Chapter 24

REAL PROPERTY
TAXATION
Definition

Real property tax is an ad valorem box tax collected by a city, municipality or

province on real property such as land, buildings, machinery and other improvements
affixed or attached to real property.

Laws governing real property taxation

in the Philippines

1. The 1987 Philippine Constitution

“Each local government unit shall have the power to create its own
sources of revenues in to levy taxes, fees and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic policy of
local autonomy. Such taxes , fees and charges shall accrue exclusively to the
local governments(Art X, Sec.5)“

2. The local government code of 1991( Republic act 7160)

The provisions of RA 7160 on real property taxation covers section 197 to

section 283 compose of the following:
a. General Provisions
b. Appraisal and Assessment of Property
c. Assessment Appeals
d. Imposition of Real Property Tax
e. Special Levies on Real Property Tax
f. Collection of Real Property Tax
g. Disposition of Proceeds
h. Special Provisions

3. Urban Development and Housing Act of 1992

All local government units are hereby authorized to impose an additional

one-half percent (0.5%) tax on the assessed value of all lands in urban areas in
excess of P50,000 (Section 43, RA 7279).

4. Presidential Decree No.921

Decree providing for the administration of local financial services in

Metropolitan Manila, creating local Treasury and assessment districts
therein, and for other purposes.
Nature of real property taxes

The real property taxes are classified as:

1. Property taxes. - The taxes are imposed on the properties.

2. Direct taxes. - The burden of the taxes could not be shifted to other person.
3. Local taxes. - The Levy, assessment and collection are made by the local
government units.
4. Revenue taxes. - Generally, the objective of the imposition is to raise revenue; in
some cases, however, the purpose is regulatory such as in Idle Land Tax where
the imposition is being made to penalize property owners who do not make their
property productively.
5. Ad valorem taxes. - The taxes are based on the value of the property, i.e. either
assessor’s market value or assessed value.
6. Proportional tax. - The real property tax on land is based on a flat tax rate.

Exemption from legal property tax

The following are exempt from the payment of real property tax:

1. Real property owned by the Republic of the Philippines or any of its political
subdivision except when the beneficial use thereof has been granted to taxable
person;
2. Charitable institutions, churches, and parsonages or convents appurtenant
thereto, mosques, nonprofit cemeteries, and all lands, buildings and
improvements, actually, direct, and exclusively use for religious, charitable, or
educational purposes.
3. Non-profit or religious cemeteries or burial grounds;
4. Machineries and equipment that are actually, directly and exclusively used by
local water district and government-owned or controlled corporations engage in
the supply of water and/or generation of electric power;
5. All real property owned by duly registered cooperatives as provided for under
R.A No. 6938, and
6. Machineries and equipment used for pollution control and environmental
protection.

Illustration 24-1

The Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Paranaque City. It administers the land,
improvements and equipment within the NAIA complex. The city of Paranaque issued
notices of Levy and warrant for failure to pay real property tax on the lands and buildings
being administered by the NAIA.
 Is MIAA liable to pay real property tax in the City of Paranaque?

A government-owned and controlled Corporation is not exempt from real

property. However, MIAA is not a government-owned or control Corporation but only a
trustee of the Republic of the Philippines. The airport lands and buildings, therefore, are
owned by the Republic and real properties owned by the Republic are not taxable.

However, portions of the airport lands in buildings that MIAA leases to private
entities such as the land area occupied by hangars that is leased to private corporations
he's subject to real property tax.

Real properties and improvements for

real property tax purposes

Neither the Real Property Tax Code carry a definition of “real property”. In the
absence of such a definition, we apply article 415 of the Civil Code, the pertinent
portions of which state:

Art. 415. The following are immovable property:

( 1) Lands, buildings and constructions of all kinds adhered to the soil; and

( 2) Everything attached to an immovable in a fixed manner, in such a way that it cannot

be separated therefrom without breaking the material or deterioration off the object.

