, thereof certificate of obligation or
Certificate of Obligation, or Shares or -25% of the DST stocks
Certificates of Stock paid upon the
-In the case of stocks without par value original issue of said
stock
Bonds, Debentures, Certificate of Stock or P200.00 or fraction 1.50 Par value of such bonds,
Indebtedness issued in foreign Countries thereof debentures or Certificate of
Stocks
Certificate of Profits or Interest in P200.00 or fraction 0.50 Face value of such certificate
Property or Accumulation thereof / memorandum
Bank Checks, Drafts, Certificate of On each Document 1.50
Deposit not bearing interest and other
Instruments
Original issue of debt instruments P200.00 or fraction 1.00 Issue price of any such debt
-For such debt instruments with terms of -proportional amount instrument
less than one year in accordance w/ the
ratio of its term in
number of days to
365 days
Bills of exchange (between points within P200.00 or fraction .30 Face value of the bill of
the Philippines) and drafts thereof exchange or draft
Bills of Exchange or order drawn in P200.00 or fraction .30 Face value of such bill of
foreign country but payable in the thereof exchange or order or the
Philippines equivalent of such value, if
expressed in foreign currency
Foreign Bills of Exchange and Letter of P200.00 or fraction .30 Face value of bill of exchange/
Credit thereof order or the equivalent of
such value if expressed in
foreign currency
Life Insurance Policies P200.00 or fraction .50 Amount of premium collected
thereof
Policies Of Insurance upon Property P4.00 premium or .50 Premium charged
fraction thereof
Fidelity Bonds and other Insurance P4.00 premium or .50 Premium charged
Policies fraction thereof
Policies of Annuities, Annuity or other P200.00 or fraction 0.50 Amount of premium or
instruments thereof installment payment of
contract price collected
Pre-Need Plans P200.00 or fraction .20 Premium or contribution
collected
Indemnity Bonds P4.00 or fraction .30 Premium charged
thereof
Certificates of Damage or otherwise and Each Certificate 15.00
Certificate or document issued by any
customs officers, marine surveyor, notary
public and certificate required by law or
by rules and regulations of a public office
Warehouse Receipts (except if value does Each Receipt 15.00
not exceed P200.00)
Jai-alai, Horse Race Tickets, lotto or P1.00 cost of ticket .10 Cost of the ticket
Other Authorized Number Games and
Additional P0.10 on
every P1.00 or
fraction thereof if
cost of ticket exceeds
P1.00
Bills of Lading or Receipts >P100 not > P1000 1.00
(except charter party) >P1000 10.00
Proxies Each Proxy 15.00
Powers of Attorney Each Document 5.00
Lease and other Hiring agreements of First 2,000 3.00
memorandum or contract for hire, use or For every P1,000 or 1.00
rent of any land or tenements or portions fractional part thereof
thereof in excess of the first
P2,000 for each year
of the term of the
contract or
agreement
Mortgages Pledges of lands, estate, or First 5,000 20.00 Amount Secured
property and Deeds of Trust On each P5,000 or 10.00 Amount Secured

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 TAXATION LAW 2

fractional part thereof

in excess of 5,000
Deed of Sale, instrument or writing and First 1,000 15.00 Consideration or Fair Market
Conveyances of Real Property (except For each additional 15.00 Value, whichever is higher (if
grants, patents or original certificate of P1,000 or fractional government is a party, basis
the government) part thereof in excess shall be the consideration)
of P1,000
Charter parties and Similar Instruments 1,000 tons and below P500.00 for the 1st 6 Tonnage and duration of the
months +P50/month contract
or fraction thereof in
excess of 6 mos
1,001 to 10,000 tons -P1,000 for the 1st 6
mos + P100/month
or fraction thereof in
excess of 6 mos
Over 10,000 tons -P1,500 for the 1st 6
mos + P150/month
or fraction thereof in
excess of 6 mos
Assignment or transfer of any mortgage, At the same rate as
lease or policy of insurance that imposed on the
Renewal of any agreement/ contract original instrument

When are shares considered issued? à Upon person or party thereto, whether the
the acquisition of the stockholder of the attributes proceedings be civil or criminal; papers and
of ownership over the shares (the right to vote,
the right to receive dividends, the right to documents filed in courts by or for the
dispose, etc., notwithstanding that restrictions on national, provincial, city or municipal
the exercise of any of these rights may be governments; affidavits of poor persons for
imposed by the Corporation’s Articles and/or by- the purpose of proving poverty; statements
laws, the SEC, stockholder agreement, court and other compulsory information required of
order, etc.) which acquisition of such attributes of persons or corporations by the rules and
ownership shall be manifested by the acceptance regulations of the national, provincial, city or
by the Corporation of the stockholder’s municipal governments exclusively for
subscription to its shares of stock. The delivery of statistical purposes and which are wholly for
the certificates of stock to the stockholders is NOT the use of the bureau or office in which they
essential for the DST to accrue. [RR 13-2004] are filed, and not at the instance or for the
What is the basis of DST? à The entire shares use or benefit of the person filing them;
of stock subscribed are considered issued for certified copies and other certificates placed
purposes of DST, even if not fully paid. [RR 13- upon documents, instruments and papers for
2004] the national, provincial, city or municipal
governments, made at the instance and for
When is a sale or exchange of shares the sole use of some other branch of the
taxable? à There must be actual or constructive national, provincial, city or municipal
transfer of beneficial ownership of shares of stock governments; and certificates of the
from one person to another. This may be assessed value of lands, not exceeding Two
manifested by: hundred pesos (P200) in value assessed,
a) the clear exercise of attributes of ownership furnished by the provincial, city or municipal
over such stocks by the transferee, or Treasurer to applicants for registration of title
b) by an actual entry of a change in the name to land.
appearing in the certificate of stock or in the
stock and transfer book of the corporation or c. Borrowing and lending of securities executed
by any entry indicating transfer of beneficial under the Securities Borrowing and lending
ownership in any form of registry including Program of a registered exchange, or in
those of a duly authorized scripless registry, accordance with regulations prescribed by the
such as those maintained for or by the appropriate regulatory authority: Provided,
Philippine Stock Exchange. [RR 13-2004] however, That any borrowing or lending of
securities agreement as contemplated hereof
Documents and Papers Not Subject to shall be duly covered by a master securities
Stamp Tax BAD- STAF- LIMB-PC40 borrowing and lending agreement acceptable
to the appropriate regulatory authority, and
a. Policies of insurance or annuities made or which agreements is duly registered and
granted by a fraternal or beneficiary society, approved by the Bureau of Internal Revenue.
order, association or cooperative company (BIR).
conducted solely by the members thereof for
their benefit. d. Loan agreements the aggregate of which
b. Certificates of oaths administered to any does not exceed Two hundred fifty thousand
government official in his official capacity or pesos (P250,000), or any such amount as
of acknowledgment by any government may be determined by he Secretary of
official in the performance of his official Finance, executed by an individual for his
duties, written appearance in any court by purchase on installment for his personal use
any government official, in his official or that of his family and not for business or
capacity; certificates of the administration of resale, barter or hire of a house, lot, motor
oaths to any person as to the authenticity of vehicle, appliance or furniture: Provided,
any paper required to be filed in court by any however, That the amount to be set by the
Secretary of Finance shall be in accordance

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 TAXATION LAW 2

with a relevant price index but not to exceed city where the taxpayer has his residence or
ten percent (10%) of the current amount and principal place of business
shall remain in force at least for three (3)
years.
EXCEPTION:
e. Sale, barter or exchange of Shares of stock Tax may be paid thru purchase and actual
listed and traded through the local stock affixture or imprinting the stamp thru
exchange for a period of five (5) years from documentary stamp metering machine as
the effectivity of this Act. prescribed by the pertinent rules and regulations.

f. Assignment or transfer of any mortgage, WHEN:

lease or policy of insurance, or the renewal or 5 days after close of the month when the taxable
continuance of any agreement, contract, document was made, signed issued, transferred
charter, or any evidence of obligation or or accepted. (RR 6-01) [Note: 10-day rule
indebtedness, if there is no change in the provided in Sec. 200(B) of the NIRC no longer
maturity date or remaining period of coverage applicable)
from that of the original instrument.
Applicability of DST Law on Electronic
g. Fixed income and other securities Traded in Documents:
the secondary market or through an
exchange. The DST rates shall be applicable on all
documents not otherwise expressly exempted by
h. Derivatives: Provided, That for purposes of the law, notwithstanding that they are in
this exemption, repurchase agreements and electronic form. As provided for in RA 8792
reverse repurchase agreements shall be (Electronic Commerce Act), electronic documents
treated similarly as derivatives. are the functional equivalent of a written
document under existing laws, and the issuance
i. Interbranch or interdepartmental Advances thereof is therefore tantamount to the issuance
within the same legal entity. of a written document, and therefore subject to
DST. (RR 13-04, Sec. 10)
j. All Forebearances arising from sales or
service contracts including credit card and
trade receivables: Provided, That the
exemption be limited to those executed by
the seller or service provider itself.

k. Bank deposit accounts without a fixed term or

Maturity.

l. All contracts, deeds, documents and

transactions related to the conduct of
business of the Banko Sentral ng Pilipinas.

m. Transfer of property pursuant to Section

40(c)(2) of the National Internal Revenue
Code of 1997, as amended.

n. Interbank call loans with maturity of not

more than seven (7) days to cover deficiency
in reserves against deposit liabilities,
including those between or among banks and
quasibanks.

One-Transaction Rule:
Where only one instrument was prepared, made
signed and executed to cover a loan
agreement/promissory note, pledge/mortgage,
the documentary stamp tax shall be paid and
computed on the full amount of the loan or credit
granted. In this regard, the instrument shall be
treated as covering only one taxable transaction,
subject to the higher documentary stamp tax.
(RR 9-94, Sec. 8)

Payment of Documentary Stamp Tax

(Sec 200)
WHERE: filed and paid at
• authorized agent bank within territorial
jurisdiction of Revenue District Officer which
had jurisdiction over residence or principal
place of business of taxpayer
• Revenue District Officer, collection agent,
duly authorized treasurer of municipality or

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V. REMEDIES § performing any act tending to

obstruct the proceedings for the
collection of the tax for the past or
STAGES IN BIR AUDIT EXAMINATION
current quarter or year or to render
(Framework of discussion)
the same totally or partially
ineffective unless such proceedings
are begun immediately
Audit Stage/Issuance of Letter of Authority
↓
4. Prescribe REAL PROPERTY VALUES
Pre-Assessment Stage
(§6E)→ Dividing the Philippines into
↓
different zones or areas, and
Formal Assessment Stage
determining the FMV of real properties
↓
in each zone or area, upon consultation
Collection Letter/Warrants
with competent appraisers from private
↓
and public sectors. For the purpose of
Compromise and Abatement
computing any internal revenue tax, the
value of the property shall be
WHICHEVER IS HIGHER OF:
I. AUDIT STAGE (Issuance of Letter of § The fair market value as determined
Authority) by the Commissioner, or
§ The fair market value as shown in
A. Powers of the Commissioner Relative the schedule of values of the
to the Audit Process (PATRIA-CED) provincial and city assessors
1. EXAMINE RETURNS and DETERMINE TAX 5. Inquire into BANK DEPOSIT ACCOUNTS
DUE (§5)→ Authorizing the examination (§6F) → Notwithstanding any contrary
of any taxpayer and the assessment of provision of R.A. 1405 (Bank Secrecy
the correct amount of tax, WON a return Law) and other general or special laws,
has been filed by such taxpayer. the Commissioner is authorized to
inquire into bank deposits of:
NOTE: Any return filed with the § A decedent to determine his gross
Commissioner shall not be withdrawn, estate, and
BUT the taxpayer may MODIFY, CHANGE § Any taxpayer who has filed an
or AMEND such return within three (3) application for compromise of tax
years from the date of filing, provided liability by reason of financial
that no notice for audit or investigation of incapacity→ the taxpayer must
such return has been actually served on waive in writing his privilege under
the taxpayer. R.A. 1405 and other relevant laws,
before the Commissioner may
2. CONDUCT INVENTORY-TAKING, inquire into his bank accounts
SURVEILLANCE and to prescribe
presumptive gross sales and receipts 6. Accredit and register TAX AGENTS
(§6C)→ (§6G) → Accrediting and registering tax
§ Inventory-taking – at any time agents (may be individuals or general
during the taxable year, for the professional partnerships) based on the
purpose of determining the correct following criteria:
tax liabilities. § Professional competence
§ Surveillance – done if there is § Integrity
reason to believe that the taxpayer § Moral fitness
is not declaring his correct income,
sales or receipts for tax purposes. 7. Prescribe additional PROCEDURAL OR
§ Prescribe presumptive gross DOCUMENTARY REQUIREMENTS (§6H)
sales and receipts if: → in relation to the manner of
Ø It is found that the taxpayer has compliance of any requirement in
failed to issue receipts and connection with the submission or
invoices, or preparation of financial statements
Ø When there is reason to believe accompanying the tax returns.
that the books of accounts or
other records do not correctly 8. ACCESS LETTER (§5B)→ Obtaining on a
reflect the declarations made by regular basis, from any person OTHER
the taxpayer THAN the person whose tax liability
is subject to audit or investigation,
3. Terminate TAXABLE PERIOD (§6D)→ or from any office or officer of the
Terminating taxable period and ordering national and local governments,
the immediate payment of the tax for government agencies or
the terminated period and any instrumentalities, including BSP and
remaining tax that is unpaid, when the GOCCs, any information such as, but
taxpayer is: not limited to, costs and volumes of
§ retiring from business subject to production, receipts or sales and
tax, or gross incomes of taxpayers, and the
§ intending to leave the Philippines or names addresses, and financial
to remove his property therefrom or statements of corporations, mutual fund
to hide or conceal his property companies, insurance companies etc.

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NOTE: This is known as the Third Party § Policy cases under audit by the special teams
Information Rule. in national offices

9. INTERPRET TAX LAWS and to DECIDE

TAX CASES (§4)→ shall be under the II. PRE-ASSESSMENT STAGE
exclusive and original jurisdiction of the
Commissioner, subject to review by the A. Step 1: Issuance of Notice of
Secretary of Finance. Informal Conference

RMC 44-01 What is a notice of informal

§ VALIDITY: A ruling by the BIR conference?
Commissioner shall be presumed VALID A written notice informing a taxpayer
unless modified, reversed or superseded by that the findings of the audit conducted
the Secretary of Finance. on his books of accounts and
§ REVIEW: A taxpayer who receives an accounting records indicate that
adverse ruling from the Commissioner may, additional taxes or deficiency
within thirty (30) days from the date of assessments have to be paid.
receipt of such ruling, seek its review by the The taxpayer shall then have fifteen
Secretary of Finance, either by himself/itself (15) days from the date of his receipt of
or though his/its duly authorized the Notice for Informal Conference to
representative. explain his side.
§ EFFECT OF REVIEW: A reversal or
modification of the BIR ruling shall B. Step 2: Informal Conference
terminate its effectivity upon the receipt by
the taxpayer or the BIR of written notice of What matters are taken up during
reversal or modification, whichever came the informal conference?
earlier. 1. Discussion on the merits of the
NOTE: DOF Order 7-02 added that the assessment
Secretary of Finance may review the rulings 2. Attempt of taxpayer to convince the
MOTU PROPRIO. examiner to conduct a re-
investigation and/or re-examination
Section 246, NIRC: Non-retroactivity of 3. Evaluate if submission of the waiver
Rulings of the statute of limitations is
Any revocation, modification or reversal of…any necessary→ because evaluation
of the rulings or circulars promulgated by the may extend beyond three years
Commissioner shall not be given retroactive 4. Taxpayer to advise the examiner if
application if the revocation, modification or position paper will be submitted
reversal will be prejudicial to the taxpayers,
What is a jeopardy assessment?
EXCEPTION: A tax assessment made by an
a) Where the taxpayer deliberately misstates authorized Revenue Officer without the
or omits material facts from his return or benefit of complete or partial audit, in
any document required of him the BIR; light of the RO’s belief that the
b) Where the facts subsequently gathered by assessment and collection of the
the BIR are materially different from the deficiency tax will be jeopardized by
facts on which the ruling is based; or delay caused by the taxpayer’s failure
c) Where the taxpayer acted in bad faith. to:
i. Comply with audit and
investigation requirements to
B. Letter of Authority present his books of accounts
and/or pertinent records
Q: What is a letter of authority? ii. Substantiate all or any of the
An official document that empowers a deductions, exemptions or credits
Revenue Officer to examine and scrutinize a claimed in his return.
taxpayer’s books of accounts and other It is usually issued when statutory
accounting records, in order to determine the prescriptive periods for the assessment
taxpayer’s correct internal revenue tax or collection of taxes are about to lapse
liabilities. due principally to the taxpayer’s fault.

Q: Who issues the Letter of Authority? C. Step 3: Issuance of Pre-

§ Commissioner→ for those units reporting Assessment Notice
directly to him
§ Regional directors→ for taxpayers covered by What is a pre-assessment notice
his particular region. If the Commissioner has (PAN)?
already issued an LA to investigate a A communication issued by the Regional
particular taxpayer, the Regional director shall Assessment Division or any other concerned
desist from issuing another LA for the same BIR office, informing a taxpayer who has
taxpayer. been audited of the findings of the Revenue
Officer, following the review of these
Q: What are the cases which need not be findings.
covered by a valid LA? The assessment shall be:
§ Cases involving civil/criminal tax fraud which ü in writing, and
fall under the jurisdiction of the tax fraud
division of the Enforcement Services, and

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 TAXATION LAW 2

ü should inform the taxpayer of the law § A follow-up letter/demand letter for
and the facts on which the assessment is payment of taxes is considered a notice
made; of assessment. [REPUBLIC vs. CA
ü otherwise, the assessment shall be void. and NIELSON & CO. (April 30,
(Sec. 228, NIRC) 1987)]
§ Where the taxpayer is appealing on the
If the taxpayer disagrees with the findings ground that the assessment is
in the PAN, he has fifteen (15) days from erroneous, it is incumbent upon him to
his receipt of the PAN to file a written reply prove what is the correct and just
contesting the proposed assessment. liability by a full and fair disclosure of
all pertinent data. [Bonifacio Sy Po v.
PAN no longer required when : CTA]

(a) The finding for any deficiency tax is the Within what time may the
result of MATHEMATICAL ERROR in the Commissioner issue a notice of
computation of the tax as appearing on assessment?
the face of the return; or
(b) A DISCREPANCY has been determined § If the taxpayer filed a return→
between the TAX WITHHELD and the internal revenue taxes shall be
amount ACTUALLY REMITTED by the assessed within three years after the
withholding agent; or last day prescribed by law for the filing
(c) A taxpayer who opted to claim a refund or of the return. If a return is filed
tax credit of excess creditable withholding beyond the period prescribed by law,
tax for a taxable period was determined the three-year period shall be counted
to have carried over and automatically from the day the return was filed. A
applied the same amount claimed against return filed before the last day
the estimated tax liabilities for the taxable prescribed by law for filing shall be
quarter or quarters of the succeeding considered as filed on the last day.
taxable year; OR (Sec. 203, NIRC)
(d) The EXCISE TAX due on excisable articles è NOTE: In short, the period for
has not been paid; or assessment is within three years from
(e) An article locally purchased or imported the time the return is filed or from the
by an exempt person, such as, but not time the return is due, WHICHEVER IS
limited to, vehicles, capital equipment, LATER.
machineries and spare parts, has been
sold, traded or transferred to a non- § If the taxpayer DID NOT file a
exempt person. (Sec. 228, NIRC) return→ internal revenue taxes shall
be assessed within ten years after
the discovery of the failure to file the
III. FORMAL ASSESSMENT STAGE return (Sec. 222a, NIRC)

What is a Notice of Assessment (Final § If the taxpayer filed a false or

Assessment Notice “FAN” or Formal fraudulent return with intent to
Letter of Demand)? evade tax→ internal revenue taxes
A declaration of deficiency taxes issued to a shall be assessed within ten years
taxpayer who fails to respond to a pre- after the discovery of the falsity or
assessment notice within the prescribed fraud (Sec. 222a, NIRC)
period of time, or whose reply to the PAN
was found to be without merit. This is o Fraud or falsity on the return with intent
commonly known as the Final Assessment to evade payment of tax is a question of
Notice (FAN). fact and the circumstances constituting
fraud must be alleged and proved in the
An assessment contains not only a court below. The finding of the trial court
computation of tax liabilities, but also a as to its existence and non-existence is
demand for payment within a prescribed final and cannot be reviewed by the
period. The ultimate purpose of assessment Supreme Court unless clearly shown to be
is to ascertain the amount that each erroneous. [CIR V. Ayala Securities
taxpayer is to pay. An assessment is a (1976)]
notice to the effect that the amount therein
stated is due as tax and a demand for o Q: Are there tax returns which are
payment thereof. (Tupaz v. Ulep, 1999) false but not fraudulent? à YES. There
must be a distinction between false
The formal letter of demand shall be issued returns (due to mistakes, carelessness or
by the Commissioner or his duly authorized ignorance) and fraudulent returns (with
representative. The letter of demand intent to evade taxes). The fraud
calling for the payment of the taxpayer’s contemplated by law is actual and not
deficiency taxes shall state the FACTS, the constructive, and must amount to
LAW, RULES and REGULATIONS or intentional wrongdoing with the sole
JURISPRUDENCE on which the assessment object of avoiding the tax. [Aznar v. CTA
is based, OTHERWISE, the formal letter of (1974)]
demand or assessment notice shall be • WAIVER: The taxpayer and the
VOID. (RR 12-99) Commissioner may agree in writing,
before the expiration of the time
NOTE:

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 TAXATION LAW 2

prescribed in Sec. 203, to extend the otherwise the assessment shall become
period of assessment (Sec. 222b, NIRC) final. (§228)
è The waiver of prescription must be
executed properly per RMO 20-90, What are the characteristics of a valid
otherwise, invalid and results to protest?
prescription of the right to A protest is considered validly made if it
assess/collect. [PHIL JOURNALISTS satisfies the following conditions:
INC. v. CIR (December 16, 2004)]
è Requirements under RMO 20-90: 1) it is made in writing, and addressed
1. definite agreed date, to the Commissioner of Internal
2. date of acceptance indicated, Revenue
and 2) it contains the information the
3. taxpayer must be furnished with following information (from RR 12-85):
a copy of the waiver. § name of the taxpayer and address
for the immediate past three
Q: What is the nature of prescription on taxable years
the right to assess? § nature of request whether
The law on prescription, being a remedial reinvestigation or reconsideration
measure, should be LIBERALLY CONSTRUED specifying newly-discovered
in order to afford protection. As a corollary, evidence he intends to present if it
the exceptions to the law on prescription is a request for reinvestigation
should be clearly construed. Hence, § the taxable periods covered
negligence or oversight on the part of the § assessment number
BIR cannot prejudice taxpayers, considering § date of receipt of assessment notice
that the prescriptive period was precisely or letter of demand
intended to give them peace of mind. [CIR § itemized statement of the findings
v. Goodrich Philippines (1999)] to which the taxpayer agrees as a
basis for computing the tax due,
RMC No. 48-90 Counting of the which amount should be paid
Prescriptive Periods (April 23, immediately upon the filing of the
1990) protest. For this purpose, the
The 3-year prescriptive period expires protest shall not be deemed validly
on the 1,095th day, notwithstanding the filed unless payment of the agreed
fact that within the period, there is a portion of the tax is paid first
leap year which is of 366 days. This § the itemized schedule of the
principle applies to ALL adjustments with which the
prescriptive periods under the taxpayer does not agree
Code. (applied in ASIABANK v. CIR, § a statement of facts and/or law in
CTA Case No.6095, Oct. 9, 2001) support of the protest.
When is an assessment deemed made? 3) It states the FACTS, applicable LAW,
An assessment is deemed made when the RULES and REGULATIONS or
demand letter or notice is RELEASED, JURISPRUDENCE on which his protest is
MAILED OR SENT by the BIR to the based, otherwise the protest shall be
taxpayer. The law does not require that the considered void and without force and
taxpayer receive the notice within the effect.
three-year or ten-year period. [CIR vs. 4) It is filed within the period prescribed by
BAUTISTA (May 27, 1959)] law

If the taxpayer does not agree with the What should the taxpayer do if his
assessment, what is his REMEDY? protest is denied or is not acted upon
o To contest an assessment by filing a by the Commissioner?
letter of PROTEST stating in detail his
reasons for contesting the assessment. § Situation 1: If the Commissioner
o When no protest is seasonably made by DENIES THE PROTEST filed by the
the taxpayer, the assessment shall taxpayer→ the taxpayer may appeal to
become final and unappealable, and thus the Court of Tax Appeals within thirty
the tax shall be collectible. days from receipt of the decision
denying the protest (Sec. 228, NIRC)
Q: What is the nature of an assessment
when it is final and executory? → Where there is a request for
It is in the nature of an enforcement reconsideration, final demand letter
judgment such that no inquiry can be made from BIR is considered a decision on
thereon on the merits of the original case. a disputed or protested assessment
which is therefore appealable to the
Within what time may the taxpayer CTA. [CIR v. ISABELA CULTURAL
protest the assessment? CORP. (July 11, 2001)]
o Within thirty (30) days by filing a
request for reconsideration or § Situation 2: If the Commissioner did
reinvestigation from receipt of the NOT ACT UPON THE PROTEST within
assessment. one hundred and eighty days from
o Within sixty (60) days from filing of the time the documents were
the protest, all relevant supporting submitted→ the taxpayer may either:
documents must be submitted,

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o Appeal to the CTA within thirty days is final, otherwise period to appeal will not
from the lapse of the 180-day commence to run. [ADVERTISING
period OR ASSOCIATES vs. CA (December 26,
o Wait until the Commissioner decides 1984)]
before he elevates the case to the NOTE: A Division of the CTA shall hear
CTA the appeal. (Sec. 11, RA 1125 as
amended by RA 9282 [2004])
NOTE: If Situation 1 occurs and the
taxpayer does not file a protest within the If the taxpayer is not satisfied with the
prescribed period, the assessment becomes CTA Division’s ruling, what is his
FINAL, EXECUTORY and DEMANDABLE. But REMEDY?
if the Situation 2 occurs and the taxpayer § FIRST, he may file a motion for
does not file a protest within the prescribed reconsideration before the same
period, the assessment DOES NOT become Division of the CTA within fifteen (15)
FINAL, EXECUTORY and DEMANDABLE. In days from notice thereof. (Sec. 11, RA
cases of inaction by the Commissioner, 1125 as amended by RA 9282 [2004])
Section 228 of the Tax Code merely gave § THEN, a party adversely affected by a
the taxpayer an OPTION: first, he may resolution of a Division of the CTA on a
appeal to the Court of Tax Appeals within motion for reconsideration may file a
thirty days from the lapse of the 180-day petition for review with the CTA en
period, or second, he may wait until the banc. (Sec. 18, RA 1125 as amended
Commissioner decides on his protest before by RA 9282 [2004])
he elevates his case. [LASCONA LAND Co
vs. CIR (January 4, 2000)] If the taxpayer is not satisfied with the
decision of the CTA en banc, what is his
When does the 30-day period to appeal REMEDY?
in Situation 1 commence to run? A party adversely affected by a decision or
The 30-day period starts when the taxpayer ruling of the CTA en banc may file with the
receives the decision of the Commissioner Supreme Court a verified petition for review
denying the protest. The decision of the on certiorari pursuant to Rule 45 of the 1997
Commissioner must categorically state that Rules of Court. (Sec. 19, RA 1125 as
his action on the disputed assessment amended by RA 9282 [2004]) .

EFFECTS OF RA 9282 ON THE CTA’S JURISDICTION:

The CTA shall exercise

A. EXCLUSIVE APPELLATE JURISDICTION to review by appeal:

Decisions of the Commissioner 1. disputed assessments,
of Internal Revenue 2. refunds of internal revenue taxes, fees or other charges,
3. penalties in relation thereto, or
4. other matters arising under the National Internal Revenue
or other laws administered by the Bureau of Internal
Revenue;
Inaction by the Commissioner of 5. disputed assessments,
Internal Revenue 6. refunds of internal revenue taxes, fees or other charges,
7. penalties in relations thereto, or
8. other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of
Internal Revenue, where the National Internal Revenue
Code provides a specific period of action, in which case
the inaction shall be deemed a denial;
Decisions, orders or resolutions local tax cases originally decided or resolved by them in the
of the Regional Trial Courts exercise of their
→ original or appellate jurisdiction;
Decisions of the Commissioner → liability for customs duties, fees or other money charges,
of Customs → seizure, detention or release of property affected,
→ fines, forfeitures or other penalties in relation thereto, or
→ other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
Decisions of the Central Board exercise of its appellate jurisdiction over cases involving the
of Assessment Appeals assessment and taxation of real property originally decided by
the provincial or city board of assessment appeals;
Decisions of the Secretary of customs cases elevated to him automatically for review from
Finance decisions of the Commissioner of Customs which are adverse to
the Government under Section 2315 of the Tariff and Customs
Code;
Decisions of the Secretary of → involving dumping and countervailing duties under Section
Trade and Industry 301 and 302, respectively, of the Tariff and Customs Code,
(nonagricultural product, and
commodity or article)
Secretary of Agriculture → safeguard measures under Republic Act No. 8800, where
(agricultural product, either party may appeal the decision to impose or not to
commodity or article) impose said duties.

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B. Jurisdiction over cases involving CRIMINAL

OFFENSES: b. Over petitions for review of the
judgments, resolutions or orders of the
1. EXCLUSIVE ORIGINAL JURISDICTION Regional Trial Courts in the Exercise of
over all criminal offenses arising from their appellate jurisdiction over tax
violations of the National Internal Revenue collection cases originally decided by the
Code or Tariff and Customs Code and other Metropolitan Trial Courts, Municipal Trial
laws administered by the Bureau of Courts and Municipal Circuit Trial Courts,
Internal Revenue or the Bureau of in their respective jurisdiction.
Customs:
§ EXCEPTION: That offenses or felonies
where the principal amount of taxes IV. COLLECTION LETTER/WARRANTS
and fees, exclusive of charges and
penalties, claimed is less than One A. Collection of Deficiency Taxes
million pesos (P1,000,000.00) or
where there is no specified amount Within what time period must
claimed shall be tried by the regular collection of internal revenue taxes
Courts and the jurisdiction of the be made?
CTA shall be appellate.
§ NOTE: Any provision of law or the Rules of Return filed was No return filed, or
Court to the contrary notwithstanding, the NOT false or the return was false
criminal action and the corresponding civil fraudulent or fraudulent.
action for the recovery of civil liability for Collection with PRIOR Collection with PRIOR
taxes and penalties shall at all times be ASSESSMENT - ASSESSMENT - should
simultaneously instituted with, and jointly should be made be made within five
determined in the same proceeding by the within three years years from the date
CTA, the filing of the criminal action being from the date of of assessment (based
deemed to necessarily carry with it the assessment of the on §222c)
filing of the civil action, and no right to tax.
reserve the filling of such civil action → by distraint or → by distraint or levy,
separately from the criminal action will be levy, or by judicial or by judicial
recognized. proceedings proceedings
Collection WITHOUT Collection WITHOUT
2. EXCLUSIVE APPELLATE JURISDICTION PRIOR ASSESSMENT PRIOR ASSESSMENT –
in criminal offenses: – should be made should be made
within three years within ten years
a) Over appeals from the judgments, from the date of filing after the discovery of
resolutions or orders of the Regional Trial of return or date the falsity, fraud or
Courts in tax cases originally decided by return is due, omission to file a
them, in their respected territorial whichever is LATER return.
jurisdiction. (based on §203)
→ by judicial → by judicial
b) Over petitions for review of the judgments, proceedings proceedings
resolutions or orders of the Regional Trial
Courts in the exercise of their appellate • If tax was assessed within the different
jurisdiction over tax cases originally period agreed upon by the Commissioner
decided by the Metropolitan Trial Courts, and the taxpayer, it may be collected by
Municipal Trial Courts and Municipal Circuit distraint or levy or by a proceeding in
Trial Courts in their respective jurisdiction. court within the period agreed upon in
writing before the expiration of the 5-yr
C. Jurisdiction over TAX COLLECTION CASES: period. (Sec. 222d, NIRC)

1. EXCLUSIVE ORIGINAL JURISDICTION When shall the period for assessment or

in tax collection cases involving final and collection of taxes be suspended? (§223)
executory assessments for taxes, fees, The running of the statute of limitations provided
charges and penalties. in §203 and §222 shall be suspended for the
§ EXCEPTION: Collection cases where period: (P-CORN)
the principal amount of taxes and
fees, exclusive of charges and 1. During which the commissioner is
penalties, claimed is less than One Prohibited from making the assessment
million pesos (P1,000,000.00) or beginning distraint or levy or a
shall be tried by the proper proceeding in court, and for sixty (60)
Municipal Trial Court, Metropolitan days thereafter
Trial Court and Regional Trial
Court. 2. When the taxpayer requests for a
Reinvestigation which is granted by the
2. EXCLUSIVE APPELLATE Commissioner
JURISDICTION in tax collection cases:
CIR vs. WYETH (September 30, 1991)
a. Over appeals from the judgments, à The statutory period of limitation for
resolutions or orders of the Regional Trial collection may be interrupted when, by
Courts in tax collection cases originally the taxpayer’s repeated requests, the
decided by them, in their respective government has been, persuaded to
territorial jurisdiction. postpone collection to make him feel the

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 TAXATION LAW 2

demand was not unreasonable or that no burden of proof is on the taxpayer claiming
harassment or injustice was meant by the refund that he is entitled to the same.
government. [CIR v. Tokyo Shipping (1995)]

RR 12-85 (Difference between Q: When are there erroneously paid, or

Reconsideration & illegally assessed or collected taxes?
Reinvestigation) Taxes are erroneously paid when a taxpayer
§ RECONSIDERATION – refers to a pays under a mistake of fact, such as, he is
plea of re-evaluation of the not aware of an existing exemption in his
assessment on the basis of existing favor at the time that payment is made.
records WITHOUT NEED OF Taxes are illegally collected when payments
ADDITIONAL EVIDENCE. It may are made under duress.
involve both question of fact or of law
or both Q: What is the difference between a tax
credit and refund?
§ REINVESTIGATION – refers to a REFUND takes place when there is actual
plea of re-evaluation of an reimbursement. TAX CREDIT takes place
assessment on the basis of NEWLY- upon the issuance of a tax certificate or tax
DISCOVERED EVIDENCE that a credit memo, which can be applied against
taxpayer intends to present in the any sum that may be due and collected from
reinvestigation. It may also involve a the taxpayer.
question of fact or law or both.
Q: Is payment under protest necessary
PHIL GLOBAL COMMUNICATION in claims for refund?
vs. CIR (October 31, 2006) à A re- No. Section 229 of the NIRC is specific on this
evaluation of existing records which point when it provides that a suit or
results from a request for proceeding for tax refund may be maintained
reconsideration does not toll the “whether or not such tax, penalty or sum has
running of the prescription period for been paid under protest or duress.”
the collection of an assessed tax.
What is the procedure for obtaining a
3. When the taxpayer Cannot be located in refund or tax credit?
the Address given by him in the return First, the taxpayer must file a claim for
filed upon which a tax is being assessed refund before the Commissioner within two
or collected, but if the taxpayer informs years from the date of payment. (Sec. 229,
the Commissioner of any change in NIRC) [GENERAL RULE]
address, the running of the statute of
limitations shall not be suspended § EXCEPTIONS to the rule requiring a
claim for refund: à When on the face
4. When the warrant of distraint or levy is of the return upon which payment was
duly served upon the taxpayer, his made, such payment appears clearly to
authorized representative, or a member have been erroneously paid (e.g.
of his household with sufficient discretion, mathematical errors), the Commissioner
and No Property is located may refund or credit the tax even without
a written claim therefor.
5. When the taxpayer is Out of the § NOTE: A return filed showing an
Philippines overpayment shall be considered as a
written claim for credit or refund.
(Sec. 204C, NIRC)
B. Remedies of the taxpayer against a
tax erroneously or illegally paid But how shall the date of payment be
determined?
When may taxes be refunded or
credited? i. If the income tax is withheld at
Taxes may be refunded or credited in the source→ the taxpayer is deemed to
following cases: have paid his tax liability at the end of
§ Taxes erroneously or illegally the taxable year.
assessed or collected
§ Penalties imposed without authority GIBBS vs. COMMISSIONER (November
§ Value of internal revenue stamps 29, 1965) à A taxpayer whose income is
when they are returned in good withheld at the source will be deemed to
condition by the purchaser have paid his tax liability when the same
§ Unused stamps that have been falls due at the end of the tax year. It is
rendered unfit for use (Commissioner from this latter date then, or when the tax
may redeem, change or refund their liability falls due, that the 2-year
value upon proof of destruction) prescriptive period starts to run with
§ Any sum alleged to have been respect to payments effected thru the
excessively or in any manner withholding tax system.
wrongfully collected
ii. If the income is paid on a
Q: What is the nature of a claim for quarterly basis→ the two-year period
refund? is counted from the time of filing the
It partakes of the nature of an exemption and final adjustment return.
is strictly construed against the claimant. The

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 TAXATION LAW 2

CIR vs. TMX SALES (January 16, 1992) including all expenses, is
à When a tax is paid in installments, the collected. (Sec. 217, NIRC)
prescriptive period should be counted → HOWEVER, the remedies of
from the date of final payment or the distraint and levy shall not be
last installment. This rule proceeds from available where the amount of
the theory that there is no payment until the tax involved is not more than
the entire tax liability is completely paid. One hundred pesos.
Installments should be treated as
advances or portions of the annual tax o Q: When may the government
due. avail of the remedies of
collection? à When the assessment
What should the taxpayer do if his claim shall have become final, executory
for refund is denied or is not acted upon and demandable.
by the Commissioner?
NOTE: A court MAY NOT GRANT AN
o SITUATION 1: The Commissioner INJUNCTION to restrain the collection of any
denies the claim for refund→ the national internal revenue tax, fee or charge
taxpayer may appeal to the CTA within imposed under the NIRC. (Sec. 218, NIRC)
thirty (30) days from the receipt of the
Commissioner’s decision AND within two EXCEPTION: Under Section 11 of RA
years from the date of payment. (Note 1125, as amended by RA 9282, suspension
that §229 states that ‘no such suit or is allowed when the following conditions
proceeding shall be filed after the concur:
expiration of the 2-year period regardless
of any supervening cause that may arise 1. it is an appeal to the CTA from a
after payment’) decision of the Commissioner of
Internal Revenue or Commissioner of
o SITUATION 2: The Commissioner does Customs or the Regional Trial Court,
not act on the claim, and the two-year provincial, city or municipal treasurer
period is about to lapse→ the taxpayer or the Secretary of Finance, the
must file a claim before the CTA before Secretary of Trade and Industry and
the 2-year period lapses, otherwise he Secretary of Agriculture, as the case
may no longer file a claim before the CTA in may be, and
case the Commissioner renders an adverse
decision beyond the 2-year period. 2. in the opinion of the Court of Tax
Appeals, the collection may jeopardize
è NOTE HOWEVER! Is the two-year the interest of the Government and/or
period jurisdictional with respect to the taxpayer.
the CTA?
NO. Even if the two-year period had Q: In case of suspension, what may the
already lapsed, the same is not a taxpayer be required to do?
jurisdictional defect which, upon grounds Either to deposit the amount claimed or to
of justice and equity, may be set aside by file a surety bond for not more than double
the court. [(COMMISSIONER vs. the amount with the Court.
PHILAMLIFE (May 29, 1995)]
Q: What are tax liens? (Sec. 219, NIRC)
If the Commissioner grants the refund, When a taxpayer neglects or refuses to pay
within what time must it be claimed? his internal revenue tax liability after
Within five years from the date such demand, the amount so demanded shall be a
warrant or check was mailed or delivered, lien in favor of the government from the time
otherwise it shall be forfeited in favor of the the assessment was made by the CIR until
government and the amount thereof shall paid with interest, penalties, and costs that
revert to the general fund. may accrue in addition thereto upon ALL
PROPERTY AND RIGHTS TO PROPERTY
What can be done with a Tax Credit BELONGING to the taxpayer.
Certificate?
Tax credit certificates (TCCs) can be applied HOWEVER, the lien shall not be valid
against all internal revenue taxes, excluding against any mortgagee, purchaser or
withholding tax. TCCs which remain judgment creditor until NOTICE of such lien
unutilized after five years from the date of shall be filed by the Commissioner in the
issue shall be considered as invalid, unless Office of the Register of Deeds of the
revalidated. If not revalidated, the amount province or city where the property of the
covered by the TCC shall revert to the taxpayer is situated or located.
general fund
o Q: What is the difference between
C. Remedies of the State for Collection seizure under forfeiture and a seizure to
of Taxes enforce a tax lien? à In the former all the
GENERALLY, the remedies of distraint, proceeds derived from the sale of the thing
levy or civil or criminal action may be forfeited are turned over to the Collector of
pursued SIMULTANEOUSLY. (Sec. 205, Internal Revenue; in the latter, the residue of
NIRC) such proceeds over and above what is
→ Remedies of distraint and levy required to pay the tax sought to be realized,
may be repeated if necessary including expenses, is returned to the owner
until the full amount due, of the property. [BPI v. Trinidad]

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The person owing the debts shall then pay the

Commissioner instead of his creditor (taxpayer)
ADMINISTRATIVE REMEDIES on the strength of such warrant.

1. Distraint-involves the SEIZURE by the Bank accounts → by serving a warrant of

Government of PERSONAL PROPERTY, garnishment upon the taxpayer AND upon the
tangible or intangible, to enforce the president, manager, treasurer or other
payment of taxes; followed by the PUBLIC responsible officer of the bank. The bank shall
SALE of such property, if the taxpayer fails to then turn over to the Commissioner so much of
pay the taxes voluntarily. the bank accounts as may be sufficient to satisfy
the claim of the Government. (NOTE: distraint
What are the kinds of distraint? of bank accounts is called GARNISHMENT)
a. Actual Distraint – resorted to when there
is ACTUAL delinquency in tax payment What is the remedy of the taxpayer once the
Commissioner or other proper officer issues
b. Constructive Distraint – is a preventive the warrant of distraint?
remedy which aims at forestalling a The taxpayer may request that the warrant be
possible dissipation of the taxpayer’s lifted. The commissioner may, in his discretion,
assets when delinquency sets in. Hence, allow the lifting of the order of distraint. He may
no actual delinquency in payment is ask for a bond as a condition for the cancellation
necessary. of the warrant. (Sec. 207, NIRC)

How is ACTUAL distraint of personal If the taxpayer does not ask for the lifting of
property effected? the warrant, what shall be done with the
seized properties?
Upon failure to pay the delinquent tax at the The properties will be SOLD in a PUBLIC SALE,
time required, the proper officer shall SEIZE and the procedure shall be as follows:
and DISTRAINT any GOODS, CHATTELS, or
EFFECTS, and the PERSONAL PROPERTY, (1) The Revenue District Officer or his duly
including STOCKS and other SECURITIES, authorized representative (not the officer who
DEBTS, CREDITS, BANK ACCOUNTS and served the warrant), shall cause a notification
INTERESTS in and RIGHTS to personal of the public sale to be posted in not less than
property of the taxpayer in sufficient quantity two (2) public places in the municipality or
to satisfy the tax, expenses of distraint and city (one of which is the Office of the Mayor)
the cost of the subsequent sale. where the distraint was made. The notice
shall specify the time and place of the sale.
Who is the proper officer authorized to The time of sale shall not be less than twenty
issue the warrant of distraint? (20) days after notice to the owner and the
a. Commissioner or his duly authorized publication or posting of such notice.
representative – if the amount involved is
in EXCESS of One million pesos (2) At the time of the public sale, the revenue
(P1,000,000) officer shall sell the goods, chattels, or
b. Revenue District Officer – if the amount effects, or other personal property, including
involved is One million pesos (P1,000,000) stocks and other securities so distrained at a
or LESS. (Sec. 207A, NIRC) PUBLIC AUCTION, to the HIGHEST BIDDER
for CASH or with the approval of the
§ The officer serving the warrant of distraint Commissioner, through a DULY LICENSED
shall: COMMODITY or STOCK EXCHANGES.
→ make an account of the goods, chattels,
effects or other personal property (3) Any residue over and above what is required
distrained. to pay the entire claim, including expenses of
→ shall leave a copy with the person from sale and distraint, shall be RETURNED to the
whom the goods were taken, or at the owner of the property sold. Expenses shall
dwelling or place of business of such be limited to actual expenses of SEIZURE and
person with someone of suitable age and PRESERVATION of the property pending the
discretion. sale, no charge shall be imposed for the
→ indicate statement of the sum demanded services of the local internal revenue officer
and the time and place of sale of the or his deputy. (§209)
distrained property. (Sec. 208, NIRC)
(4) If the amount offered by the highest bidder is
How are different kinds of personal property not equal to the amount of the tax or is very
distrained? much less than the actual market value of the
articles offered for sale, the Commissioner or
Stocks and other securities → by serving a his deputy may purchase the same in behalf
copy of the warrants of distraint on the taxpayer, of the National Government for the amount of
AND upon the president, manager, treasurer or taxes, penalties and costs due thereon. The
other responsible officer of the corporation, property so purchased may thereafter be
company or association which issued the stocks resold by the Commissioner or his deputy.
or securities. (§212)

Debts and credits → by leaving with the (5) If the proceeds from the sale of the distrained
person owing the debts or having in his properties is not sufficient to satisfy the tax
possession or under his control such credits, or delinquency, the Commissioner or his duly
with his agent, a copy of the warrant of distraint. authorized representative shall within thirty