Improvement is defined as a valuable addition made to a property or an

amelioration in its condition, amounting to more than a mere repair or replacement of
parts involving capital expenditures and labor, which is intended to enhance its value,
beauty or utility or to adapt it for new or further purposes.

Machinery

The term machinery includes machines, equipment, mechanical contrivances,

instruments, appliances or apparatus which may or may not be attached, permanently or
temporarily, to the real property.

It includes the physical facilities for production, the installations and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, and those not
permanently attached to the real property which are actually, directly and exclusively
used to meet the needs of the particular industry, businesses or activity and which by
their very nature and purpose are designed for, or necessary to its manufacturing,
mining, logging, commercial, industrial or agricultural purposes.

Thus, gasoline equipment and machinery's consisting of underground tanks,

elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps,
water pumps, car washer, car hoists, air compressors and tire inflators attached to the
pavement and to the shed are real property subject to real property tax (Caltex Phils vs.
CBAA, et al, Gr L-50466, May 31, 1982)

It is a familiar phenomenon to see things classed as real property for purposes of

taxation which on general principle might be considered personal property (Standard Oil
Company of New York vs. Jaramillo, 44 Phil 630).

Fundamental principles

The appraisal, assessment, levy and collection of real property that shall be
guided by the following fundamental principles:

1. Real property shall be appraised at its current and fair market value;
2. Real property should be classified for assessment purposes on the basis of its
actual use;
3. Real property shall be assessed on the basis of a uniform classification within
each local government unit;
4. The appraisal, assessment, levy in connection of real property tax shall not be let
to any private person; and
5. The appraisal in assessment of real property shall be equitable.

Illustration 24-2

The city of San Rafael passed an ordinance authorizing Luzon Brokerage

Corporation (LBC) Express and Bayad Center to collect the payment of real property tax
so that the taxpayer can pay the tax even if

They are from other places in the Philippines and even during Saturdays, Holidays and
after office hours.

Is that ordinance valid?

The ordinance is invalid. It is clear from the fundamental principles of real

property taxation that the appraisal, assessment, levy and collection of real property tax
shall not be led to any private person.

Fair market value

Fair market value is the price at which a property may be sold by a seller who is
not compelled to sell and bought by a buyer who is not compelled to buy.

For assessment purposes, it is also known as the “assessor’s value.”

Illustration 24-3

The City of Manila sold to army and Navy club of Manila a land located in the
New Luneta at P1000 per square meter with a condition that said property shall be
exempt from real property tax for a period of Ten years. When the taxes on the property
became payable, the City of Manila assessed the land of P20,000 per square meter, the
current value of the land.

Army and Navy Club paid the tax under protest.

Should the property be taxed based on the purchase price of P1,000 or at

P20,000 per square meter?

The property should be assessed at P20,000. By fair market value is meant the
amount of money which a purchaser is willing, but not obliged to sell it, taking into
consideration all uses to which the property is adopted and might in reason applied.

The basis of assessment of real property

is actual use and not ownership

Real property shall be classified, value and assessed on the basis of its actual
use regardless of where located, whoever owns it, and whoever uses it (Sec. 17, Local
Government Code)

Illustration 24-4

Imperial Mining Company, Inc, leased mineral lands from the government thru
the Department of Agriculture. The Provincial Assessor of Nueva Ecija assessed real
property tax on the land. Imperial Mining Company resisted on the ground that the land
is owned by the government and therefore exempt from real property tax.

Is the mineral land subject to real property tax?

Real properties are taxed on the basis of actual use, even if the user is not the
owner. Actual use shall prefer to the purpose for which the property is principally or
predominantly utilized by the person in possession of the property.

Classes of real property for assessment purposes

For purposes of assessment, real property shall be classified as residential,

agricultural, commercial, industrial, mineral, timberland or special.

Residential land is land principally devoted to habitation.

 Agricultural land is land devoted principally do the planting of trees, raising of
crops, livestock and poultry dairying, salt baking, inland fishing and similar aquacultural
activities, and other agricultural activities, commercial or industrial land.