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 TAXATION LAW 2

(30) days after execution of the distraint, 2) The certificate shall contain a description
proceed with the levy on the taxpayer’s real of the property upon which levy is made.
property. (§207B) At the same time, written notice of the
levy shall be mailed to or served upon
May the taxpayer recover his property prior the Register of Deeds of the province or
to consummation of the sale? city where the property is located and
YES. If at any time prior to the consummation of upon the taxpayer (if he is absent from
the sale all proper charges are paid to the officer the Philippines, to his agent or manager
conducting the sale, the goods or effects of business in respect to which the
distrained shall be restored to the owner. (Sec. liability arose or to the occupant of the
210, NIRC) property in question)

How is CONSTRUCTIVE distraint effected? 3) Within twenty (20) days after the levy,
a. By requiring a taxpayer or any person in the officer conducting the proceedings
possession or control of such property to shall proceed to advertise for SALE the
SIGN a RECEIPT covering the property property or a portion thereof as may be
distrained and obligate himself to PRESERVE necessary to satisfy the claim and costs
THE SAME INTACT and UNALTERED and NOT of sale. Such advertisement shall cover a
TO DISPOSE of the same in any manner period of at least thirty (30) days. The
whatever, without the Commissioner’s notice shall be posted at the main
authority. entrance of the city or municipal all AND
b. If the taxpayer or person in possession or in a public and conspicuous place in the
control refuses to sign the receipt, the barrio or district where the real property
revenue officer shall prepare a list of the lies. The notice must also be published in
property and leave a copy of such list in the a newspaper of general circulation in the
premises where the properties are located, in place where the property is located, once
the presence of two (2) witnesses. a week for three (3) weeks.
→ CONTENTS of notice: statement of
Q: When may property of the taxpayer be amount of taxes, and penalties due,
placed in constructive distraint? time and place of sale, name of
The property of a taxpayer may be placed in taxpayer, short description of
constructive distraint, if in the Commissioner’s property.
opinion:
§ the taxpayer is retiring from any business 4) The sale shall be held either at the main
subject to tax entrance of the municipal or city hall or
§ the taxpayer is intending to leave the on the premises to be sold. Property will
Philippines be awarded to the highest bidder. In
§ the taxpayer is intending to remove his case the proceeds of the sale exceeds the
property from the Philippines or to hide or claim and costs of sale, the excess shall
conceal his property be turned over to the owner of the
§ the taxpayer is planning to perform any act property. (§213)
tending to obstruct the proceedings for
collecting the tax due or which may be due 5) If there is no bidder for the real property
from him (§206) OR if the highest bid is not sufficient to
NOTE: In constructive distraint, the pay the taxes, penalties and costs, the IR
property is not actually confiscated or Officer conducting the sale shall declare
seized by the revenue officer the property FORFEITED to the
GOVERNMENT in satisfaction of the claim.
(Sec. 215, NIRC) The Commissioner may
2. Levy – is the same act of seizure as in resell the property at a public auction
distraint, but in this case, of real property, an after the giving of not less than twenty
interest in or rights to such property in order (20) days notice. (Sec. 216, NIRC)
to enforce the payment of taxes. The real
property under levy shall be sold in a public May the taxpayer recover his property
sale, if the taxes involved are not voluntarily prior to consummation of the sale?
paid following such levy. YES. At any time before the day fixed for the
sale, the taxpayer may discontinue all
How is levy of real property effected? proceeding by paying the taxes, penalties and
interest. (Sec. 213, NIRC)
1) After the expiration of time required to
pay the delinquent tax, real property may May the taxpayer recover his property
be levied upon, BEFORE, after the consummation of the sale?
SIMULTANEOUSLY or AFTER the distraint YES. Within one (1) year from the date of
of personal property belonging to the sale, the taxpayer or anyone for him, may pay
delinquent. The IR officer designated by to the Revenue District Officer the total amount
the Commissioner or his duly authorized of the following:
representative shall prepare a DULY § public taxes
AUTHENTICATED CERTIFICATE showing § penalties
the name of the taxpayer and the § interest from the date of delinquency to the
amounts of tax and penalty due from date of sale
him. This certificate shall operate with § interest on said purchase price at the rate
the force of LEGAL EXECUTION of fifteen percent (15%) per annum from
throughout the Philippines. the date of sale to the date of redemption.
(NOTE: if the property was forfeited in

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 TAXATION LAW 2

favor of the government, the redemption percent (40%) of the basic assessed
price shall include only the taxes, penalties tax
and interest plus costs of sale – no interest è NOTE: When the basic tax involved
on purchase price since the Gov’t did not exceeds One Million Pesos (P1,000,000),
“purchase” the property anyway, it was or where the settlement offered is less
forfeited) than the prescribed minimum rates, the
NOTE: The taxpayer-owner shall not be compromise must be approved by the
deprived of possession of the said property Evaluation Board (composed of the
and shall be entitled to rents and other Commissioner and 4 deputy
income until the expiration of the period for commissioners)
redemption (Sec. 214, NIRC)
May the Commissioner compromise
cases of criminal violations?
JUDICIAL PROCEEDINGS Generally, ALL CRIMINAL VIOLATIONS may
Civil and criminal action and proceedings be compromised, EXCEPT:
instituted in behalf of the Government under a) those cases already filed in court
the authority of this Code or other law b) those involving fraud
enforced by the BIR
→ shall be BROUGHT IN THE NAME OF THE 2. Abatement (to cancel the entire amount of
GOVERNMENT of the Philippines tax payable)
→ shall be CONDUCTED BY LEGAL
OFFICERS OF THE BIR When may the Commissioner abate or
No civil or criminal action for the recovery of cancel a tax liability?
taxes or the enforcement of any fine, penalty The Commissioner may abate or cancel a tax
or forfeiture under the NIRC shall be filed in liability when:
court without the APPROVAL OF THE
COMMISSIONER approval of the 1) the tax or any portion thereof appears to
Commissioner. (Sec. 220, NIRC) be UNJUSTLY or EXCESSIVELY
ASSESSED; or
Q: How is a criminal action a collection
remedy? 2) the ADMINISTRATION and COLLECTION
The judgment in the criminal case shall: COSTS do not justify the collection of the
→ impose the penalty; and amount due. (costs of collection >
→ order payment of the taxes subject of amount of tax due)
the criminal case as finally decided
by the Commissioner. (Sec. 205,
NIRC) VI. STATUTORY OFFENSES AND PENALTIES

Q: Is an assessment necessary before A. Additions to the Tax

filing a criminal charge for tax evasion?
No, an assessment is not necessary before a 1. Civil Penalties
criminal charge can be filed. The criminal Surcharge à a civil penalty imposed by law
charge need only be proved by a prima facie as an addition to the main tax required to be
showing of a willful attempt to file taxes, such paid. It is a civil administrative sanction
as failure to file a required tax return. [CIR v. provided as a safeguard for the protection of
Pascor Realty (June 29, 1999)] the State revenue and to reimburse the
government for the expenses of investigation
and the loss resulting from the taxpayer’s
V. COMPROMISE AND ABATEMENT fraud. A surcharge added to the main tax is
subject to interest.
1. Compromise (to reduce the amount of tax
payable) Rates of Surcharge:
There shall be imposed a penalty equivalent
Grounds for a compromise: to twenty-five percent (25%) of the
The Commissioner may compromise the amount due, in the following cases:
payment of any internal revenue tax in the § FAILURE TO FILE ANY RETURN and PAY
following cases: THE TAX DUE THEREON on the date
prescribed; or
1) A REASONABLE DOUBT as to the validity § Filing a return with an internal revenue
of the claim against the taxpayer exists; officer than those with whom the return
or is required to be filed (except when
authorized by the Commissioner); or
2) The financial position of the taxpayer § FAILURE TO PAY THE DEFICIENCY TAX
demonstrates a clear inability to pay the within the time prescribed for its
assessed tax. (FINANCIAL INCAPACITY) payment in the notice of assessment
§ FAILURE TO PAY THE FULL OR PART of
What are the limits of the the amount of tax shown on any return
Commissioner’s power to compromise? required to be filed, or the full amount of
§ For cases of financial incapacity→ a tax due for which no return is required to
minimum compromise rate equivalent to be filed, on or before the date prescribed
ten percent (10%) of the basic for its payment. (Sec. 248A, NIRC)
assessed tax
§ For other cases→ a minimum
compromise rate equivalent to forty

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 TAXATION LAW 2

The penalty shall be fifty percent (50%) of o be subject to the penalties imposed
the tax or of the deficiency tax, in the under the Code.
following cases: NOTE: Payment of the tax due after a
§ WILLFUL NEGLECT to FILE THE RETURN case has been filed shall not constitute a
within the period prescribed valid defense in any prosecution for
§ A FALSE OR FRAUDULENT RETURN is violation of the provisions under the
willfully made (§248B) Code.
è Prima-facie evidence of false or
fraudulent return: § Any person who willfully aids or abets in
→ substantial underdeclaration of the commission of a crime penalized
taxable sales, receipts or income under the Code or who causes the
(failure to report sales, receipts or commission of any such offense by
income in an amount exceeding 30% another shall be liable in the same
of that declared per return) manner as the principal.
→ substantial overstatement of
deductions (a claim of deduction in § If the offender is:
an amount exceeding 30% of actual
deductions) OFFENDER PENALTY
Not a citizen of he shall be deported
2.Interest the Philippines immediately after serving
20% per annum on any unpaid amount of the sentence
tax or higher rate prescribed by rules and
regulations from the date prescribed for A public the maximum penalty
payment until the amount is fully paid. officer or prescribed for the offense
→ Deficiency interest – the term ‘deficiency’ employee shall be imposed on him
means the amount by which the taxed shall be dismissed from
imposed under the Code exceeds the public office, and perpetually
amount shown on the return filed (§249B) disqualified from holding any
→ Delinquency Interest. - In case of failure public office, to vote, and to
to pay: participate in any election
§ tax due on any return required to be
filed, or CPA his license shall be
§ tax due for which no return is required, automatically revoked or
or cancelled once he is
§ a deficiency tax, or any surcharge or convicted
interest thereon on the due date Corporations, imposed on the partner,
appearing in the notice and demand of associations, president, general manager,
the Commissioner, there shall be partnerships branch manager, treasurer,
assessed and collected on the unpaid etc officer-in-charge and
amount, interest at the rate prescribed employees responsible for
until the amount is fully paid, which the violation
interest shall form part of the tax.
(§249C) § The fines imposed for any violation of the
Code shall not be lower than the fines
B. Crimes, Other Offenses and Forfeitures imposed herein or twice the amount of
taxes, interests and surcharges due from
1. General Provisions the taxpayer, whichever is higher.
§ Any person convicted of a crime under (§253)
the Code shall: All violations of any provision of the Code
o be liable for the payment of the tax, shall prescribe after five (5) years.

2. Criminal Offenses

Sec. Offense Who is liable Penalty

254 Willful attempt to Any person who willfully attempts in Fine - P30,000 or
evade or defeat tax. any manner to evade or defeat any 100,000; and
tax or the payment thereof. Imprisonment - 2 to 4
years; Plus other
penalties
255 Failure to File Any person required to pay any tax, Fine - P10,000 or more;
Return, Supply make a return, keep any record, or and Imprisonment - 1 to
Correct and Accurate supply correct and accurate 10 years; Plus other
Information, Pay information penalties
Tax, Withhold and
Remit Tax and
Refund Excess Taxes
Withheld on
Compensation
Any person who attempts to make it Fine - P10,000 - 20,000;
appear for any reason that he or and Imprisonment - 1 to
another has in fact filed a return or 3 years; Plus other
statement, or actually files a return penalties
or statement and subsequently

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 TAXATION LAW 2

withdraws the same return or

statement
257 Making false entries, Any financial officer or Independent Fine - P50,000 -
records, or reports, CPA engaged to examine and audit 100,000; and
or using falsified or books of accounts of taxpayers Imprisonment - 2 to 6
fake accountable under Sec.232 (A) and any person years
forms. under his direction.
258 Unlawful pursuit of Any person who carries on any Fine - P5,000 - 20,000;
business business for which in annual and Imprisonment - 6
registration fee is imposed without months to 2 years
paying the tax as required by law.
A person engaged in the business of Fine - P30,000 - 50,000;
distilling, rectifying, repacking, and Imprisonment - 1 to
compounding or manufacturing any 2 years
article subject to excise tax.
259 Illegal Collection of Any person who knowingly Fine - P20,000 - 50,000;
Foreign Payments undertakes the collection of foreign and Imprisonment - 1 to
payments under Sec. 67 without a 2 years
license or without complying with the
implementing rules and regulations.
260 Unlawful Possession Any person, manufacturer or Fine - P20,000 -
of Cigarette Paper in importer of cigar or cigarettes 100,000; and
Bobbins or Rolls, Etc. Imprisonment - 6 years
1 day to 12 years
261 Unlawful Use of Any person who for the purpose of Fine - P20,000 -
Denatured Alcohol manufacturing any beverage, uses 100,000; and
denatured alcohol or alcohol specially Imprisonment - 6 years
denatured to be used for motive 1 day to 12 years
power or withdrawn under bond for
industrial uses or alcohol knowingly
misrepresented to be denatured to
be unfit for oral intake or who
knowingly sells or offers for sale
such preparations containing as an
ingredient such alcohol.

Any person who unlawfully recovers

or attempt to recover by distillation
or other process any denatured
alcohol or who knowingly sells or
offers for sale, conceals or otherwise
disposes of alcohol as recovered or
redistilled
262 Shipment or Any person who ships, transports or Fine - P20,000 -
Removal of removes 100,000; and
Liquor/Tobacco Imprisonment - 6 years
Products under False 1 day to 12 years
Name or Brand or as
an Imitation of any
Existing or Known
Product Name or
Brand
263 Unlawful Possession Any person who owns or is found in Value of goods not >
or Removal of possession of these articles P1,000: Fine – not <
Articles Subject to than P1,000 not >
Excise Tax W/o P2,000, imprisonment of
Payment of the Tax not < 60 days, not >
100 days

Value of goods >

P1,000, not > than
P50,000: Fine – not <
than P10,000 not >
P20,000, imprisonment
of not < 2 yrs, not > 4
years

Value of goods >

P50,000, not > than
P150,000: Fine – not <
than P30,000 not >
P60,000, imprisonment
of not < 4 yrs, not > 6

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 TAXATION LAW 2

years

Value of goods >

P150,000: Fine – not <
than P50,000 not >
P100,000, imprisonment
of not < 10 yrs, not > 12
years
264 Failure or Refusal to Any person who, being required Fine - P 1,000 - 50,000;
Issue Receipts or under Section 237 to issue receipts and Imprisonment - 2 to
Sales or Commercial or sales or commercial invoices 4 years
Invoices, Violations
Related to the
Printing of Such
Receipts or Invoices
and Other Violations
265 Offenses Relating to Fine - P 20,000 -
Stamps 50,000; and
Imprisonment 4-8 yrs
266 Failure to Obey Any person who being duly Fine - P 5,000 - 10,000;
Summons summoned to appear to testify, or to and Imprisonment - 1 to
appear and produce books of 2 yrs
accounts, records, memoranda or
other papers, or to furnish info. as
required under the pertinent
provisions of this Code.
267 Declaration under Any person who willfully files a Perjury under the
Penalties of Perjury declaration, return or statement Revised Penal Code
containing information which is not
true and correct as to every material
matter
268 Misdeclaration or Any manufacturer subject to excise Summary cancellation or
Misrepresentation of tax withdrawal of the permit
Manufacturers to engage in business as
Subject to Excise Tax a manufacturer of
articles subject to excise
tax
Forfeiture of Any person who conducts an Forfeiture
Property Used in unlicensed business
Unlicensed Business
or Dies Used for
Printing False
Stamps, Etc.
Forfeiture of Goods Any person subject to excise tax who Forfeiture
Illegally Stored or fails to store the goods in proper
Removed place, or removes goods without
payment of excise tax
274 Penalty for Second Maximum of the penalty
and Subsequent prescribed for the
Offenses offense
Forfeiture of Any person who conducts an Forfeiture
Property Used in unlicensed business
Unlicensed Business
or Dies Used for
Printing False
Stamps, Etc.
Forfeiture of Goods Any person subject to excise tax who Forfeiture
Illegally Stored or fails to store the goods in proper
Removed place, or removes goods without
payment of excise tax
274 Penalty for Second Maximum of the penalty
and Subsequent prescribed for the
Offenses offense
275 Violation of Other Any person who violates any Fine: not more than P
Provisions of the Tax provision of this Code or any rule or 1,000 or Imprisonment:
Code or Rules or regulation promulgated by the not more than 6 months,
Regulations in Department of Finance for which no or both
General specific penalty is provided by law
276 Penalty for Selling, Any taxpayer, whose property has Fine: not less than twice
Transferring, been placed under constructive the value of the property
Encumbering or in distraint but not less than P 5,000
any way disposing of or Imprisonment: 2 yrs 1
property Placed day - 4 yrs or both

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 TAXATION LAW 2

under Constructive
Distraint
277 Failure to Surrender Any person having in his possession Fine: P 5,000 or more or
Property Placed or under his control any property or Imprisonment: 6 months
under Distraint and rights to property, upon which a 1 day - 2 years, or both
Levy warrant of constructive distraint or
actual distraint and levy has been
issued
278 Procuring Unlawful Any person procures an officer or Fine: not more than P
Divulgence of Trade employee of the BIR to divulge any 2,000 or Imprisonment:
Secrets confidential information regarding 6 months - 5 years, or
the business, income or inheritance both
of any taxpayer, knowledge of which
was acquired by him in the discharge
of his official duties, and which it is
unlawful for him to reveal, and any
person who publishes or prints in
any manner whatever, not provided
by law, any income, profit, loss or
expenditure appearing in any income
tax return

3. Penalties Imposed on Public Officers any violation or alleged violation of law.

The law imposes a fine of not less than (§235)
P50,000 nor more than P100,000 or
imprisonment for not less than 10 years
nor more than fifteen years on every VII. COMPLIANCE REQUIREMENTS
official, agent or employee of the BIR or of
any agency or employee of the Government What records are required to be kept by
charged with the enforcement of the Tax taxpayers? (Sec. 232, NIRC)
Code, who shall: (CONED- FRAP)
Gross Requirements
a) Extort or willfully oppress under color of Quarterly
law; Sales or
b) knowingly Demand other or greater sums Output
than are authorized by law or receive any P50,000 or simplified form of bookkeeping
fee, compensation or reward, except as less records duly authorized by the
by law prescribed, for the performance of Secretary of Finance
any duty; • all transactions and results of
c) willfully Neglect to give receipts, as by operation are shown
law required, for any sums collected in • all taxes may be readily and
the performance of duty, or who willfully accurately ascertained at that
neglect to perform any of the duties time of the year
enjoined by law; exceeding a journal and ledger or their
d) Conspire or collude with another or P50,000 but equivalent
others to defraud the revenues or not more than
otherwise violate the law; P150,000
e) willfully make Opportunity for any person exceeding books of accounts, examined and
to defraud the revenues, or who do or P150,000 audited by an independent CPA
omit to do any act with intent to enable and their income tax return shall
be accompanied by
§ certified balance sheets
any other person to defraud the § profit and loss statements
revenues; § list of income-producing
f) negligently or by design Permit the properties and other relevant
violation of the law by any other person; data
g) make or sign any False certificate or
return in any case where the law requires
the making by them of such entry, NOTES:
certificate or return; § Taxpayers may also keep other subsidiary
h) having knowledge or information of a books at their option, as the needs of their
violation of any provision of the Code or business may require which shall form part
of any fraud committed on the revenues of the accounting system of the taxpayer.
collectible by the BIR, fail to Report such (Sec. 233, NIRC)
knowledge or information to their
superior officer, or to report as otherwise § Books or records shall be kept in a native
required by law; or language, English or Spanish. The keeping
i) without the authority of law, demand or of books and records in any language other
Accept or attempt to collect, directly or than the three mentioned is prohibited,
indirectly, as payment or otherwise, any unless the taxpayer makes a true and
sum of money or other thing of value for complete translation of all the entries in
the compromise, adjustment or the said books and records. (Sec. 234,
settlement of any charge or complaint for NIRC)

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 TAXATION LAW 2

such offer has been accepted and

§ All the books and records shall be kept by collected by the Commissioner.
the taxpayer until the period for making an § If no revenue, surcharge or fees be
assessment under Sections 203 and 222 actually collected, such person is not
have prescribed. (Sec. 235, NIRC) entitled to a reward
§ For discovery and seizure of
§ Examination and inspection of all books SMUGGLED GOODS à The cash reward
and records shall be made only once in a is 10% of the FMV of the smuggled and
taxable year, EXCEPT in these cases: confiscated goods, or P1,000,000,
§ Fraud, irregularity or mistakes, as whichever is LOWER.
determined by the Commissioner § The cash rewards shall be subject to income
§ The taxpayer requests TAX at the rate of 10%.
reinvestigation § Rule of construction à Statutes offering
§ Verification of compliance with rewards must be liberally construed in favor
withholding tax laws and regulations of informers and with regard to the purpose
§ Verification of capital gains tax for which they are intended, with mere
liabilities technicality yielding to the substantive
§ In the exercise of the purpose of the law.
Commissioner’s power to issue an [Penid v. Virata]
access letter. (Sec. 235, NIRC)

Who are required to register with the BIR?

Every person subject to any internal revenue
tax shall register once with the appropriate
Revenue District Officer:
§ Within ten (10) days from date of
employment, or
§ On or before the commencement of
business, or
§ Before payment of any tax due, or
§ Upon filing of a return, statement or
declaration as required under the Code
(Sec. 236, NIRC)

What shall the BIR do after the taxpayer

registers?
The BIR shall assign a Taxpayer Identification
Number (TIN) which the taxpayer shall indicate
in every return, statement or document filed
with the BIR. Only one TIN shall be given a
person. Any person who secures more than
one TIN shall be criminally liable. (§236)

VIII. INFORMER’S REWARD (Sec. 282 of the NIRC)

§ To whom given à persons instrumental in

the discovery of violations of the NIRC and in
discovery and seizure of smuggled goods.

§ Conditions to qualify for the reward:

1. Person is not an internal revenue official
or employee, public official, or employee
or relative within 6 th degree of
consanguinity
2. Voluntarily gives definite and sworn
information:
a) Not yet in the possession of BIR
b) Leading to discovery of frauds
c) Resulting in:
i. the recovery of revenues,
surcharges and fees and/or
ii. conviction of the guilty party.
d) Not refer to a case already pending
or previously investigated or
examined by the Commissioner or
his agents or the SOF or his agents.

§ Amount of reward: 10% of the revenues,

surcharges or fees recovered and/or
fine/penalty imposed, or P1,000,000,
whichever is LOWER.
§ The same amount shall be given if the
offender offered to compromise and

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 TAXATION LAW 2

Flowchart I: Taxpayer’s Remedies from Tax Assessment-NIRC

START

Commissioner or Revenue Officer (RO)

RO sends notice Taxpayer
Regional Director conducts Audit w/in 120
of informal responds w/in 15
Issues Letter of days. If 120 days lapse
conference days
Authority (LA) LA is revalidated,

Regional
Send Formal Letter Assessment
Is response w/n Taxpayer
of demand and Final NO to Division issues a
15 days? Is it responds w/in
Assessment Notice either Preliminary
meritorious? 15 days
(FAN) is issued Assessment Notice
(PAN)
Yes to ASSESSMENT
both ENDS

File protest w/n 30 Protest made w/in

days from receipt of 30 days?
YES to Commissioner decides on
assessment. Submit Supporting papers
both protest within 180 days
supporting papers wi/in submitted w/in 60
60 days from protest days?

Assessment becomes
NO to
Final, Warrant of Distraint
either
& Levy Issued

Decision Commissioner
YES favorable to YES decides w/n
taxpayer? 180 days?

ASSESSMENT
ENDS NO NO

Appeal to the Court of Tax Appeal to the Court of Tax

appeals within 30 days OR file Appeals w/in 30 days after
motion for reconsideration lapse of 180 days OR wait for
within 30 days. MR tolls 30 a decision by the BIR
day period to appeal to CTA (Lascona Land oil vs. CIR)

If MR is denied, appeal to
the CTA within remainder
of the 30 days

Assessment
CTA decides on Appeal made becomes Final,
YES NO
the appeal on time? Warrant of Distraint
& Levy Issued

If CTA decision is unfavorable to

taxpayer, file MR with CTA Appeal to
END
Division w/in 15 days. Appeal to Supreme Court
CTA en banc if MR denied.

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 TAXATION LAW 2

Flowchart II: Procedures for Distraint and Levy-NIRC

RCO - Revenue Collection Officer RDO - Revenue District officer

START
RRD - Revenue Regional Director LGU- Local Government Unit

Person owing any Commissioner seizes sufficient

delinquent tax to Delinquent tax personal property to satisfy the
Yes
fails to pay w/in more than 1M? tax, charge & expenses of seizure
the time required (Sec. 207 (A))

RDO seizes sufficient

personal property to satisfy
No
the tax, charges & expenses
RDO posts notice in at least 2 public Property may be resold and
of seizure (Sec. 207 (A))
places in the municipality/city where the net proceeds shall be
the distraint is made. One place of remitted to the National
posting must be at the mayor’s office. Treasury as internal revenue.
Time of sale shall not be less than 20 Distraining Officer accounts for (Sec. 212)
days after the notice (Sec. 209) the goods distrained (Sec. 208)

Bid less than

Officer Commissioner may purchase
Goods shall be restored to owner, amount of tax/
conducts Yes property for the National
if charges are paid (Sec. 210) FMV of goods
public auction Government (Sec. 212)
distrained?

No, bid just right

W/in 5 days after sale, W/in 2 days after Excess of proceeds over the Officer sells the goods to the
distraining officer shall enter the sale, officer entire claim, shall be returned highest bidder for cash or
return of proceedings in the shall report to the to the owner. No charge shall with the Commissioner’s
records of RCO, RDO and Commissioner. be imposed for the services of approval, through commodity/
RRD (Sec. 213) (Sec. 211) the officer (Sec. 209) stock exchanges. (Sec. 209)

Internal revenue officer,

Real property may be levied Levy shall be affected by writing upon said certificate a
designated by the Commissioner,
on before, simultaneously, or description of the property. Notice of the levy shall be
shall prepare a certificate with the
after the distraint of personal served upon the Register of Deeds of LGU where the
force of a nationwide legal
property (207 (B)) property is located and upon the owner (Sec. 207 B)
execution (Sec. 207 B)

W/n 20 days after levy, officer shall post

W/n 10 days after receipt of the notice at the main entrance of the Sale shall be held at the
warrant, levying officer shall municipal/city hall & in public place in the main entrance of the
report to the Commissioner who barrio/district where the real estate lies for municipal/city hall, or on the
shall have the authority to lift the at least 30 days by AND publish it once a premises of the levied
warrant of levy (Sec. 207 B) week for 3 weeks. Owner may prevent property. (Sec. 213)
sale by paying all charges (Sec. 213)

W/n 1 year from forfeiture, W/n 2 days, he shall make a return

Officer conducting the
the taxpayer, may redeem of the forfeiture. Register of Deeds, No bidder or
sale shall forfeit the
said property by paying full upon registration of forfeiture shall Yes highest bid
property to the
amount of the taxes and transfer title to the Government w/o insufficient?
Government (Sec. 215)
charges (Sec. 215) court order. (Sec. 215)

No, bid ok

W/n 1 year from sale, the W/n 5 days after the sale, Excess of proceeds
The Commissioner may, owner may redeem, by paying levying officer shall enter of the sale over claim
after 20 days notice, sell to the RDO the amount of the return of the proceedings and cost of sale shall
property at public auction taxes, penalties, and interest upon the records of the RCO, be turned over to the
or at private sale with thereon from the date of RDO and RRD (Sec. 213) owner (Sec. 213)
approval of the SoF. delinquency to the date of sale,
Proceeds shall be and 15% per annum interest on
deposited with the National purchase price from the date
Treasury (Sec. 216) Owner shall not be
of purchase to the date of Levy and distraint
deprived of the
redemption. (Sec. 214) may be repeated until
possession and shall
the full amount due,
be entitled to the
and all expenses are
fruits until 1 year
collected. (Sec. 217)
expires (Sec. 214)

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 TAXATION LAW 2

VI. LOCAL TAXATION Progressive system of taxation. (SEC.

130, LGC)
I. BASIC CONCEPTS
e. Local Taxing Authority. - shall be
exercised by the SANGGUNIAN of the
a. Local Government Unit - 1987
LGU concerned through an appropriate
CONSTI, ART X, SECTION 1.
ordinance. (SEC. 132, LGC)
§ HOWEVER, the local chief executive of
The territorial and political subdivisions of
the LGUs (except the punong barangay)
the Republic of the Philippines are the
possesses veto powers, as laid out in
provinces, cities, municipalities, and
Sec. 55 of the LGC:
barangays. There shall be autonomous
SEC. 55. Veto Power of the Local Chief
regions in Muslim Mindanao and the
Executive. –
Cordilleras as hereinafter provided.
(a) The local chief executive may veto
b. Scope of Local Taxation – The
any ordinance of the sangguniang
provisions in LGC shall govern the
panlalawigan, sangguniang panlungsod,
exercise by PROVINCES, CITIES,
or sangguniang bayan on the ground
MUNICIPALITIES, and BARANGAYS of
that it is ultra vires or prejudicial to the
their taxing and other revenue-raising
public welfare, stating his reasons
powers. (Sec 128 LGC)
therefor in writing.
c. Power to Create Sources of Revenue
(b) The local chief executive, except
-- Each local government unit shall
the punong barangay, shall have the
exercise its power to create its own
power to veto any particular item or
sources of revenue and to levy taxes,
items of an appropriations ordinance,
fees, and charges subject to the
an ordinance or resolution adopting a
provisions herein, consistent with the
local development plan and public
basic policy of local autonomy. Such
investment program, or an ordinance
taxes, fees, and charges shall accrue
directing the payment of money or
exclusively to the local government
creating liability. In such a case, the
units. (SEC. 129, LGC)
veto shall not affect the item or items
which are not objected to. The vetoed
d. Fundamental Principles -- The
item or items shall not take effect
following fundamental principles shall
unless the sanggunian overrides the
govern the exercise of the taxing and
veto in the manner herein provided;
other revenue-raising powers of local
otherwise, the item or items in the
government units: (PUPUPICE)
appropriations ordinance of the
previous year corresponding to those
(a) Taxation shall be Uniform in each
vetoed, if any, shall be deemed
local government unit;
reenacted.
NOTE: the uniformity required is only
(c) The local chief executive may veto
within the territorial jurisdiction of
an ordinance or resolution only once.
an LGU. (IRR)
The sanggunian may override the veto
of the local chief executive concerned
(b) Taxes, fees, charges and other
by two-thirds (2/3) vote of all its
impositions shall:
members, thereby making the
(1) be Equitable and based as far as
ordinance effective even without the
practicable on the taxpayer's
approval of the local chief executive
ability to pay;
concerned.
(2) be levied and collected only for
Public purposes;
(3) not be Unjust, excessive,
II. COMMON LIMITATIONS ON THE
oppressive, or confiscatory;
TAXING POWERS OF LOCAL
(4) not be Contrary to law, public
GOVERNMENT UNITS (SEC 133)
policy, national economic policy,
or in the restraint of trade;
Unless otherwise provided, the exercise of
the taxing powers of provinces, cities,
(c) The collection of local taxes, fees,
municipalities, and barangays shall NOT
charges and other impositions shall
EXTEND to the levy of the following (IDEC-
not be let to any Private person;
GAPE-PGP-RECN):
(d) The revenue collected pursuant to the
1. Income tax, except when levied on banks
provisions of this Code shall Inure
and other financial institutions;
solely to the benefit of, and be
2. Documentary stamp tax;
subject to the disposition by, the local
3. Taxes on Estates, inheritance, gifts, legacies
government unit levying the tax, fee,
and other acquisitions mortis causa, except
charge or other imposition unless
as otherwise provided herein;
otherwise specifically provided
4. Customs duties, registration fees of vessel
herein; and,
and wharfage on wharves, tonnage dues,
and all other kinds of customs fees, charges
(e) Each local government unit shall, as
and dues except wharfage on wharves
far as practicable, evolve a

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constructed and maintained by the LGU 10. Taxes on the Gross receipts of
concerned; transportation contractors and persons
5. Taxes, fees, and charges and other engaged in the transportation of passengers
impositions upon Goods carried into or out or freight by hire and common carriers by
of, or passing through, the territorial air, land or water, except as provided in this
jurisdictions of local government units in the Code;
guise of charges for wharfage, tolls for 11. Taxes on Premiums paid by way or
bridges or otherwise, or other taxes, fees, or reinsurance or retrocession;
charges in any form whatsoever upon such 12. Taxes, fees or charges for the Registration
goods or merchandise; of motor vehicles and for the issuance of all
6. Taxes, fees or charges on Agricultural and kinds of licenses or permits for the driving
aquatic products when sold by marginal thereof, except tricycles;
farmers or fishermen; 13. Taxes, fees, or other charges on Philippine
7. Taxes on business enterprises certified to by products actually Exported, except as
the Board of Investments as Pioneer or non- otherwise provided herein;
pioneer for a period of six (6) and four (4) 14. Taxes, fees, or charges, on Countryside and
years, respectively from the date of Barangay Business Enterprises and
registration; Cooperatives duly registered under the
8. Excise taxes on articles enumerated under "Cooperative Code of the Philippines"; and
the NIRC, as amended, and taxes, fees or 15. Taxes, fees or charges of any kind on the
charges on petroleum products; National Government, its agencies and
9. Percentage or VAT on sales, barters or instrumentalities, and local government
exchanges or similar transactions on goods units
or services except as otherwise provided
herein;

III.SPECIFIC PROVISIONS ON THE TAXING AND OTHER REVENUE-RAISING POWERS OF LGUS

TAX TAX RATE & TAX BASE
A. PROVINCES
Tax on Transfer of Real Property Ownership (Sec. 135) Not more than 50% of 1%
- tax on sale, donation or on any other mode of transferring of the total consideration
ownership involved in the acquisition of
NOTE: the property OR of the FMV
• sale, transfer or other disposition pursuant to RA 6657 in case the monetary
(Comprehensive Agrarian Reform Law) shall be EXEMPT from this consideration involved in the
tax. transfer is not substantial,
• the Register of Deeds shall require the presentation of evidence of whichever is higher
payment of this tax, BEFORE registering any deed. NOTE: the FMV used shall
• the Provincial Assessor shall also make the same requirement be that reflected in the
BEFORE cancelling an old tax declaration and issuing a new one. prevailing schedule of FMVs
• it shall be the DUTY of the seller, enacted by the sanggunian
donor,transferor,executor/administrator to pay the tax concerned. (IRR)
herein imposed within 60 days from the date of execution of
the deed or from the date of decedent’s death.

Tax on Business of Printing and Publication (Sec. 136)

- imposed on business of persons engaged in the printing and/or Not exceeding fifty percent
publication of books, cards, posters, leaflets, handbills, certificates, (50%) of one percent (1%)
receipts, pamphlets, and others of similar nature of the gross annual
receipts for the preceding
calendar year

- In the case of a newly started business Not exceed one-twentieth

(1/20) of one percent (1%)
of the capital investment
- In the succeeding calendar year, regardless of when the Based on the gross
business started to operate receipts for the preceding
calendar year, or any
NOTE: receipts from the printing and/or publishing of books or other fraction thereof
reading materials prescribed by DECS as school texts or
references shall be EXEMPT from this tax.
Franchise Tax (Sec. 137)
- imposed on businesses enjoying a franchise (notwithstanding Not exceeding fifty percent
any exemption granted by any law or other special law) (50%) of one percent (1%)
of the gross annual
“business enjoying a franchise” – shall not include holders of receipts for the preceding
certificates of public convenience for the operation of public utility calendar year based on the
vehicles for reason that such certificates are NOT considered as incoming receipt, or realized,
franchises. (IRR) within its territorial
jurisdiction

- In the case of a newly started business Not exceed one-twentieth

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(1/20) of one percent (1%)

of the capital investment
- In the succeeding calendar year, regardless of when the Based on the gross
business started to operate receipts for the preceding
calendar year, or any
fraction thereon

Tax on Sand, Gravel and Other Quarry Resources (Sec. 137)

Not more than 10% of FMV
NOTE: The permit to extract sand, gravel and other quarry in the locality per cubic
resources shall be issued EXCLUSIVELY by the provincial governor, meter of ordinary stones,
pursuant to the ordinance of the sangguniang panlalawigan. sand, gravel, earth, and
other quarry resources,
extracted from public
lands or from the beds of
seas, lakes, rivers, streams,
creeks, & other public
waters within its territorial
jurisdiction
Professional Tax (Sec. 139)
- on each person engaged in the exercise or practice of his profession At such amount and
requiring government examination (ie bar or any board exam reasonable classification as
conducted by PRC) the sangguniang
panlalawigan may
NOTE: determine but shall in no
• Where to pay the tax? case exceed Three
Ø where he practices his profession; OR hundred pesos (P300.00)
Ø where he maintains his principal office in case he practices in
several places
PROVIDED, that such person who has paid the professional tax
shall be entitled to practice his profession in any part of the Phil
without being subjected to any other national or local tax, license,
or fee for the practice of such profession.
• Any employer employing a person subject to this tax shall require
such payment BEFORE the employment and annually thereafter.
• A line of profession does NOT become exempt even if conducted
with some other profession for which the tax has been paid.
• Professionals EXCLUSIVELY employed in the government
shall be EXEMPT.

Amusement Tax (Sec. 140)

- collected from the proprietors, lessees, or operators of theaters, at a rate of not more than
cinemas, concert halls, circuses, boxing stadia, and other places of thirty percent (30%) of the
amusement gross receipts from
NOTE: admission fees.
• In case of theaters or cinemas, the tax shall first be deducted
and withheld by their proprietors, lessees or operators and paid
to the provincial treasurer BEFORE the gross receipts are divided
between said proprietors, lessees, or operators, and distributors
of cinematographic films.
• The holding of operas, concerts, dramas, recitals, painting and
art exhibitions, flower shows, musical programs, literary and
oratorical presentations, shall be EXEMPT from this tax while
pop, rock or similar concerts are NOT EXEMPT.
Annual Fixed Tax For Every Delivery Truck or Van of
Manufacturers or Producers, Wholesalers of, Dealers, or
Retailers in, Certain Products (Sec. 141)
- for every truck, van or any vehicle used by manufacturers,
producers, wholesalers, dealers or retailers in the delivery or in an amount not exceeding
distribution of distilled spirits, fermented liquors, soft drinks, cigars Five hundred pesos
and cigarettes, and other products as may be determined by the (P500.00)
sangguniang panlalawigan, to sales outlets, or consumers, whether
directly or indirectly, within the province
NOTE: the manufacturers, producers, wholesalers, dealers and
retailers referred above shall be EXEMPT from the tax on peddlers
described elsewhere in LGC.
B. MUNICIPALITIES
SCOPE - municipalities may levy taxes, fees, and charges not
otherwise levied by provinces. (SEC. 142,LGC)
Tax on Business
(a) On manufacturers, assemblers, repackers, processors, brewers, in accordance with the
distillers, rectifiers, and compounders of liquors, distilled spirits, and schedule (refer to Sec 143)
wines or manufacturers of any article of commerce of whatever

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kind or nature, NOTE: the rates in Sec 143 (a) shall apply ONLY
to amount of DOMESTIC sales. (IRR)

(b) On wholesalers, distributors, or dealers in any article of in accordance with the

commerce of whatever kind or nature schedule (Sec 143 again)

(c) On exporters, and on manufacturers , millers, producers, Not exceeding one-half (½)
wholesalers, distributors, dealers or retailers of essential of the rates prescribed under
commodities -- such as: subsection (a), (b) and (d)
(1) Rice and corn; of Sec 143
(2) Wheat or cassava flour, meat, dairy products, locally
manufactured, processed or preserved food, sugar, salt and other
agricultural, marine, and fresh water products, whether in their
original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements. equipment and post-harvest facilities,
fertilizers, pesticides, insecticides, herbicides and other farm
inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
(d) On retailers: per annum
With gross sales or receipts for the preceeding CY of:
P400,000 or less 2%
More than P400,000 1%
Provided, however, That barangays shall have the exclusive power
to levy taxes, as provided under Section 152 hereof, on gross sales
or receipts of the preceding calendar year of P50,000 or less, in the
case of cities, and P30,000 or less, in the case of municipalities.

(e) On contractors and other independent contractors in accordance with the

schedule (Sec 143 again)
(f) On banks and other financial institutions Not exceeding fifty percent
(50%) of one percent (1%)
NOTE: all other income and receipts of banks and financial on the gross receipts of the
institutions NOT otherwise enumerated (→) shall be EXCLUDED from preceding calendar year
the taxing authority of the LGU.(IRR) derived from interest,
commissions and
discounts from lending
activities, income from
financial leasing,
dividends, rentals on
property and profit from
exchange or sale of
property, insurance
premium.
(g) On peddlers engaged in the sale of any merchandise or article Not exceeding Fifty pesos
of commerce (P50.00) per peddler
annually.

(h) On any business, not otherwise specified in the preceding

paragraphs, which the sanggunian concerned may deem proper
to tax: Provided, That on any business subject to the excise, value-
added or percentage tax under the NIRC, as amended, the rate of tax
shall not exceed two percent (2%) of gross sales or receipts of
the preceding calendar year. (this is the catch-all provision)

NOTE: The sanggunian concerned may prescribe sworn statement of its gross sales or receipts
a schedule of graduated tax rates but in no case for the current year. If the tax paid during the
to exceed the rates prescribed in the LGC. year be LESS THAN the tax due on said gross
sales or receipts of the current year, the
Rates of Tax within the Metropolitan Manila difference shall be paid before the business is
Area considered officially retired. (Sec 145)
The municipalities within the Metropolitan Manila
Area may levy taxes at rates which shall not Payment of Business Taxes
exceed by fifty percent (50%) the maximum • The taxes imposed in sec 143 shall be
rates prescribed in Sec 143. (SEC. 144, LGC) payable for EVERY SEPARATE OR DISTINCT
ESTABLISHMENT or PLACE where business
Retirement of Business subject to tax is conducted.
A business subject to tax pursuant to Sec 143
shall, upon termination thereof, submit a

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• One line of business does NOT become

exempt by being conducted with some other C. CITIES
businesses for which such tax has been paid.
• The tax on a business must be paid by the SCOPE --- Except as otherwise provided in this
person conducting the same. Code, the city, may levy the taxes, fees, and
• In cases where a person conducts or operates charges which the province or municipality may
2 or more businesses mentioned in Sec 143 – impose: Provided, however, That the taxes, fees
a.) which are subject to THE SAME tax rate → and charges levied and collected by highly
tax shall be computed on the COMBINED urbanized and independent component cities
TOTAL GROSS SALES/RECEIPTS shall accrue to them and distributed in
b.) which are subject to DIFFERENT tax rates accordance with the provisions of LGC.
→ the gross sales/receipts shall be
SEPARATELY REPORTED for the The rates of taxes that the city may levy may
computation of taxes. exceed the maximum rates allowed for the
province or municipality by not more than fifty
• Condominium corporations are not business percent (50%) except the rates of professional
entities, thus not subject to local business and amusement taxes. (Sec. 151, LGC)
tax. Even though the corporation is
empowered to levy assessments or dues from IRR:
the unit owners, these amounts are not • The city may levy and collect a
intended for the incurrence of profit by the percentage tax on ANY business NOT
corporation, but to shoulder the multitude of otherwise specified in the LGC or the
necessary expenses for maintenance of the IRR, at rates NOT exceeding 3% of
condominium. [YAMANE vs. LEPANTO CONDO the gross sales or receipts of the
CORP. (Oct. 25, 2005)] preceding calendar year.
• The rates of the following taxes shall be
uniform for the city and the province:
Fees and Charges a. Professional tax – shall not
GENERAL: exceed P300
The municipality may impose and collect such b. Amusement tax – the rate shall
reasonable fees and charges on business and not be more than 30% of the gross
occupation and on the practice of any profession receipts from admission fees
or calling, commensurate with the cost of • The proceeds of the tax on sand, gravel,
regulation, inspection and licensing BEFORE and other quarry resources in highly-
any person may engage in such business or urbanised cities shall be distributed as
occupation, or practice such profession or calling. follows:
highly urbanised city 60%
SPECIFIC: barangay where the sand, gravel, etc
1. For Sealing and Licensing of Weights and are extracted 40%
Measures.
at such reasonable rates as shall be prescribed D. BARANGAYS
by the sangguniang bayan.
SCOPE --- The barangays may levy taxes, fees,
2. Fishery Rentals, Fees and Charges. and charges, as provided in this Article, which
Municipalities shall have the exclusive shall exclusively accrue to them:
authority to grant fishery privileges in the (a) Taxes - On stores or retailers with fixed
municipal waters and impose rentals, fees business establishments at a rate not
or charges thereon. exceeding one percent (1%) on such gross
sales or receipts.
The sangguniang bayan may: • IN CASE OF CITIES -- with gross sales
(1) Grant fishery privileges to erect fish corrals, or receipts of the preceding calendar
oysters, mussels or other aquatic beds or year of Fifty thousand pesos
bangus fry areas, within a definite zone of (P50,000.00) or less
the municipal waters, as determined by it • IN CASE OF MUNICIPALITIES – with
(2) Grant the privilege to gather, take or catch gross sales or receipts of Thirty
bangus fry, prawn fry or kawag-kawag or fry thousand pesos (P30,000.00) or less
of other species and fish from the municipal (b) Service Fees or Charges - Barangays may
waters by nets, traps or other fishing gears collect reasonable fees or charges for
to marginal fishermen free of any rental, services rendered in connection with the
fee, charge or any other imposition regulations or the use of barangay-owned
whatsoever. properties or service facilities such as palay,
(3) Issue licenses for the operation of fishing copra, or tobacco dryers.
vessels of three (3) tons or less (c) Barangay Clearance - No city or
Provided, however, That the sanggunian municipality may issue any license or permit
concerned shall, by appropriate ordinance, for any business or activity unless a clearance
penalize the use of explosives, noxious or is first obtained from the barangay where
poisonous substances, electricity, muro-ami, and such business or activity is located or
other deleterious methods of fishing and conducted. For such clearance, the
prescribe a criminal penalty therefor in sangguniang barangay may impose a
accordance with the provisions of the LGC reasonable fee.
Provided, finally, That the sanggunian concerned (d) Other fees and Charges. - The barangay
shall have the authority to prosecute any may levy reasonable fees and charges:
violation of the provisions of applicable fishery (1) On commercial breeding of fighting
laws. (Sec. 149, LGC) cocks, cockfights and cockpits;

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(2) On places of recreation which charge

admission fees; and RULE 1: In case of persons
NOTE: “places of recreation” – include maintaining/operating a branch or sales outlet
places of amusement where one seeks making the sale or transaction, the tax shall be
admission to entertain himself by seeing or recorded in said branch or sales outlet and
viewing the show or performance or those paid to the municipality/city where the
where one amuses himself by direct branch or sales outlet is located.
participation.
(3) On billboards, signboards, neon signs, RULE 2: Where there is NO branch or sales
and outdoor advertisements. (Sec. 152, outlet in the city/municipality where the sale is
LGC) made, the sale shall be recorded in the
principal office and the tax shall be paid to such
QUICK GLANCE city/municipality.

TYPE OF TAX PR MU CIT BA RULE 3: In the case of manufacturers,

OVI NIC Y RA contractors, producers, and exporters having
NC IPA NG
E LIT AY
factories, project offices, plants, and plantations,
Y the ff sales allocation shall be observed:
Sec. 135 – Tax on Transfer X X • 30% of sales recorded in the principal office
of Real Property Ownership shall be made taxable by the city/municipality
Sec. 136 – Tax on Business X X where the principal office is located
of Printing and Publication
• 70% shall be taxable by the city/municipality
Sec. 137 – Franchise Tax33 X X
where the factory, project office, plant,
Sec. 138 – Tax on Sand, X X
Gravel and Other Quarry or plantation is located
Resources34
Sec. 139 – Professional Tax X X Illustration of Rule 1 to 3:
Sec. 140 – Amusement Tax X X A company has a principal office in Mandaluyong,
Sec. 141 –Annual Fixed Tax X X while its sales office and factory are in Sta Rosa
For Every Delivery Truck or
Van of Manufacturers or
Ø sales made in Sta Rosa, will be recorded in
Producers, Wholesalers of, Sta Rosa
Dealers, or Retailers in, Ø sales made in Los Baños, Calamba or
Certain Products Cabuyao (ie delivered to customers located
Sec. 143 – Tax on Business X X in those places), will be recorded in
Sec. 147 – Fees and charges X X
Mandaluyong
on regulation/licensing of
business and occupation Ø aside from sales made in Sta Rosa, Sta Rosa
(except professional taxes) also gets 70% of sales recorded in
Sec. 148 – Fees for Sealing X X Mandaluyong, pursuant to Rule 3
and Licensing of Weights and
Measures RULE 4: In case the plantation is located in a
Sec. 149 – Fishery Rentals, X X
Fees and Charges
place other than the place where the factory is
Sec. 156 – Community Tax X X located, the 70% portion in Rule 3 will be
Sec. 152(a) – Tax on Gross X divided as follows:
Sales or Receipts of Small- • 60% to the city/municipality where the
Scale Stores/Retailers factory is located
Sec. 152(b) – Service Fees X • 40% to the city/municipality where the
on the use of Barangay-
owned properties
plantation is located
Sec. 152(c) – Barangay X
Clearance RULE 5: In case of 2 or more factories,
Sec. 152(d) – Other Fees X plantations, etc in different localities, the 70%
and Charges (on commercial shall be prorated among the localities where
breeding of fighting cocks,
the factories, plantations, etc are located in
cockfights, cockpits; places
of recreation which charge proportion to their respective volume of
admission fees; outside ads) production.
Sec. 153 – Service Fees and X X X X
Charges NOTE: In case of manufacturers or producers
Sec. 154 – Public Utility X X X X which engage the services of an independent
Charges35
contractor to produce or manufacture some of
Sec. 155 – Toll Fees or X X X X
Charges36 their products, these rules shall apply except that
Sec. 232 – Real Property Tax X XX X the factory or plant and warehouse of the
Legend: contractor utilised for the production and storage
X à Authorized to impose the tax of the manufacturers’ products shall be
XX à Only if the municipality is within the Metro Manila considered as the factory or plant and warehouse
Area
of the manufacturer. (IRR)
IV. SITUS OF TAX
NOTE: The city or municipality where the
33
port of loading is located shall not levy and
The franchise tax provided in Sec. 137 is intended to be in addition to the franchise tax
imposed by the National Government. (de Leon, p. 463) collect the reasonable fees unless the exporter
34
Note that under Sec. 138, the proceeds of this tax are allocated as follows:
(1) Province - Thirty percent (30%);
maintains in said city or municipality its principal
(2) Component city or municipality where the sand, gravel, and other
quarry resources are extracted - Thirty percent (30%); and
office, a branch, sales office, or warehouse,
(3) barangay where the sand, gravel, and other quarry resources are factory, plant or plantation in which case, the
extracted - Forty percent (40%).
35
36
Applies to public utilities operated and maintained by them within their jurisdiction. rule on the matter shall apply accordingly. (IRR)
Applies to the use of any public road, pier, wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the local government unit
concerned. Exemptions: (1) officers and enlisted men of the Armed Forces of the
Philippines and members of the Philippine National Police on mission, (2) post office
personnel delivering mail, (3) physically-handicapped, and (4) disabled citizens who are
sixty-five (65) years or older.

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V. COMMON REVENUE-RAISING in no case shall exceed Five

POWERS thousand pesos (P5,000.00).

A. Service fees and charges -- LGUs NOTE: In the case of husband and
may impose such reasonable fees and wife, EACH shall pay the basic tax of
charges for services rendered. (Sec. P5.00; but the additional tax herein
153, LGC) imposed shall be based upon the total
property owned by them and the total
B. Public Utility charges – LGUs may fix gross receipts or earnings derived by
the rates for the operation of public them.
utilities owned, operated and
maintained by them within their 2. Juridical Persons -- every
jurisdiction. (Sec. 154, LGC) corporation no matter how created or
organized, whether domestic or
C. Toll fees or charges – LGUs, thru resident foreign, engaged in or doing
their sanggunian concerned, may fix business in the Philippines
the rates for the imposition of toll fees Ø shall pay
or charges for the use of any public o an annual community tax of Five
road, pier, or wharf, waterway, bridge, hundred pesos (P500.00) AND
ferry or telecommunication system o an annual additional tax, which,
funded and constructed by the LGU. in no case, shall exceed Ten
thousand pesos (P10,000.00) in
PROVIDED, that no such toll fees or charges accordance with the following
shall be collected from: (1) officers and schedule:
enlisted men of AFP and members of PNP on
mission, (2) post office personnel delivering (1) For every P5,000 worth of real
mail, (3) physically-handicapped, and property in the Philippines owned
disabled citizens who are 65 years or older. by it during the preceding year
based on the valuation used for the
When public safety and welfare so requires, payment of real property tax under
the sanggunian concerned may discontinue existing laws, found in the
the collection of the tolls, and thereafter the assessment rolls of the city or
said facility shall be free and open for public municipality where the real
use. (Sec. 155, LGC) property is situated – P2; AND

(2) For every P5,000.00 of gross

VI. COMMUNITY TAX receipts or earnings derived by it
from its business in the Philippines
A. Who may levy during the preceding year – P2.00
Cities or municipalities may levy a NOTE: The dividends received by a
community tax (Sec. 156, LGC) corporation from another corporation
however shall, for the purpose of the
NOTE: For purposes of enactment of a local additional tax, be considered as part of
tax ordinance levying a community tax, the the gross receipts or earnings of said
conduct of a public hearing shall NO longer corporation.
be required.
C. Who are exempted (Sec. 159, LGC)
B. Who are liable (Sec. 157 &158, LGC) (1) Diplomatic and consular
representatives;
1. Individuals -- every inhabitant of the (2) Transient visitors when their stay in
Philippines eighteen (18) years of age the Philippines does not exceed 3 months
or over
Ø Who has been regularly employed D. Manner of Payment
on a wage or salary basis for at • PLACE OF PAYMENT -- community tax
least thirty (30) consecutive shall be paid in the place of residence of
working days during any calendar the individual, or in the place where the
year, OR principal office of the juridical entity is
Ø Who is engaged in business or located. (Sec. 160, LGC)
occupation, OR
Ø Who owns real property with an • TIME OF PAYMENT – community tax shall
aggregate assessed value of P1,000 accrue on the 1st day of January of each
or more, OR year which shall be paid not later than
Ø Who is required by law to file an the last day of February of each year
income tax return Ø if a person reaches 18 or loses the
o shall pay benefit of exemption
§ an annual community tax of o ON OR BEFORE the LAST DAY OF
Five pesos (P5.00) AND JUNE → liable for the tax on the day
§ an annual additional tax of One he reaches 18 or loses
peso (P1.00) for every One exemption.
thousand pesos (P1,000.00) of o ON OR BEFORE the LAST DAY OF
income regardless of whether MARCH → he shall have 20 days to
from business, exercise of pay the community tax without
profession or from property which becoming delinquent

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 TAXATION LAW 2

Ø persons who become resident of Phil or G. Examination of Books – The local

reaches 18 or loses exemption ON OR treasurer or his deputy duly authorised in
AFTER the 1ST DAY OF JULY → shall NOT writing, may examine the books,
be subject to community tax for that accounts and other pertinent records of
year. any person, partnership, corporation, or
Ø corporations established and organised association in order to ascertain, assess
o ON OR BEFORE the LAST DAY OF and collect the correct amount of tax.
JUNE → shall be liable for the tax for Such examination shall be made during
that year the regular business hours, ONLY
o ON OR BEFORE the LAST DAY OF ONCE for every tax period, and shall
MARCH → shall have 20 days to pay be certified to by the examining official.
the tax without becoming delinquent (Sec. 171, LGC)
o ON OR AFTER the 1ST DAY OF JULY →
shall NOT be subject to community
tax for that year VIII. CIVIL REMEDIES (BOTH LGU AND
TAXPAYER)
NOTE: if the tax is not paid within the
prescribed period, there shall be added to the A. Personal Property Exempt from
unpaid amount an interest of 24% per annum Distraint or Levy – the following
from the due date until it is paid. (Sec. 161, property shall be EXEMPT from distraint
LGC) or levy for delinquency in the payment of
any LOCAL tax, fee or charge:
• tools and implements necessarily
VII. COLLECTION OF TAXES used by the delinquent taxpayer in
his trade or employment
A. Tax Period -- unless otherwise provided • one horse, cow, carabao, or other
in this Code, the tax period of all local beast of burden, such as the
taxes, fees and charges shall be the delinquent taxpayer may select and
calendar year. (Sec. 165, LGC) necessarily used by him in his
ordinary occupation
B. Manner of Payment -- Such taxes, fees • his necessary clothing, and that of all
and charges may be paid in quarterly his family
installments. (Sec. 165, LGC) • household furniture and utensils
necessary for housekeeping and used
C. Accrual of Tax -- All local taxes, fees, for that purpose by the delinquent
and charges shall accrue on the first taxpayer, such as he may select, of a
(1st) day of January of each year. value not exceeding P10,000
However, new taxes, fees or charges, or • provisions, including crops, actually
changes in the rates thereof, shall provided for individual or family use
accrue on the first (1st) day of the sufficient for 4 months
quarter next following the effectivity • the professional libraries of doctors,
of the ordinance imposing such new engineers, (ehem) lawyers and
levies or rates. (Sec. 166, LGC) judges
• one fishing boat and net, not
D. Time of Payment -- All local taxes, fees, exceeding the total value of P10,000
and charges shall be paid within the first by the lawful use of which a
twenty days of January or of each fisherman earns his livelihood
subsequent quarter, as the case may be. • any material or article forming part of
(Jan 20, Apr 20, July 20, and Oct 20). a house or improvement of any real
The sanggunian concerned may, for a property (Sec. 185, LGC)
justifiable reason or cause, extend the
time for payment of such taxes, fees, or B. Periods of Assessment and Collection
charges without surcharges or penalties, of LOCAL Taxes
but only for a period not exceeding six GEN RULE: Assessment shall be made
(6) months. (Sec. 167, LGC) within 5 years from the date they become
due, and collection shall be made within
E. Surcharges and Penalties 5 years from the date of assessment by
• 25% surcharge on taxes, fees or administrative or judicial action.
charges NOT paid on time, AND EXCEPTION: In case of FRAUD, or
• interest at the rate NOT exceeding INTENT TO EVADE PAYMENT OF TAX, the
2% per month of the unpaid taxes, same may be assessed within 10
fees or charges INCLUDING years from discovery of fraud or
surcharges, until the amount is fully intent to evade payment. (Sec. 194,
paid LGC)
NOTE: in no case shall the total
interest exceed 36 months. (Sec. C. When Running of Prescription of
168, LGC) Above Periods is Suspended – The
running of the periods of prescription
F. Collecting Authority – All local taxes, above shall be suspended for the time
fees and charges shall be collected by the during which:
provincial, city, municipal, or barangay • the treasurer is legally prevented
treasurer, or their duly authorised from making the assessment or
deputies. (Sec. 170, LGC) collection

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• the taxpayer requests for a newspaper of local circulation, or if

reinvestigation and executes a waiver no such newspaper, it must be
in writing before expiration of the posted in at least 2 conspicuous and
period within which to assess or publicly accessible places. (Sec. 188)
collect
• the taxpayer is out of the country or CASE LAW: The requirement of publication in
otherwise cannot be located (Sec. full for 3 consecutive days is MANDATORY for
194 (d), LGC) a tax ordinance to be valid. The tax
ordinance will be null and void if it fails to
D. Protest of Assessment (see flowchart comply with such publication requirement.
III below) [COCA-COLA vs. CITY OF MANILA (Jun. 27,
2006)]
E. Claim for Refund or Tax Credit
• No case or proceeding shall be C. Authority to Adjust Rates – LGU shall
maintained in any court for the have the authority to adjust the tax rates
recovery of any tax, fee, or charge prescribed in LGC NOT oftener than once
erroneously or illegally collected until every 5 years, but in no case shall such
a WRITTEN CLAIM for refund or adjustment exceed 10% of the rates
credit has been filed with the local fixed. (Sec. 191, LGC)
treasurer.
• No case or proceeding shall be D. Authority to Grant Exemption – LGU
entertained in any court AFTER the may, through ordinances, grant tax
expiration of 2 years from the date of exemptions, incentives or reliefs under
payment of such tax, or from the such terms and conditions as they may
date the taxpayer is entitled to a deem necessary. (Sec. 192, LGC)
refund or credit. (Sec. 196, LGC)

F. Remedy for Illegal or

Unconstitutional Tax Ordinance
STEP 1: Any question on the
constitutionality or legality of tax
ordinances or revenue measures may be
raised on appeal within 30 days from
the effectivity thereof to the Sec of
Justice.

STEP 2: The Sec of Justice shall decide

within 60 days from the date of
receipt of the appeal. However, this
appeal shall not have the effect of
suspending the effectivity of the
ordinance and the accrual and payment
of the tax levied therein.

STEP 3: Within 30 days after receipt

of the decision or the lapse of the 60-
day period without the Sec of Justice
acting upon the appeal, the aggrieved
party may file appropriate proceedings
with a court of competent jurisdiction.
(Sec 187, LGC)

IX. MISCELLANEOUS PROVISIONS

A. Power to Levy Taxes, Fees or

Charges
GEN RULE: LGU may exercise the
power to levy taxes, fees or charges on
ANY BASE OR SUBJECT not otherwise
specifically enumerated in LGC or NIRC.
EXCEPTION: It must NOT be unjust,
excessive, oppressive, confiscatory or
contrary to declared national policy.
(Sec. 186, LGC)

B. Requirements for a Valid Tax

Ordinance (3 P’s)
1. the ordinance shall only be enacted if
there is a prior public hearing
conducted for the purpose (Sec. 187)
2. within 10 days after the approval of
the ordinance, it must be published
in full for 3 consecutive days in a

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Flowchart III: Taxpayer’s Remedies From Assessment of Local Taxes

other than Real Property Taxes-Local Government Code

START

Local Treasurer (LT) assess

local taxes w/in 5 years from Taxpayer files written protest is
LT issues notice
date they become due or 10 protest made w/n 60 days from
of assessment
years from discovery of fraud receipt of notice of assessment
(Sec. 195)

LT decides on
Is protest made Assessment
LT decides w/in protest w/in 60
Yes w/in prescribed No becomes
60 days? days from filing of
period? final
protest

No
Yes
If Division decides against
Taxpayer appeals to taxpayer file MR w/in 15 with
court of competent the same division.
LT grants jurisdiction (regular
No
protest? courts) w/in 30 days
from receipt of notice or
from lapse of 60 days
If MR is denied, file Petition
Yes for review with CTA en banc

LT Issues notice
canceling Appeal to CTA Division but
partially/wholly Appeal to
If the decision is from an
the assessment Supreme Court
RTC exercising appellate
jurisdiction, appeal should
be made directly no CTA en
banc under Rule 43 of ROC End
End

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Flowchart IV: Procedure for Distraint and Levy for Purposes of Satisfying
Local Taxes-Local Gov’t Code

START

Tax constitutes a lien superior

Local Treasurer (LT), upon written
to all liens and may only be Time for payment
notice, seizes sufficient personal
extinguished upon payment of of Local taxes
property to satisfy the tax, and
the tax and the related charges. expires
other charges (Sec. 175)
(Sec. 173)

Officer posts notice in office of the LT issues a certificate

Officer executing the
chief executive of the LGU where which serves as warrant
distraint accounts for the
the property is distrained.& in at for the distraint of personal
goods, distrained (Sec. 175)
least 2 other public places property, (Sec. 175)
specifying the time & place of sale,
and distrained goods. The time of
sale shall not be less than twenty
(20) days after the notice. (Sec. 175)
Committee On Appraisal:
it shall be considered as sold to Local Treasurer- chairman,
Property the LGU for the amount of the COA representative &LGU
Before the sale, the goods or assessor as members
distrained assessment made by the
effects distrained shall be
disposed w/in No Committee on Appraisal and to
restored to the owner.if all
120 days from the extent of the same amount,
charges are paid (175d)
distraint? the tax delinquencies shall be
cancelled. (175e)
Yes

Officer sells the goods at public

Excess of proceeds over auction to the highest bidder
charges shall be returned for cash. w/in 5 days, the local
to the owner of the treasurer shall report sale to
property sold. (175f) the local chief executive
concerned (175e) If the proceeds of the sale
are insufficient other
property may be distrained
until the full amount due,
including all expenses, is
collected. (175f)
Real property may be levied
on before, simultaneously, or
after the distraint of personal
property (Sec. 176)

Procedure for levying real properties to satisfy local taxes is the same as levy
procedure for satisfying real property taxes (Sec. 258-266) (See Flowchart VII)
Except for the following:
1. Publication is once a week for 3 weeks for local taxes (Sec. 178) and once a
week for 2 weeks for real property taxes (Sec. 260)
2. For local taxes, LGU may purchase levied property if there is no bidder or if
the highest bid is insufficient to cover the taxes and other charges (Sec. 181)
while for real property taxes the LGU may purchase levied property if there is no
bidder (Sec. 263)

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VII. REAL PROPERTY TAXATION the physical facilities for production, the
installations and appurtenant service facilities,
those which are mobile, self-powered or self-
I. Kinds of Real Property Tax and Special Levies
propelled, and those not permanently attached
→ Basic real property tax
to the real property which are actually, directly,
→ Additional levy on real property for the
and exclusively used to meet the needs of the
Special Education Fund
particular industry, business or activity and
→ Additional ad valorem tax on idle lands
which by their very nature and purpose are
→ Special levy by local government units
designed for, or necessary to its
manufacturing, mining, logging, commercial,
II. Basic Concepts
industrial or agricultural purposes. [Section
Definition:
199(o), Local Government Code]
Real property tax has been defined as “a direct tax
§ NOTE: this definition of machinery is too all-
on the ownership of lands and buildings or other
encompassing and broad in that everything
improvements thereon not specially exempted, and
that is used even indirectly for the needs of
is payable regardless of whether the property is
the industry can be classifies as machinery
used or not, although the value may vary in
which is REAL property, which in turn means
accordance with such factor.”
that it is subject to RPT; example would be a
NOTE: Real property tax is a fixed proportion of
SCREWDRIVER being used in an office –
the assessed value of the property being taxed and
since this is used by the office and indirectly
requires, therefore, the intervention of assessors.
contributes the to smooth functioning of the
general business then this can be treated as
Characteristics of real property tax
real property
→ It is a direct tax on the ownership or use of real
§ This was solved by the LGC IRR sec 290 (o)
property.
that now limits and qualifies this: this is
→ It is an ad valorem tax. Value is the tax base.
known as the GENERAL PURPOSE RULE à
→ It is proportionate because the tax is calculated
This rule states that if it used in line or for
on the basis of a certain percentage of the
the general purpose of the business but only
value assessed.
indirectly, then it is NOT to be treated as real
→ It creates a single, indivisible obligation.
property. This means that a typewriter being
→ It attaches on the property (i.e., a lien) and is
used in the main office of a firm that
enforceable against it.
manufactures cars is NOT real property as
the typewriter is NOT used to actually make
Nature and scope of power to impose realty
the car which is the main purpose of the
tax
company.
The taxing power of local governments in real
property taxation is a delegated power.
Generally the SC has held that Art 415 CC
(which enumerates the kinds of real property)
Fundamental principles governing real
is an exclusive list as to what constitutes real
property taxation (CAPUE)
property. BUT FOR TAX PURPOSES ONLY, it is
1. Real property shall be appraised at its Current
common that certain properties be classified
and fair market value.
as real property even if according to the
2. Real property shall be classified for assessment
general principles of the CC, they would only
purposes on the basis of its Actual use.
be classified as personal property. LESSON:
3. Real property shall be assessed on the basis of
the NIRC and the LGC code prevail in
a Uniform classification within each local
classifying property for tax purposes.
government unit.
4. The appraisal, assessment, levy and collection
of real property tax shall not be let to any Properties EXEMPT from real property taxes
Private person.
5. The appraisal and assessment of real property 1. Real property owned by the Republic of the
shall be Equitable. [Section 197, Local Philippines or any of its political subdivisions
Government Code] except when the beneficial use thereof has
been granted for consideration or otherwise to
Real properties subject to tax a taxable person.
Generally, Real Property Tax is imposed on lands,
buildings, machineries and other improvements. Q: Are GOCCs covered by the exemption?
The Local Government Code contains no definition à No. The tax exemption of “property owned
of “real property”; however, the following terms by the Republic of the Philippines” refers to
are defined: properties owned by the government and by its
agencies which do not have separate and
§ Improvement à It is a valuable addition distinct personalities, as distinguished from
made to a property or an amelioration in its GOCCs which have separate and distinct
condition amounting to more than a repair or personalities. [National Development Company
replacement of parts involving capital v. Cebu City]
expenditures and labor which is intended to
enhance its value, beauty, or utility or to adopt Q: What is the scope of the exemption? à
it for new or further purposes. [Section The exemption from tax of property owned by
199(m), Local Government Code] the government obtains even as to properties
§ Machinery à Machinery embraces machines, owned in a private, proprietary or patrimonial
equipment, mechanical contrivances, character. The law makes no distinction
instruments, appliances or apparatus, which between property held in governmental
may or may not be attached, permanently or capacity and those possessed in a proprietary
temporarily, to the real property. It includes

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capacity. [Board of Assessment Appeals of

Laguna v. CTA] 4. All real property owned by duly registered
Cooperatives as provided for under Republic
CONFLICTING CASES: Mactan Airport Act No. 6938.
Authority vs. Pres. Marcos (September 11,
1996) and Manila Int’l Airport Authority vs. 5. Machinery and equipment used for Pollution
CA (July 20, 2006) control and environmental protection. [Section
Both cases involves the following provisions: 234, Local Government Code]
Sec 133(o), LGC: Unless otherwise provided
herein, the LGUs are not allowed to levy… (o) NOTE: A taxpayer claiming exemption must submit
taxes, fees or charges of any kind on the sufficient documentary evidence to the local
national gov’t, its agencies, instrumentalities assessor within thirty (30) days from the date of
and LGUs. the declaration of real property; otherwise, it shall
Sec 234(a), LGC: Properties exempt from be listed as taxable in the Assessment Roll. (Sec.
PPT (a) real properties owned by the Republic 206, LGC)
or any of its political subdivisions…
MACTAN Case: The SC held that since Mactan
Airport Authority is a GOCC and GOCCs are not III. Rates of levy
among those enumerated as exempt, it is not
exempted from RPT. Legislature in amending [BASIC RPT] A province or city or a municipality
the law has specifically deleted GOCCS from within the Metro Manila area shall fix a uniform rate
the enumeration in Sec 234(a). of basic real property tax applicable to their
MIAA Case: SC held that MIAA is not a GOCC respective localities as follows:
since it is neither a stock corporation nor a 1. In the case of a province, at the rate not
non-stock corp as defined in the Administrative exceeding 1% of the assessed value of real
Code. Although not covered by the property; and
enumeration in Sec 234, MIAA is a public utility 2. In the case of a city or a municipality within the
which falls under the term “instrumentality” Metro Manila area, at the rate not exceeding
outside the scope of LGS’s local taxing powers 2% of the assessed value of real property.
under Sec 133(o). [Section 233, Local Government Code]
NOTE: The MIAA Case may be argued to have [ADDITIONAL LEVY ON REAL PROPERTY FOR
superseded the previous case, being a more THE SPECIAL EDUCATION FUND] A province,
recent ruling decided by SC en banc. city or a municipality within the Metro Manila area
may levy and collect an annual tax of one percent
2. Charitable institutions, churches, parsonages, (1%) on the assessed value of real property which
or convents appurtenant thereto, mosques, shall be in addition to the basic real property tax.
non-profit or religious cemeteries, and all The proceeds thereof shall exclusively accrue to the
lands, buildings, and improvements actually, Special Education Fund created under Republic Act
directly and exclusively used for religious, No. 5447. [Section 235, Local Government Code]
charitable, or educational purposes.
[ADDITIONAL AD VALOREM TAX ON IDLE
è CASE LAW: LUNG CENTER of the PHILS vs. LANDS] A province or city or a municipality within
QUEZON CITY (June 29, 2004) the Metro Manila area may levy an annual tax on
idle lands at the rate not exceeding five percent
As a general principle, a charitable institution (5%) of the assessed value of the property which
does not lose its character and its exemption shall be in addition to the basic real property tax.
from taxes simply because it derives income [Section 236, Local Government Code]
from paying patients, or receives subsidies
from the government, so long as the money Sec 237. Idle Lands, Coverage. —idle
received is devoted or used altogether to the lands shall include:
charitable object which it is intended to (a) Agricultural lands
achieve, and no money inures to the benefit of
persons managing or operating the institution. § more than one (1) hectare in area
TEST: The test whether an enterprise is § suitable for cultivation, dairying,
charitable or not is whether it exists to carry inland fishery, and other agricultural
out a purpose recognized by law as charitable uses
or whether it is maintained for gain, profit, or § one-half (1/2) of which remain
private advantage. uncultivated or unimproved by the
EXTENT: The portions of Lung Center’s real owner or person having legal
property that are leased to private entities are interest.
NOT exempt from real property taxes as these Agricultural lands planted to permanent
are not actually, directly and exclusively used or perennial crops with at least fifty
for charitable purposes. However, portions of (50) trees to a hectare shall NOT be
the land occupied by the hospital and portions considered idle lands. Lands actually
of the hospital used for its patients, whether used for grazing purposes shall likewise
paying or non-paying, are exempt from real NOT be considered idle lands
property taxes.
(b) Lands other than agricultural
3. All machineries and equipment that are § located in a city or municipality
actually, directly and exclusively used by local § more than one thousand (1,000)
water utilities and government-owned or square meters in area
controlled corporations engaged in the supply § one-half (1/2) of which remain
and distribution of water and/or generation and unutilized or unimproved by the
transmission of electric power.

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owner or person having legal the period from January first (1st) to June
interest. thirtieth (30th) commencing with the
Regardless of land area, this Section calendar year 1992.
shall applies to residential lots in
subdivisions duly, ownership of which Sec 203. Duty of Person Acquiring Real
has been transferred to individual Property or Making Improvement Thereon.
owners, who shall be liable for the — duty of any person, or his authorized
additional tax: Provided, however, That representative
individual lots of such subdivisions, § acquiring at any time real property in any
ownership of which has not been municipality or city
transferred to the buyer shall be § or making any improvement on real property,
considered as part of the subdivision, § to prepare and file with the a sworn
and shall be subject to the additional statement declaring the true value of subject
tax payable by subdivision owner or property
operator. § within sixty (60) days after the acquisition of
such property or upon completion or
§ EXEMPTION from idle lands tax: occupancy of the improvement, whichever
Exemptions are given due to: comes earlier.
a. force majeure;
b. civil disturbance; Sec 204. Declaration of Real Property by the
c. natural calamity; or Assessor. — any person, by whom real property
d. any cause or circumstance which is required to be declared under Section 202
physically or legally prevents the owner § refuses or fails for any reason to make such
or person having legal interest from declaration within the time prescribed
improving, utilizing or cultivating the § assessor shall himself declare the property in
same. the name of the defaulting owner, if known,
or against an unknown owner, as the case
[SPECIAL LEVY BY LOCAL GOVERNMENT may be, and shall assess the property for
UNITS] A province, city or municipality may taxation
impose a special levy on the lands comprised
a. within its territorial jurisdiction Sec 205. Listing of Real Property in the
b. specially benefited by public works projects or Assessment Rolls.
improvements by the LGU concerned. § In every province and city, municipalities
The special levy shall not exceed 60% of the actual within the Metropolitan Manila Area, there
cost of such projects and improvements, including shall be prepared and maintained by the
the costs of acquiring land and such other real assessor
property in connection therewith. § an assessment roll wherein shall be listed all
§ It shall not apply to lands exempt from basic real property, whether taxable or exempt,
real property tax and the remainder of the located within the local government unit;
land, portions of which have been donated to property shall be listed, valued and assessed
the LGU concerned for the construction of such in the name of the owner or administrator, or
projects or improvements. anyone having legal interest in the property.
§ Need for public hearing and publication before § undivided real property of a deceased person
enactment of ordinance imposing special levy. may be listed, valued and assessed in the
§ Special levy accrues on the first day of the name of the estate or of the heirs and
quarter next following the effectivity of the devisees without designating them
ordinance imposing the levy. [Section 240, individually
Local Government Code] § BUT undivided real property other than
that owned by a deceased may be listed,
IV. Other Important Provisions valued and assessed in the name of one
or more co-owners: Provided, however,
APPRAISAL AND ASSESSMENT OF REAL That such heir, devisee, or co-owner shall
PROPERTY be liable severally and proportionately for
all obligations imposed by this Title and
Sec 201. Appraisal of Real Property. — All real the payment of the real property tax with
property, whether taxable or exempt, appraised respect to the undivided property.
at the current and fair market value prevailing in § real property of a corporation, partnership,
the locality where the property is situated or association shall be listed, valued and
assessed in the same manner as that of an
Sec 202. Declaration of real Property by the individual.
Owner or Administrator. — shall be the duty of § Real property owned by the Republic of the
all persons (natural or juridical) or their duly Philippines, its instrumentalities and political
authorized representative subdivisions, the beneficial use of which has
§ owning or administering real property, been granted, for consideration or otherwise,
including the improvements therein to a taxable person, shall be listed, valued
§ to prepare and file with assessor, a sworn and assessed in the name of the possessor,
statement declaring the true value of their grantee or of the public entity if such
property, whether previously declared or property has been acquired or held for resale
undeclared, taxable or exempt, which shall or lease.
be the current and fair market value of the
property, as determined by the declarant Sec 206. Proof of Exemption of Real Property
§ The sworn declaration of real property herein from Taxation.
referred to shall be filed with the assessor § Every person who shall claim tax exemption
concerned once every three (3) years during for such property

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§ shall file with assessor within thirty (30) days 5. Mineral

from the date of the declaration of real 6. Timberland
property sufficient documentary evidence in 7. Special
support of such claim…like corporate
charters, contracts, titles, articles of The city or municipality within the Metropolitan
incorporation etc… Manila Area, through their respective
§ If the required evidence is NOT submitted sanggunian, shall have the power to classify
within the period prescribed, the property lands as residential, agricultural, commercial,
shall be listed as taxable in the assessment industrial, mineral, timberland, or special in
roll. However, if the property shall be proven accordance with their zoning ordinances.
to be tax exempt, shall be dropped from the
assessment roll. Sec 216. Special Classes of Real Property. —
lands, buildings, and other improvements
Sec 208. Notification of Transfer of Real thereon
Property Ownership. § actually, directly and exclusively used for
§ Any person who shall TRANSFER real hospitals, cultural, or scientific purposes
property OWNERSHIP to another § those owned and used by local water districts
§ shall notify the assessor concerned within § government-owned or controlled corporations
sixty (60) days from the date of such transfer rendering essential public services in the
§ The notification shall include the mode of supply and distribution of water and/or
transfer, the description of the property generation and transmission of electric power
alienated, the name and address of the shall be classified as special.
transferee.

Sec 209. Duty of Registrar of Deeds to Sec 217. Actual Use of Real Property as Basis
Appraise Assessor of Real Property Listed in for Assessment. — Real property shall be
Registry. classified, valued and assessed on the basis of its
§ Duty of the Registrar of Deeds to require actual use
every person who shall present for (Regardless of ULO)
registration a document of transfer, § regardless of where Located
alienation, or encumbrance of real property § regardless whoever Owns it
to accompany the same with a certificate to § regardless whoever Uses it
the effect that the real property subject has
been fully paid of all real property taxes due. Sec 220. Valuation of Real Property. — In cases
§ Failure to provide such certificate shall be a where:
valid cause for the refusal of the registration
of the document. (a) real property is declared and listed for
taxation purposes for the first time
Sec 212. Preparation of Schedule of Fair (b) there is an ongoing general revision of
Market Values. — Before any general revision of property classification and assessment
property assessment is made (c) a request is made by the person in whose
§ there shall be prepared a schedule of fair name the property is declared
market values by the assessor of the
provinces, cities and municipalities within assessor shall make a classification, appraisal
the Metropolitan Manila Area for the and assessment or taxpayer's valuation
different classes of real property situated in § Provided, however, That the assessment of
their respective local government units real property shall NOT be increased oftener
§ for enactment by ordinance of the than once every three (3) years
sanggunian § EXCEPT in case of new improvements
§ schedule of fair market values shall be substantially increasing the value of said
published in a newspaper of general property or of any change in its actual use.
circulation in the province, city or
municipality; in the absence thereof, shall be Sec 221. Date of Effectivity of Assessment or
posted in the provincial capitol, city or Reassessment.
municipal hall and in two other conspicuous § All assessments/ reassessments made after
public places the first (1st) day of January of any year
shall take effect on the first (1st) day of
Sec 214. Amendment of Schedule of Fair January of the succeeding year
Market Values. § Provided, the reassessment of real property
§ assessor may recommend to the sanggunian shall be made within ninety (90) days from
amendments to correct errors in valuation in the date if any such cause or causes
the schedule of fair market values occurred, and shall take effect at the
§ sanggunian shall, by ordinance, act upon the beginning of the quarter next following the
recommendation within ninety (90) days reassessment due to its (ACIDI):
from receipt § partial or total Destruction
§ major Change in its actual use
Sec 215. Classes of Real Property for § great and sudden Inflation or deflation of
Assessment Purposes. — For purposes of real property values
assessment, real property shall be classified: § gross Illegality of the assessment
(CRAMS-IT) § any other Abnormal cause
1. Residential
2. Agricultural Sec 222. Assessment of Property Subject to
3. Commercial Back Taxes. — Real property declared for the
4. Industrial FIRST TIME shall be assessed for taxes (back

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 TAXATION LAW 2

taxes) for the period during which it would have witnesses, administer oaths, conduct ocular
been liable but in no case of more than ten (10) inspection, take depositions, and issue
years prior to the date of initial assessment subpoena and subpoena duces tecum. The
§ Provided, however, That such taxes shall be proceedings of the Board shall be conducted
computed on the basis of the applicable SOLELY for the purpose of ascertaining
schedule of values in force during the the facts without necessarily adhering to
corresponding period. technical rules applicable in judicial
§ If such taxes are paid on or before the end of proceedings.
the quarter following the date the notice of (c) secretary of the Board shall furnish the
assessment was received by the owner – NO owner of the property or the person having
interest for delinquency shall be imposed legal interest therein and the assessor with a
thereon; otherwise, taxes shall be subject copy of the decision of the Board. In case the
interest at the rate of two percent (2%) per provincial or city assessor concurs in the
month or a fraction thereof from the date of revision or the assessment, it shall be his
the receipt of the assessment until such taxes duty to notify the owner or the person having
are fully paid. legal interest of such fact using the form
prescribed.
Sec 224. Appraisal and Assessment of (d) The owner, the person having legal interest
Machinery. — or the assessor who is NOT satisfied with the
decision of the Board,
(a) The fair market value of brand-new § May within thirty (30) days after receipt
machinery shall be acquisition cost of the decision of said Board appeal to
§ In all other cases, the fair market value the Central Board of Assessment
shall be determined by dividing the Appeals - decision of the Central Board
remaining economic life of the shall be final and executory
machinery by its estimated economic
life and multiplied by the replacement Sec 231. Effect of Appeal on the Payment of
or reproduction cost. Real Property Tax. — Appeal on assessments of
real property shall, in NO case, suspend the
(b) If machinery imported, the acquisition collection of the corresponding realty taxes on the
cost includes (FIB-BADC) Freight, property involved as assessed – but without
Insurance, Bank and other charges, prejudice to subsequent adjustment depending
Brokerage, Arrastre and handling, Duties upon the final outcome of the appeal.
and taxes, plus Charges at the present site

Sec225. Depreciation Allowance for SPECIAL LEVY BY LGUs

Machinery. —depreciation allowance shall be
made for machinery at a rate NOT exceeding five Sec 241. Ordinance Imposing a Special Levy.
percent (5%) of its original cost or its — A tax ordinance imposing a special levy shall:
replacement or reproduction cost, as the case § describe with reasonable accuracy the
may be, for each year of use nature, extent, and location of the public
§ Provided, the remaining value for all kinds of works projects or improvements to be
machinery shall be fixed at NOT less than undertaken
twenty percent (20%) of such original, § state the estimated cost
replacement, or reproduction cost for so long § specify the metes and bounds by monuments
as the machinery is useful and in operation. and lines and the
§ number of annual installments for the
payment of the special levy which in no case
ASSESSMENT APPEALS shall be less than five (5) nor more than ten
(10) years
Sec 226. Local Board of Assessment Appeals. *The sanggunian shall NOT be obliged, in the
— Any owner or person having legal interest in apportionment and computation of the special levy,
the property NOT satisfied with the action of the to establish a uniform percentage of all lands
assessor in the assessment of his property subject to the payment of the tax for the entire
§ May within sixty (60) days from the date of district. May fix different rates for different parts or
receipt of the written notice of assessment sections thereof, depending on whether such land
§ appeal to the Board of Assessment Appeals of is more or less benefited by proposed work.
the provincial or city
§ by filing a petition under oath in the form Sec 242. Publication of Proposed Ordinance
prescribed for the purpose, together with Imposing a Special Levy. — Before the
copies of the tax declarations and such enactment of an ordinance imposing a special
affidavits or documents submitted in support levy, the sanggunian concerned shall:
of the appeal. § conduct a public hearing
§ notify in writing the owners to be affected
Sec 229. Action by the Local Board of or the persons having legal interest as to
Assessment Appeals. — the date and place thereof and afford the
latter the opportunity to express their
(a) Board shall decide the appeal within one positions or objections relative to the
hundred twenty (120) days from the proposed ordinance.
date of receipt of such appeal. The Board,
after hearing, render its decision based on Sec 244. Taxpayer's Remedies Against Special
substantial evidence Levy. — Any owner of real property affected by a
(b) In the exercise of its appellate jurisdiction, special levy or any person having a legal interest
the Board shall have the power to summon therein may, upon receipt of the written notice of

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 TAXATION LAW 2

assessment of the special levy, avail of the are settled may tax payments be credited for the
remedies provided for in Chapter 3, Title Two, Book current period.
II of this Code.
Sec 251. Tax Discount for Advanced Prompt
Sec245. Accrual of Special Levy. — The special Payment. — If the basic real property tax and
levy shall accrue on the first day of the the additional tax accruing to the Special
quarter next following the effectivity of Education Fund (SEF) are paid in advance as
the ordinance imposing such levy. provided under Section 250
§ sanggunian may grant a discount NOT
COLLECTION OF REAL PROPERTY TAX exceeding twenty percent (20%) of the
annual tax due.
Sec 246. Date of Accrual of Tax. — real property
tax for any year shall accrue on the first day of Sec 252. Payment Under Protest.
January
§ from that date it shall constitute a lien on (a) No protest shall be entertained unless the
the property taxpayer first pays the tax.
§ superior to any other lien, mortgage, or § There shall be annotated on the tax receipts
encumbrance of any kind whatsoever the words "paid under protest"
§ extinguished only upon the payment of the § The protest in writing must be filed within
delinquent tax. thirty (30) days from payment of the tax to
treasurer who shall decide the protest within
Sec 247. Collection of Tax. — The collection of sixty (60) days from receipt.
the real property tax with interest thereon and
related expenses, and the enforcement of the (b) The tax or a portion paid under protest, shall
remedies are the responsibility of the city or be held in trust by the treasurer concerned.
municipal treasurer.
§ treasurer may deputize the barangay (c) In the event that the protest is finally decided
treasurer to collect all taxes on real property in favor of the taxpayer, the amount or portion
located in the barangay: of the tax protested shall be refunded to the
§ Provided, the barangay treasurer is protestant, or applied as tax credit against his
properly bonded for the purpose existing or future tax liability.
§ Provided, further, That the premium on (d) In the event that the protest is denied or upon
the bond shall be paid by the city or the lapse of the sixty day period prescribed
municipal government concerned. in subparagraph (a), the taxpayer may avail
of the remedies as provided for in Chapter 3,
Sec 249. Notice of Time for Collection of Tax. Title II, Book II of this Code.
— treasurer shall post the notice of the dates
when the tax may be paid without interest Sec 253. Repayment of Excessive Collections.
publicly accessible place at the city or municipal — When an assessment of real property tax or
hall + notice shall likewise be published in a any other tax under this Title found to be illegal
newspaper of general circulation in the locality or erroneous and the tax is accordingly reduced
once a week for two (2) consecutive weeks. or adjusted
§ on or before the thirty-first (31st) day of § the taxpayer may file a written claim for
January each year in the case of the basic refund or credit for taxes and interests with
real property tax and the additional tax for the treasurer within two (2) years from the
the Special Education Fund (SEF) date the taxpayer is entitled to such
§ or any other date to be prescribed by the reduction or adjustment.
sanggunian concerned in the case of any § The provincial or city treasurer shall decide
other tax levied under this title the claim for tax refund or credit within sixty
(60) days from receipt thereof
Sec 250. Payment of Real Property Taxes in § In case the claim for tax refund or credit is
Installments. — The owner or the person denied, the taxpayer may avail of the
having legal interest may pay the basic real remedies as provided in Chapter 3, Title II,
property tax and the additional tax for Special Book II of this Code.
Education Fund (SEF) due without interest:
§ in four (4) equal installments; Sec 254. Notice of Delinquency in the
§ the first installment to be due and Payment of the Real Property Tax. —
payable on or before March Thirty-first
(31st) (a) When real property tax or other tax imposed
§ the second installment, on or before June under this Title becomes delinquent,
Thirty (30) treasurer shall immediately cause a notice of
§ the third installment, on or before the delinquency to be posted at the main hall
September Thirty (30) and in a publicly accessible and conspicuous
§ and the last installment on or before place in each barangay of the local
December Thirty-first (31st) government unit concerned + notice of
*except the special levy the payment of which shall delinquency shall also be published once a
be governed by ordinance of the sanggunian week for two (2) consecutive weeks, in a
concerned. newspaper of general circulation in the
*The date for the payment of any other tax province, city, or municipality.
imposed under this Title without interest shall be
prescribed by the sanggunian concerned. (b) notice shall specify:
*Payments of real property taxes shall first be § the date upon which the tax became
applied to prior years delinquencies, interests, and delinquent
penalties, if any, and only after said delinquencies

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 TAXATION LAW 2

§ shall state that personal property may be administrator or occupant of the

distrained to effect payment property.
§ state that any time before the distraint of § At the same time, written notice of the
personal property, payment of the tax levy with the attached warrant shall be
with surcharges, interests and penalties mailed to or served upon the assessor
may be made in accordance with the who shall annotate it on the tax
next following Section declaration
§ and unless the tax, surcharges and § AND the Registrar of Deeds of the
penalties are paid before the expiration province, city or municipality within the
of the year for which the tax is due Metropolitan Manila Area where the
except when the notice of assessment or property is located who shall annotate
special levy is contested administratively the levy on the certificate of title of the
or judicially pursuant to the provisions of property
Chapter 3, Title II, Book II of this Code,
the delinquent real property will be Sec 260. Advertisement and Sale. — Within
SOLD at public auction, and the title to thirty (30) days after service of the warrant of
the property will be vested in the levy, the local treasurer shall proceed to publicly
purchaser, subject, however, to the right advertise for sale or auction the property or a
of the delinquent owner of the property usable portion thereof as may be necessary to
or any person having legal interest satisfy the tax delinquency and expenses of sale
therein to redeem the property within § The advertisement shall be by posting a
one (1) year from the date of sale. notice at the main entrance of the provincial,
city or municipal building, and in a publicly
Sec 255. Interests on Unpaid Real Property conspicuous place in the barangay where the
Tax. — for failure to pay the basic real property real property is located + by publication once
tax or any other tax levied under this Title upon a week for two (2) weeks in a newspaper of
the expiration of the periods when due general circulation in the province, city or
§ subject the taxpayer to the payment of municipality where the property is located.
interest at the rate of two percent (2%) § advertisement shall specify:
per month on the unpaid amount until the § the amount of the delinquent tax
delinquent tax shall have been fully paid § interest due thereon
§ Provided, in NO case shall the total interest § expenses of sale
on the unpaid tax or portion thereof exceed § the date and place of sale
thirty-six (36) months. § name of the owner of the or person
having legal interest
Sec 256. Remedies For The Collection Of Real § description of the property to be sold.
Property Tax. — For collection of the real *At any time before the date fixed for the sale, the
property tax and other tax levied under this Title, owner or person having legal interest may stay the
the local government unit concerned may avail of proceedings by paying the delinquent tax +
the remedies: interest due + expenses of sale.
§ administrative action thru levy on real *Proceeds of the sale in excess of the delinquent
property tax, the interest due thereon, and the expenses of
§ or by judicial action. sale shall be remitted to the owner of the real
property or person having legal interest therein.
Sec 257. Local Governments Lien. —real
property tax and any other tax levied under this Sec 261. Redemption of Property Sold. —
Title constitute a lien on the property subject to Within one (1) year from the date of sale, the
tax owner of the delinquent real property or person
§ superior to all liens, charges or having legal interest or their representatives shall
encumbrances in favor of any person have the right to redeem the property upon
§ irrespective of the owner or possessor thereof payment to treasurer of the:
§ enforceable by administrative or judicial § amount of the delinquent tax
action § interest due
§ and may only be extinguished upon payment § expenses of sale - from the date of delinquency
of the tax and the related interests and to the date of sale
expenses. § plus interest of not more than two percent
(2%) per month on the purchase price - from
Sec 258. Levy on Real Property. — After the the date of sale to the date of redemption
expiration of the time required to pay real * payment shall invalidate the certificate of sale
property tax or any other tax levied under this issued to the purchaser and the owner of the
Title, real property subject to such tax may be delinquent real property or person having legal
levied through the issuance of a warrant interest shall be entitled to a certificate of
§ on or before, or simultaneously with, the redemption
institution of the civil action for the *From date of sale until the expiration of the period
collection of the delinquent tax. of redemption, the delinquent real property shall
§ The warrant shall operate with the force of a remain in possession of the owner or person having
legal execution throughout the province, city legal interest therein who shall be entitled to the
or a municipality, within the Metropolitan income and other fruits
Manila Area. *the property shall be free from lien of such
§ The warrant shall be mailed to or served delinquent tax, interest due thereon and
upon: expenses of sale.
§ the delinquent owner or person having
legal interest - in case he is out of the Sec 262. Final Deed to Purchaser. — In case
country or cannot be located, the the owner or person having legal interest fails to

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 TAXATION LAW 2

redeem the delinquent property, the treasurer

shall execute a deed conveying to the Sec 268. Payment of Delinquent Taxes on
purchaser said property, free from lien of the Property Subject of Controversy. — In any
delinquent tax, interest due thereon and action involving the ownership or possession of,
expenses of sale or succession to, real property, the court may,
motu propio or upon representation of the
Sec 263. Purchase of Property By the Local treasurer - award such ownership, possession, or
Government Units for Want of Bidder. — In succession to any party to the action
case there is NO bidder for the real property, the § upon payment to the court of the taxes with
real property tax and the related interest and interest due on the property and all other
costs of sale costs that may have accrued
§ the treasurer conducting the sale shall § subject to the final outcome of the action.
purchase the property in behalf of the
local government unit concerned to Sec 270. Periods Within Which To Collect Real
satisfy the claim Property Taxes. — The basic real property tax
§ shall be the duty of the Registrar of Deeds to and any other tax levied under this Title shall be:
transfer the title of the forfeited property to § collected within five (5) years from the date
the local government unit concerned without they become due
the necessity of an order from a § No action for the collection of the tax,
competent court. whether administrative or judicial, shall be
*Within one (1) year from the date of such instituted after the expiration of such period
forfeiture, the taxpayer or any of his § In case of fraud or intent to evade
representative, may redeem the property by paying payment of the tax, such action may be
to the treasurer the full amount of the real property instituted for the collection of the same
tax and the related interest and the costs of sale. If within ten (10) years from the discovery
the property is not redeemed as provided herein, of such fraud or intent to evade payment.
absolute ownership thereof shall be vested on the
local government unit concerned. The period of prescription within which to collect
shall be suspended for the time during which
Sec 264. Resale of Real Estate Taken for (PRO):
Taxes, Fees, or Charges. — The sanggunian
sell and dispose of the real property acquired (1) The local treasurer is legally Prevented from
under the preceding section at public auction; collecting the tax;
proceeds of the sale shall accrue to the general (2) The owner of the property or the person
fund of the local government unit. having legal interest therein requests for
§ may by ordinance Reinvestigation and executes a waiver in
§ upon notice of not less than twenty (20) days writing before the expiration of the period
within which to collect; and
Sec 265. Further Distraint or Levy. — Levy (3) The owner of the property or the person
may be repeated if necessary until the full having legal interest therein is Out of the
amount due, including all expenses, is country or otherwise cannot be located.
collected.

Sec 266. Collection of Real Property Tax DISPOSITION OF PROCEEDS

Through the Courts. — The local government
unit concerned may enforce the collection of the Sec 271. Distribution of Proceeds. — proceeds
basic real property tax or any other tax levied of real property tax, including interest thereon +
under this Title proceeds from the use, lease or disposition, sale
§ by civil action in any court of competent or redemption of property acquired at a public
jurisdiction - civil action shall be filed by the auction shall be distributed as follows:
treasurer within the period prescribed in
Section 270 of this Code. (a) In the case of provinces:
(1) Province — Thirty-five percent (35%)
Sec 267. Action Assailing Validity of Tax Sale. shall accrue to the general fund;
— No court shall entertain any action assailing (2) Municipality — Forty percent (40%) to
the validity or any sale at public auction of the general fund of the municipality
real property or rights until: where the property is located; and
§ taxpayer shall have deposited with the court (3) Barangay — Twenty-five percent (25%)
the amount for which the real property shall accrue to the barangay where the
was sold, together with interest of two property is located.
percent (2%) per month from the date of
sale to the time of the institution of the (b) In the case of cities:
action (1) City — Seventy percent (70%) shall
§ amount so deposited shall be: accrue to the general fund of the city;
§ paid to the purchaser at the auction sale and
if the deed is declared invalid (2) Thirty percent (30%) shall be distributed
§ shall be returned to the depositor if the among the component barangays of the
action fails. cities where the property is located in the
*Neither shall any court declare a sale at public following manner:
auction invalid by reason or irregularities or (i) Fifty percent (50%) shall accrue to
informalities in the proceedings - unless the the barangay where the property is
substantive rights of the delinquent owner of the located;
real property or the person having legal interest
have been impaired.

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(ii) Fifty percent (50%) shall accrue SPECIAL PROVISIONS

equally to all component barangays
of the city; and Sec 276. Condonation or Reduction of Real
Property Tax and Interest. —sanggunian by
(c) In the case of a municipality within the ordinance passed prior to the first (1st) day of
Metropolitan Manila Area: January of any year + upon recommendation of
(1) Metropolitan Manila Authority — the Local Disaster Coordinating Council, may
Thirty-five percent (35%) shall accrue to condone or reduce, wholly or partially, the
the general fund of the authority; taxes and interest thereon for the succeeding
(2) Municipality — Thirty-five percent (35% year or years in the city or municipality affected
shall accrue to the general fund of the by the calamity in cases of:
municipality where the property is § general failure of crops
located; § substantial decrease in the price of
(3) Barangays — Thirty percent (30%) shall agricultural or agribased products
be distributed among the component § calamity in any province, city or municipality
barangays of the municipality where the
property is located in the following Sec 277. Condonation or Reduction of Tax by
manner: the President of the Philippines. —President
(i) Fifty percent (50%) shall accrue to may, when public interest so requires,
the barangay where the property is condone or reduce the real property tax and
located; interest for any year in any province or city or a
(ii) Fifty percent (50%) shall accrue municipality within the Metropolitan Manila Area.
equally to all component barangays
of the municipality.

(d) The share of each barangay shall be

released, without need of any further action,
directly to the barangay treasurer on a
quarterly basis within five (5) days after the
end of each quarter and shall not be subject
to any lien or holdback for whatever purpose.

Sec 272. Application of Proceeds of the

Additional One Percent SEF Tax. — The
proceeds from the additional one percent (1%)
tax on real property accruing to the Special
Education Fund (SEF):
§ shall be automatically released to the local
school boards
§ Provided, in case of provinces, the
proceeds shall be divided equally
between the provincial and municipal
school boards
§ the proceeds shall be allocated for the:
§ operation and maintenance of public
schools
§ construction and repair of school
buildings, facilities and equipment
§ educational research
§ purchase of books and periodicals
§ sports development as determined and
approved by the Local School Board.

Sec 273. Proceeds of the Tax on Idle

Lands. —proceeds of the additional real property
tax on idle lands shall accrue to the:
§ respective general fund of the province
or city where the land is located
§ In the case of a municipality within the
Metropolitan Manila Area, the proceeds shall
accrue equally to the Metropolitan Manila
Authority and the municipality where the
land is located.

Sec 274. Proceeds of the Special Levy. — The

proceeds of the special levy on lands benefited by
public works, projects and other improvements
shall accrue to the general fund of the local
government unit which financed such public
works, projects or other improvements.

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Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Gov’t Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto

Assessor prepares
Owner declares real Assessor declares
assessment rolls
property once every 3 real property if owner/
START wherein real property
years (sec. 202) w/n administrator fails to
shall be listed, valued
Jan 1 to June 30 do so (sec. 204)
and assessed (sec. 205)

Submit documents
Owner may claim
supporting exemption w/ Is real property
for tax exemption Yes
in 30 days from tax exempt?
Required (sec. 206)
declaration (sec. 206)
Documents
submitted w/in
30 days? Property shall be
Property dropped from
Yes proven as tax Yes
assessment roll
No exempt? (sec. 206)
Property shall be
listed as taxable in
No
the assessment
roll (sec. 206) END

Within 30 days from

assessment, assessor
No
sends notice to owner
(sec. 223)
Owner may protest
If LBAA rejects protest, owner
assessment within 60 LBAA must decide
may appeal to the Central
days from receipt of notice within 120 days
Board of Assessment Appeals
to the Local Board of from receipt of
(CBAA) w/in 30 days from
Assessment Appeals appeal (sec. 229)
receipt of notice (Sec. 229)
(LBAA) (Sec. 226)

If CBAA rejects protest,

Appeal to the owner may appeal to
END Supreme Court w/ the CTA en banc within
in 15 days 30 days from receipt of
decision

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 TAXATION LAW 2

Flowchart VI: Taxpayer’s Remedies Involving Collection of Real Property

Tax-Loc Gov’t Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto

LT- Local Treasurer

LGU - Local Government Unit
LBAA- Local Board of Assessment Appeals
CBAA- Central Board of Assessment Appeals
START CTA- Court of Tax Appeals

LT posts notice of deadline for

Owner pays the tax.
Assessor submits payment at a conspicuous place at LT collects the tax
Written protest must be
assessment roll to the LGU hall OR publish the same starting Jan 1 of
filed with the local
local treasurer in a newspaper of general the calendar year.
treasurer w/in 30 days
(sec. 248) circulation in the LGU 1x a week for (Sec. 257)
from payment. (sec. 252)
2 consecutive weeks (sec. 249)

Amount of tax
LT must decide w/
protested shall be
LT grants LT decides w/in in 60 days from
refunded or Yes Yes
protest? 60 days? receipt of protest
applied as tax
(sec. 252)
credit (Sec. 252)

No

Refund or tax credit must Taxpayer may appeal within within 60

No days from receipt of notice (or expiration
be claimed with the local
treasurer w/in 2 years from of 60 days) to the LBAA (Sec. 226)
the date taxpayer is entitled
to such (sec. 253) LBAA must decide
within 120 days
from receipt of
appeal (sec. 229)
LT acts on claim
LT grants
for refund/tax Taxpayer happy.
Yes refund/tax Yes END
credit w/in 60
credit?
days?

If LBAA rejects protest/

No refund, owner may
appeal to the CBAA w/
in 30 days from receipt
Taxpayer may appeal of notice (Sec. 229)
w/in 60 days from
No receipt of notice (or
expiration of 60 days)
to LBAA (Sec. 226)
If CBAA rejects protest/
Appeal to the refund, owner may appeal to
END Supreme Court w/ the CTA en banc within 30
in 15 days days from receipt of decision
(Rule 43, ROC)

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 TAXATION LAW 2

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VIII. TARIFF AND CUSTOMS CODE mechanical devices used in gambling, or in the
distribution of money, cigars, cigarettes or
other articles when such distribution is
Provisions cited are that of
dependent upon chance, including jackpot and
I. ARTICLES SUBJECT TO DUTY
pinball machines or similar contrivances.
A. Export (suspended except on logs) and
f. Lottery and sweepstakes tickets,
import duties
advertisements thereof and lists of drawings
therein.
B. Meaning of importation
à except those authorized by the Philippine
Government
Sec. 1201
All articles imported into the Philippines, whether
g. Any article manufactured in whole or in part of
subject to duty or not, shall be entered through
gold silver or other Precious metal, or alloys
the customhouse at a port of entry
thereof, the stamps brands or marks of which
do not indicate the actual fineness or quality of
Sec. 1202
said metals or alloys.
Importation BEGINS:
à vessel or aircraft enters the jurisdiction of
h. Any Adulterated or misbranded article of food
Philippines with intention to unlade
or any adulterated or misbranded drug in
violation of the provisions of the "Food and
TERMINATED:
Drugs Act."
1) payment of duties, taxes and other charges
2) secured to be paid and legal permit for
i. Marijuana, opium poppies, coca leaves, or any
withdrawal has been granted
other Narcotics or synthetic drugs which are or
3) articles have legally left the jurisdiction of
may hereafter be declared habit forming by the
customs
President of the Philippines, any compound,
manufactured salt, derivative, or preparation
C. Classes of importation
thereof,
à except when imported by the Government of
1. Dutiable importation
the Philippines or any person duly authorized by
the Collector of Internal Revenue for medicinal
All articles, when imported from any foreign
purposes only.
country into the Philippines, shall be subject to
duty upon each importation, even though
j. Opium pipes and parts thereof, of whatever
previously exported from the Philippines,
material.
except as otherwise specifically provided for in
this Code or in other laws. (§100)
k. All other articles the importation of which is
Prohibited by law.
2. Prohibited importations (POPP-LAW-
DING)
Sec. 1207
It is the duty of the Collector to exercise
Sec. 101
jurisdiction to
- prevent importation (prohibited importation) or
a. Dynamite, gunpowder, ammunitions and other
- secure compliance with legal requirements
explosives, firearm and weapons of war, and
(articles that may be imported subject to
detached parts thereof, except when authorized
conditions)
by law.

b. Written or printed article in any form

containing:
1) any matter advocating or inciting treason,
rebellion, insurrection or sedition against the
Government of the Philippines
2) forcible resistance to any law of the Philippines
3) containing any threat to take the life of or inflict
bodily harm upon any person in the Philippines.

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

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3. Conditionally-free importation (Sec. 105)

ARTICLE CONDITIONS
Aquatic products - Caught, gathered and imported by fishing
vessels of Phil registry
- Not have landed in foreign territory, or if
landed, solely for transshipment
Equipment used for the salvage of vessels or aircraft - bond = 1 ½ x of ascertained duties, taxes
not available locally and charges
- must be exported within 6 months
Costs of repair made in foreign country of Phil - Phil must not have adequate facilities to
vessels aircrafts make repair
- Vessel was compelled by weather or
casualty to go to foreign port for repair
- Excludes value of article used for repair
Articles brought into Phil for repair, processing or - to be re-exported
reconditioning - bond = 1 ½ x of ascertained duties, taxes
and charges
- must be exported within 6 months
Trophies, prizes (medals, badges, cups)
Those received as honorary distinction
Personal and household effects of returning Phil - formally declared and listed before
residents departure
- including those purchased abroad necessary
and appropriate and used for comfort and
convenience
- must have been using item abroad for more
than 6 mos
- must accompany them or arrive within
reasonable time
- not in commercial quantities
- total DV not exceed P2,000
à in excess of P2,000 à 50% ad
valorem
- returning resident has not previously
availed of this benefit within 1 year
- if resident was abroad for less than 6 mos
à 50% ad valorem (DV <P2T)
Effects of travelers, tourist (wearing apparel, - arrive with or at a reasonable time
personal adornment, toiletries, portable tools and - necessary and appropriate for wear
instruments, costumes) and use according to nature of
journey, comfort and convenience
- articles NOT for hire, sale, barter
- Collector may require: written
commitment or bond
Personal and household effects, vehicles of foreign - accompany them or arrive at a reasonable
consultants and experts hired or rendering service to time
gov’t - in quantities and kind necessary and
- including staff and families suitable to the profession, rank or position
- for their own use, NOT for sale, barter, hire
- Collector may require: written commitment
or bond
Professional instruments - in quantities and kind necessary and
Tools of trade suitable to the profession, rank or position
Wearing apparel - for their own use, NOT for sale, barter, hire
Domestic animals - change of residence is bona fide
Personal & household effects - privilege of free entry was never granted to
à belong to persons coming to settle in Phil & them before or qualifies under LOI 105,
overseas Filipinos 163, 210
Articles used exclusively for public entertainment; - must file bond (1 ½ X)
display in public expos; - exported within 6 mos
exhibition or competition for prizes; devices for - not exhibited for profit
projecting picture - otherwise, confiscation+ penalty
Brought by foreign film producers for making or - must file bond (1 ½ X)
recording motion pictures on location in Phil - exported within 6 mos (unless extended by
Collector for another 6 mos)
- principal actors are Filipinos
Photographic and cinematographic films, - affidavit by importer that the exposed films
undeveloped, exposed outside Phil by resident are same films previously exported
Filipinos or Phil producing companies
Importations used by foreign embassies, legations, - Reciprocity: such foreign country must
agencies of foreign gov’t grant same privilege to Phil agencies
Articles for personal or family use of members and - such privileges must be accorded in a

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attaches of foreign embassies, legations, consular special agreement between Phil and the
officers and other reps of foreign gov’t foreign country
- privilege may be granted only upon specific
instructions of Sec of Finance which will be
given only upon request of DFA
Articles donated to or for account of relief - org not for profit
organization - for free distribution to the needy
Containers, holders and similar receptacles - except those that are reusable for shipment
or transportation of goods
Supplies of vessel or aircraft - for use or consumption of passengers on
board
- any surplus or excess shall be dutiable
Articles and salvage after 2 years from filing protest - vessels must have been wrecked or
abandoned in Phil waters
Coffins or urns containing human remains, bones - not exceed P10,000
ashes
Personal and household effects of deceased EXCEPT
vehicles
Samples - marked “sample sale punishable by law”
- unsaleable - for purpose of introducing new product
- no appreciable commercial value - imported by person duly registered and
- Models not for practical use identified to be engaged in that trade
- importations authorized by Sec of Finance

- authorized by DOH
- not available in Phil
Sample medicines
- not exceed P10,000
àin excess of P10,000, it may be entered
Commercial samples in bond or for consumption
- bond (2x) conditioned on exportation w/n
6 mo

Animals and plants

à for scientific, experimental, propagation,
botanical, breeding zoological and defense purposes
Economic, technical, vocational, scientific,
philosophical, historical and cultural books and
publications
Phil articles previously exported and returned Note that if a drawback or bounty was allowed
without increasing value or improved condition to any Phil article under this subsection, upon
re-importation article shall be subject to duty
Foreign articles previously exported when returned equal to the bounty or drawback
after having been exported and loaned for use
temporarily abroad solely for exhibition

Foreign container used in packing exported Phil

products
Articles and supplies imported by and for use of - such articles are not available locally in
scheduled airlines operating under congressional reasonable quantity, quality and price
franchise - necessary or incidental to proper operations
(Aircraft, equipment & machinery, spare parts
commissary and catering supplies, aviation gas, fuel
& oil)
machineries, equipment, tools for production, plants - such articles are not available locally inn
to convert mineral ores into saleable form, spare reasonable quantity, quality and price
parts, supplies, materials, accessories, explosive, - necessary or incidental to proper operations
chemicals, transpo and communication facilities
imported by and used by new mines and old mines
- used in their agri and industrial operations
aircrafts imported by agro industrial companies,
spare parts and accessories
Spare parts of vessels or aircrafts of foreign registry - brought to Phil as replacement or for
engaged in foreign trade emergency repair
- spare parts utilized to secure safety,
seaworthiness or airworthiness, enable it to
continue voyage or flight
Articles of easy identification exported from Phil for - cannot be repaired locally
repair and subsequently reimported - cost of repair made on article shall pay
30% ad valorem
Trailer chassis imported by shipping companies for - bond (1 ½ x) to cover 1 year
handling containerized cargo - must be properly identified and registered
with LTO

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- subject to customs supervision fee

- deposited in Customs zone when not in use
- upon expiration of period (1 yr or as
extended by Commissioner) duties and
taxes shall be paid
Personal and household effects (including one car) - Car must have been purchased or ordered
officer/ Ee of DFA, attaché, staff assigned to Phil before the mission or consulate received his
diplomatic mission abroad order of recall
personnel of Reparations Mission in Tokyo - the value of personal and household effects
AFP military personnel in SEATO shall not exceed 30% of his total salary
AFP military personnel accorded diplomatic rank
on duty abroad
à returning from regular assignment, reassignment,
dies, resigns, retires
credit must be made 6 months from
II. RATES OF DUTY exportation
5. when 2 or more result from the used of same
A. General Rules imported material, apportionment shall be
made
Sec. 104
There shall be levied, collected and paid upon all Ø every application for drawback must pay P500
imported articles the rates of duty indicated. filing, processing and supervision fees
Ø claims shall be paid by Bureau of Customs
Max rate: NOT exceed 100% ad valorem within 60 days after receipt of properly
accomplished claims
Rates of duty shall apply to ALL products whether
imported directly or indirectly of all foreign B. Basis of Duty
products which do not discriminate against
Philippine products Sec. 201 Basis of Dutiable Value (note: RA 8181
If foreign country discriminates amended this section)
à additional 100% across-the-board duty The DV shall be the Transaction Value which is the
on their products price actually paid or payable for the goods when
sold for export to the Phil, adjusted by:
Rates of duty shall be subject to periodic
investigation by Tariff Commission and may be a. commissions and brokerage fees
revised by President upon recommendation of costs of containers
NEDA. costs of packing

Sec 106 b. value of materials, components, parts and item

DRAWBACKS - in the nature of refund or tax credit incorporated in the imported good;
tools, dies, moulds used I the production;
a) Fuel used for Propulsion of Vessels engaged in materials consumed in the production;
trade with foreign countries or coastwide trade engineering, development, artwork, design,
à refund or credit not exceeding 99% of plans and sketches undertaken not in Phil
duty imposed by law on such fuel à such goods and services were supplied by
buyer to seller free of charge or at a reduced
b) petroleum oils and oils from bituminous rate to the extent that value was not included
minerals, crude oils imported by non electric in the price paid
utilities and then sold to electric utilities for
generation of electric power c. royalties and license fees that buyer paid
à refund or credit not exceeding 50% of duty
imposed by law d. any part of the proceeds of a subsequent
resale, disposal or use of good that accrues to
c) exportation of articles manufactured or the seller
produced in Phil (including packing + covering
+ marking/labeling) of imported materials for e. transportation cost from port of export to port
which duties have been paid of entry in Phil

CONDITIONS: f. loading, unloading and handling charges

(arrastre)
1. imported material was actually used in the
production of article to be exported g. insurance
2. refund or credit shall not exceed 100% of
duties paid on the imported material Alternative Methods37:
3. no determination by NEDA of the requirement 1. TV of identical goods sold for export in Phil at
for certification on non availability of locally or about the same time as good being valued
produced or manufactured competitive 2. TV of similar goods sold for export in Phil at or
substitutes for the imported material (I think about the same time as good being valued
this means there are no local substitutes for
the material..)
4. exportation must be made 1 year after
importation of material claim for refund or 37
Methods are applied successively. Alternative methods are
used when value cannot be determined through successive
application of previous methods.

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à if DV still cannot be determined using through “identical Goods” – same in all respects
the successive application of the methods above, including physical characteristics, quality
the order of succession of the ff may be reversed and reputation.
upon request of the importer:
“Similar Goods” – although not alike in all
3. unit price at which the imported or similar or respects, have like characteristics and
identical good is sold domestically component materials which enable them to
à same condition as when imported to persons perform the same functions and be
not related to seller at or about the same time commercially interchangeable
of the importation of the goods being valued
Sec. 202 Bases of Dutiable Weight
COMPUTED VALUE = cost of raw materials + profit a) gross weight: weight of article + weight of all
and general expenses + freight + insurance containers, packages, holders and packing
fees + transpo expenses where articles were contained during
importation
4. using other means consistent with accepted b) legal weight: weight of article + weight of
principles of GATT immediate containers, holders where such
articles are usually contained at the time of
Ø values shall be ascertained by Commissioner their sale to the public in retail quantities
from reports of revenue and commercial c) net weight: only the actual weight of article
attaches d) articles affixed to cardboard, cards, paper,
Ø values shall be published in at least 1 wood shall be dutiable together with weight of
newspaper of general circulation such holders
Ø party dissatisfied with the values can file e) when a single package contains articles
protest 15 days from date of publication dutiable according to different weights, the
Ø if it becomes necessary to delay the final common exterior of the receptacle shall be
determination of DV, release of imported goods prorated.
may be had by filing cash bond (imposable
duties and taxes + 25% thereof) Sec. 203 Rate of Exchange
Value quoted in foreign currency shall be converted
“Reasonable Doubt” refers to any condition that into Phil currency at the exchange rate published
creates a probable cause to make the by Central Bank
Commissioner of Customs believe in the
inaccuracy of the invoice value of imported Sec. 204 Effective Date of Rates of Import Duty
goods as declared by importer. Imported articles shall be subject to rates of import
duty existing at the time of entry or withdrawal
It may include the following situations: from warehouse

1. if sale price is subject to some consideration For articles abandoned, forfeited or seized by
which value cannot be determined such as: government and sold at public auction, the rate of
a. seller fixes price on condition that buyer duty shall be the rates in force at the time of
will also buy other goods in specified auction
quantities
b. price of imported goods is dependent Duty based on weight, volume and quantity shall
upon price at which buyer sells other be levied and collected on the weight, volume and
goods to seller quantity at time of entry into warehouse or date of
c. price is established on the basis of a abandonment/forfeiture/seizure.
form of payment extraneous to the
Imported goods Sec. 205
Imported article deemed “entered” in Phil for
2. part of proceeds of subsequent resale , consumption when:
disposal or use of goods will accrue to the - entry form is properly filed and accepted
seller together with related documents
- duties, taxes, fees and other charges are paid
3. buyer and seller are related to one another or secured to be paid imported article
and relationship affected the price. They
are related if: deemed to be “withdrawn” from warehouse
-officers or directors of one another’s in the Phil for consumption when:
business - entry form is properly filed and accepted
-legally recognized partners in business together with related documents
-Er-Ee (removed in RA 8181, but included - duties, taxes, fees and other charges are paid
in CA 2-99) or secured to be paid
-Any person owns, controls or holds 5% or
more of the outstanding voting stocks of Sec. 1308
both of them Contents of Commercial Invoice
-One of them directly or indirectly controls a. place, date, person by whom and the person to
the other whom articles are sold
-Both directly or indirectly controlled by If imported other than in a purchase, place
third person from which shipped, date when the person to
- members of same family including whom and by whom they are shipped
brothers and sisters (whether full or b. port of entry
half), spouse, ancestors and lineal c. detailed description of the articles (sufficient for
descendants (note change in CA 2-99) tariff classification and statistical purposes)
d. quantities

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e. if articles bought in pursuance to purchase,

purchase price in the currency of purchase and Dutiable Value (DV) shall be determined using one
the unit of quantity in which the articles were of the 6 methods of valuation.
bought These methods must be applied in sequence.
f. if articles shipped otherwise than purchase, However, method 4 and 5 may be reversed at
value of each article in unit which the article is request of importer(unless there shall be difficulty
usually bought and sold and in the currency in using method 5 in which case Commissioner
they are usually transacted shall reject request)
OR price in the currency manufacturer would
receive if sold in ordinary course of trade in Method # 1
usual wholesale quantities TRANSACTION VALUE
g. all charges Price actually paid or payable for goods when sold
h. discounts, rebates, drawbacks, bounties for export to Phil
i. current home consumption value or price + commissions & brokerage fees
j. other facts necessary for proper examination, + cost of containers
appraisement and classification of the articles + cost of packing (labor, materials)
+ assists (value of goods and services supplied
Sec. 1309 Certificate of Invoice by the buyer free of charge or at a reduced price
Commercial invoice must be presented to the for use in connection with the production and
consular officer of the Phil for certification at the sale for export of the good)
time or before or immediately after the shipment of + royalties & license fees
article + value of any part of the proceeds of
subsequent resale, disposal or use of imported
Consular invoice shall be certified in consular goods that accrue directly or indirectly to seller
district where articles were manufactured or + cost of transport
purchased or shippers. + loading, unloading, handling
à In the absence of Phil consul, the invoice may + insurance
be certified by consular officer in the district
nearest the place of exportation or person DV must NOT include:
designated by DFA - charges for construction, erection, assembly
maintenance or technical assistance
Sec. 1310 undertaken after importation
All importations exceeding P10, 000 in DV shall be - cost of transport after importation
entered only - duties and taxes of Phil
1. upon presentation of consular invoice under - other permissible deduction under WTO
penalties of falsification, perjury. All Valuation Agreement
importations exceeding P10, 000 in DV shall be
entered only upon presentation of consular CONDITIONS so the Transaction Value shall be the
invoice under penalties of falsification, perjury DV (CREPD)
OR 1. sale for Export to Phil
2. Affidavit showing cause why it is not possible to 2. no restrictions as to the Disposition or use of
produce invoice + bond goods by buyer except:
- those imposed by law or Phil authorities
Exempt from consular invoice requirement: - limit the geographical area where goods may
a. conditionally free importations be resold
b. tax free importations - do not substantially affect the value of the
c. importations of government agencies and goods
instrumentalities 3. not be subject to some Condition or
d. importations on consignment basis under RA consideration for which value cannot be
3137 and RA 6135 for re export determined
4. no part of the Proceeds of any subsequent
Sec. 1313 Information Furnished on Classification disposal shall accrue to the seller
and Value 5. buyer and seller are not Related or if they are,
Classification: relationship did not affect the price
When article not specifically classified in code, the
interested party, importer or foreign exporter may DEEMED RELATED IF: same with Sec. 201 as
submit a sample with full description of component amended by RA 8181 except for the following:
materials in a written request.
Customs Admin Order Sec. 201 as amended
Value: 2-99 by RA 8181
Upon written application, Collector shall furnish Employer-Employee None
importer within 30 days the latest information as to Together they directly None
the DV of articles to be imported. or indirectly control a
third person
Importer must present all pertinent papers and Related by affinity or members of same
documents, act in good faith and unable to obtain consanguinity up to 4th family including
information due to unusual conditions civil degree brothers and sisters
(whether full or half),
Information given is not an appraisal nor is it spouse, ancestors and
binding upon the Collector’s right of appraisal. lineal descendants

Customs Administrative Order # 2-99 IF RELATED, USE OF TV ACCEPTABLE IF:

(effective Jan 1, 1999) 1. circumstances surrounding transaction show
DETERMINATION OF DUTIABLE VALUE that relationship did not influence the price

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2. TV closely approximates: à TV of similar goods at a different commercial

- TV of unrelated buyers of identical or similar level and different quantity may be utilized
goods à TV shall be adjusted upward or downward to
- Deductive value of identical or similar goods account for the difference
determined according to method #4
- Computed value of identical or similar goods Method # 4
determined according to method #5 THE DEDUCTIVE VALUE
DV is determined on the basis of sales in the Phil of
Method # 2 goods being valued of identical or similar imported
TRANSACTION VALUE OF IDENTICAL GOODS goods less certain expenses resulting from
The DV shall be the transaction value of identical importation and sale of goods.
goods sold for export to the Phil and exported at or
about the same time as the goods being valued. Deductive Value is determined by making a
Identical goods must be same commercial level and deduction from the established price per unit for
substantially same quantity as the goods being the aggregate of the ff elements:
valued. a. Commissions OR
b. additions made in connection with profit and
Identical goods general expenses AND
- Same in all respects (physical characteristics, c. transport, insurance and associated costs
quality and reputation) d. customs duties and other national taxes
- Produced in the same country as the goods
being valued PRICE - COMMISIONS/ADDITIONS - COSTS -
- Produced by producer of the goods being DUTIES/TAXES
valued = DEDUCTIVE VALUE

à excludes imported goods for which engineering, CONDITIONS:

development, artwork, design work, plans and 1. sold in the Phil in the same condition as
sketches is undertaken in the Phil and provided imported
by the buyer to the producer free of charge or 2. sales taken place at or about the same time of
at a reduced rate importation of good being valued
3. if no sale took place at or about the time of
Ø When no identical goods produced by the importation
same person à use sales at the earliest date after
à identical goods produced by different importation (of the similar or identical good)
producer in the same country but before expiration of 90 days
4. if no sale meet the above conditions, importer
Ø If NO identical goods at same commercial may choose the use of sales of goods being
level and same quantity, valued after further processing
à TV of identical goods at a different
commercial level and different quantity “at or about the same time”
may be utilized à 45 days prior to and 45 days after importation
à TV shall be adjusted upward or downward
to account for the difference Method # 5
THE COMPUTED VALUE
Method #3 DV is determined on the basis of cost of production
TRANSACTION VALUE OF SIMILAR GOODS + profit + general expenses reflected in sales from
The DV shall be the transaction value of similar exporting country to the Phil of goods of same class
goods sold for export to the Phil and exported at or or kind
about the same time as the goods being valued.
Similar goods must be same commercial level and DV is calculated by:
substantially same quantity as the goods being determine aggregate of relevant costs,
valued. charges and expenses or value of (1)
materials and (2) production or processing
Similar goods: costs
- like characteristics and like component + costs (containers, packing, assists,
materials engineering, artwork, plans and sketches
- capable of performing same functions undertaken in Phil and charged to producer
- commercially interchangeable + profits and general expenses
- produced in same country + cost of transport, insurance and
- produced by dame producer charges to the port or place of importation
à excludes imported goods for which engineering,
development, artwork, design work, plans and Method # 6
sketches is undertaken in the Phil and provided by THE FALLBACK VALUE
the buyer to the producer free of charge or at a - DV cannot be determined using any of the
reduced rate above methods
- Use other reasonable means consistent with
Ø When no similar goods produced by the same principles and general provisions of GATT
person C. Special Duties
à similar goods produced by different producer
in the same country Sec. 301 Dumping Duty
When Sec of Finance receives a petition or has
Ø If NO similar goods at same commercial level reason to believe that a specific foreign article is
and same quantity, being imported into, or sold/ likely to be sold in
Phil, at a price less than its normal value

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à within 20 days, must determine prima facie case Deemed Owner of Imported Articles:
for dumping 1. consignee
2. holder of bill of lading
Sec. 302 Countervailing Duty 3. if consigned to order, the consignor
When an article is granted any bounty, subsidy or 4. underwriters of abandoned articles and salvors
subvention upon its production, manufacture or of articles saved at a wreck
exportation in the country of origin and importation
of which is likely to injure an established industry v the liability of importer for the duties, taxes,
or retard the establishment of industry in Phil fees and other charges constitute a personal
à countervailing duty = ascertained or estimated debt due to the government which may be
amount of bounty, subsidy or subvention discharged only upon full payment. It also
constitutes a lien upon the articles imported
v Injury criterion shall be applied only on imports while articles are in custody or subject to
from countries which adhere to GATT control of government
v If article was allowed a drawback, only the
excess of the amount of drawback over the v all importations by the government, its
total duties and taxes shall constitute bounty, branches, instrumentalities, GOCCs, agencies or
subsidy, subvention instrumentalities owned or controlled by
v When the conditions which necessitated the government are subject to similar duties, taxes
imposition of countervailing duties have ceased and fees except for those provided in Sec. 105
à must discontinue imposition (conditionally free imports)

Sec. 303 Marking B. Declaration

a. marking of articles
marked in official language of Phil and in Imported articles must be entered in customhouse
conspicuous places to indicate to the ultimate at the port of entry within 30 days from date of
purchaser the name of country of origin discharge by:
1. importer, being holder of B of L
b. marking of containers 2. customs broker
failure to mark à5% ad valorem 3. agent

failure or refusal to mark within 30 days Import entries:

from date of notice shall constitute act o 1. Informal entry
abandonment. - articles of commercial nature intended for
sale, barter or hire the DV is P2,000 or less
no imported article shall be delivered until - personal and household effects, not in
it has been inspected, examined or commercial quantity, for personal use
appraised
2. Formal entry
Sec. 304 Discrimination by Foreign Countries - may be for immediate consumption, or under
The president may proclaim new and additional irrevocable domestic letter of credit, bank
duties in an amount not exceeding 100% ad guarantee or bond for:
valorem on articles from country where: a. placing article in customs bonded
1. imposes an unreasonable charge, exaction not warehouse
equally enforceable in other laws b. constructive warehousing and immediate
2. discriminate against the commerce of Phil in transportation to other Phil ports upon
such a way that it places Phil commerce at a proper examination and appraisal
disadvantage c. constructive warehousing and immediate
exportation

D. Flexible Tariff Rates Written Declaration of Import Entry must contain

statements that declare:
Sec.401 1. full account of value or price
Pres is empowered to: 2. the invoice and entry contains just and faithful
1. increase, reduce or remove existing rates account of the value or price of articles; nothing
2. establish quota or ban import of any has been omitted or concealed
commodity 3. to the best of knowledge of declaring, all the
3. impose an additional duty not exceeding 10% invoices and B of L are the only ones in exiting
ad valorem in relation to the importation in question
4. the invoices, entries and B of L are genuine and
the pres’ power to increase or decrease rates of true
import duty shall include authority to modify the
form of duty à signed by importer, consignee or holder of bill,
manager of corporation, firm or association,
any order of Pres shall take effect 30 days after licensed customs broker
promulgation
except if the imposition of additional duty is less Form of Import Entry:
than 10%, it shall take effect upon the discretion of - shall be signed by person making entries
the President. - have required # of copies as prescribed by RR
Contents:
- name of importing vessel or aircraft
III. IMPOSITION OF DUTIES - # and marks of packages,
- quantity
A. Persons liable - description of article

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- value set in the invoice ADMINISTRATIVE PROCEEDINGS

(Secs 2301 – 2316)
C. Examination, Appraisal and Classification
(§1405-08) When seizure is made:
1. Collector shall issue a warrant for the
Procedure: detention of the property
1. appraisers shall ascertain, estimate, determine
the value or price of articles Cash bond
à file action within 1 year - if importer wishes to secure release of
2. examiners shall render a report article for legitimate use
3. appraisers shall describe all articles on the face - amount fixed by Collector
of entry in tariff - conditioned on payment of appraised
à 15 days value of article and/or fine, expenses,
costs
An appraisal, fully passed upon and approved by
Collector, may not be altered or modified except: à article will NOT be released if:
1. statement of error - prima facie evidence of fraud in the
2. request for reappraisal and/or classification importation]
- article is prohibited by law
if duty assessed amount is lower than the entered
value 2. Report to Commissioner and Chairman of
Commission of Audit
D. Assessment of Taxes
3. written notice to owner or importer
E. Liquidation (§1601-03) à he shall he given opportunity to be heard
Liquidation shall be made on the face of entry
showing the particulars Notification to an unknown owner
- posting for 15 days in the public corridor
Daily record of entries liquidated shall be posted on of customhouse
the public corridor of customs house - publication in newspaper
- other means Collector considers desirable
Tentative Liquidation-if to determine the exact
amount due some future action is required, 4. Collector shall make a list and particular
liquidation is deemed tentative as to items affected description and classification of the seized
and shall be subject to future and final adjustment property, appraisal based on local
and settlement within 6 months wholesale values by
- at least 2 appraising officials
Finality of Liquidation: After expiration of 1 year - absent such, 2 competent disinterested
from date of final payment of duties citizens

In the absence of protest, final and conclusive v If within 15 days from notification, no
between the parties unless liquidation was owner or agent is found or appears before
tentative Collector
à property forfeited to Government and
IV. REMEDIES OF THE GOVERNMENT sold at auction

A. Extrajudicial v SETTLEMENT
While case is pending, Collector may accept
1. Enforcement of Tax Lien settlement of any seizure case
- upon approval of Commissioner
Sec. 1508 - payment of fine ( 25% - 80% of the
When an importer has an outstanding and landed cost of the article)
demandable account with the Bureau of In case of forfeiture, should pay the
Customs, domestic market value of the seized
- Collector shall hold the delivery of the article
article
- Upon notice, he may sell such Settlement NOT allowed:
importation or a portion of it to satisfy o Fraud in importation
the obligation o importation prohibited by law
à importer may settle his obligation anytime o release would be contrary to law
before the sale
v PROTEST
2. Seizure and Forfeiture - written protest
- payment before protest is necessary
Sec 2205 (amount due + docket fee)
WHO: customs official
Fisheries Commissions When: at the time payment of the amount
Philippine Coast Guard claimed to be due is made within 15 days
thereafter
à to make seizure of any vessel, aircraft,
cargo, animal or any movable property when Form: filed according to RR; point out the
the same is subject to forfeiture or liable for particular decision or ruling grounds used as
any fine under the tariff and customs law basis for the protest

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Scope: limited to the subject matter of a single 2. Collector shall verify with the records
adjustment (refers to the entire content of one in his office
liquidation including duties, fees, surcharges 3. certify claim to Commissioner with his
and fines) or other independent transaction recommendation and necessary papers
4. Commissioner shall then cause the
à failure to protest will render the action of the claim to be paid if found correct
Collector final and conclusive except for
manifest error v If the result of the refund would result
to a corresponding refund of the
à upon demand of Collector, the importer shall internal revenue taxes on the same
furnish samples of the articles which are the importation, Collector shall certify to
subject of the protest Commissioner who shall cause the said
excess to be paid, refunded or credited
HEARING: 15 days after filing of protest in favor of the importer
DECISION: within 30 days
B. Protest (§2308-09. 2312)
REVIEW BY COMMISIONER: 15 days after
notification in writing of Collector’s decision - written protest
à if decision of Collector is adverse to - payment before protest is necessary
government à automatic review (amount due + docket fee)

DECISION OF COMMISIONER: within 30 days When: at the time payment of the amount
à notice to party who brought case ( if seizure claimed to be due is made within 15 days
case, personal service if practicable) thereafter

REVIEW BY SECRETARY OF FINANCE Form: filed according to RR point out the

à if decision of Collector is adverse to particular decision or ruling ground used as
government à automatic review basis for the protest

»»» Inaction of Commissioner or Secretary for Scope: limited to the subject matter of a
30 days from receipt of records of the case single adjustment (refers to the entire
à decision under review becomes final and content of one liquidation including duties,
executory fees, surcharges and fines) or other
independent transaction
APPEAL TO CTA: within 30 days from receipt of
copy of decision à failure to protest will render the action
of the Collector final and conclusive
v COMPROMISE except for manifest error
Commissioner may compromise any case
subject to approval by Secretary à upon demand of Collector, the importer
shall furnish samples of the articles
B. Judicial which are the subject of the protest
(see flowchart IX)
C. Abandonment (§1801-03)
V. REMEDIES OF THE TAXPAYER
Article is deemed abandoned when:
A. Refund (§1707-08) 1. owner, importer or consignee expressly
signifies in writing to Collector his
When: intention to abandon
1. manifest clerical error made in invoice 2. after due notice, fails to file an entry
or entry within 30 days from date of discharge
2. error in return of weight, measure and of last package from vessel or aircraft
gauge 3. after filing entry, fails to claim his
- certified, under penalties of importation 15 days from date of
falsification or perjury, by posting of the notice to claim such
examining official importation
3. error in the distribution of charges on
invoices Effect:
- not involving any question of law - deemed to have renounced his interest
- certified, under penalties of and property rights
falsification or perjury, by - ipso facto deemed property of the
examining official Government

Conditions à any official or employee who:

1. errors discovered before payment OR - had knowledge of the existence of
discovered within 1 year after the final abandoned article
liquidation - custody or charge of such article
2. written request and notice from fails to report within 24 hours from
importer OR statement of error time article deemed abandoned shall be
certified by the Collector punished accdg to sec. 3604 ( fine: P5000
– P50,000mprisonment: 1 yr – 10 yrs
How: perpetual disqualification to hold public
1. Claim made in writing office, vote and participate in election)

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VI. Pertinent Amendments by RA 9135

1. Post-entry Audit & Examination

Sec. 3513. Importers are required to keep at

their principal place of business for a period
three (3) years from importation, all records
of their importations and/or books of
accounts, business and computer systems.
Brokers are likewise required to do so with
respect to transactions they handle.

Sec 3515.
Customs Officers authorized by the Bureau of
Customs may enter during office hours
premises where records are kept by
importers/customs brokers to conduct audit
of books, records or documents for the
purpose of collecting the proper duties and
taxes.

2. Acquisition of grossly undervalued

goods

Sec 2317.–
In order to prevent undervaluation of goods
subject to ad valorem duty, the
Commissioner of Customs may acquire
imported goods for a price equal to their
declared customs value plus any duties
already paid on the goods, payment for which
shall be made within ten (10) working days
from issuance of a warrant signed by the
Commissioner of Customs for the acquisition
of such goods.

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