Commercial land is land devoted principally for the object of profit and is not
classified as agriculture, industrial, mineral, timber, or residential land.

Industrial land is land devoted principally do industrial activity as capital

investment and is not classified as agricultural, commercial, timber, mineral or residential
land.

Mineral lands are lands in which mineral metallic or nonmetallic, exist in sufficient
quantity or grade to justify the necessary expenditures to extract and utilize such
minerals.

All lands, buildings and other improvements thereon, actually, directly and
exclusively use for hospitals, cultural, or scientific purposes, and those owned and used
by local water districts, and government-owned or controlled corporations rendering
essential public services in the supply and distribution of water and/or generation and
transmission electric power should be classified as special.

Assessment level and assessed value

Assessment level is the percentage applied to the fair market value to determine
the assessed value of the property.

Assessed value is the fair market value of the real property multiplied by the
assessment level. It is synonymous to taxable value.

The assessment levels to be applied to the fair market value of real property to
determine its assessed value shall be fixed by ordinances of the sangguniang
panlalawigan, sangguniang panlungsod or sangguniang bayan of a municipality within
the Metropolitan Manila Area, at the rates not exceeding the following:

A. On lands in machines

Classification Assessment Levels

Lands Machines

Residential 20% 50%

Timberland 20% -
Agricultural 40% 40%
Commercial, industrial 50% 80%
Mineral 50% -
Special classes: cultural, hospitals, scientific 15% 15%
Local water districts 10% 10%
Government owned or control Corporations engage in
the supply and/or generations/transmission electric power 10% 10%

B. On Improvements

Fair market Commercial/

value
Over Not over Residential Industrial Agricultural Timberland
P175,000 0% 0% 0% 0%
P175,000 300,000 10% 30% 25% 45%
300,000 500,000 20% 35% 30% 50%
500,000 750,000 25% 40% 35% 55%
750,000 1,000,000 30% 50% 40% 60%
1,000,000 2,000,000 35% 60% 45% 75%
2,000,000 5,000,000 40% 70% 50% 70%
5,000,000 10,000,000 50% 75% 50% 70%
10,000,000 60% 80% 50% 70%

Illustration 24-5

Rea owns a land which is classified as residential. The market value of the
property in the tax declaration is P1,000,000. The local government unit fixes the
assessment level at 20% and the basic tax rate at 1%.

Compute for the annual basic real property tax.

Market value P1,000,000

x Assessment level (residential) 20%
Assessed value 200,000
X Basic real property tax rate 1%
Annual real property tax due 2,000
Tax rates on the basic tax

For purposes of computing the basic for property tax, the following rates shall be
applied:

In provinces -Not exceeding 1% of the assessed value

In cities, and municipalities in Metro Manila -Not exceeding 2% of the assessed value

Assessment when classification conflicts with its used

 When the land is located in a commercial area but the building is residential, the
classification of the land conflicts with its use.

In such cases, the following rules shall be observed.

Classification of land to determine

Fair Market Value Assessment Level

1. Land is in residential area Residential Commercial

building is commercial

2. Land is in commercial area, Commercial Residential

building is residential

3. Land is in mixed Commercial Commercial

residential/commercial area,
building is commercial

4. Land is in mix Residential Residential

residential/commercial area,
building is residential

5. Land is in mixed Residential Residential

residential/commercial area, and
is vacant

6. Land is in mix PREDOMINANT USE PREDOMINANT

residential/commercial area, and USE
building is used for mixed
residential/purpose

Illustration 24-6

Marshall constructed a commercial building in a residential area. How shall the

local government classify the land in estimating its market value? How about the
assessment level?

For market value purposes, the land shall be classified as residential. In

determining the assessment level, it shall be classified as commercial.
Special Levies

Aside from the basic real property tax, a province, city, or a municipality within
Metro Manila may levy the following on real properties:

1. Special Education Fund Tax (SEF)

2. Ad valorem tax on Idle Lands
3. Special Levy or special assessment

Special Education Fund Tax

A province or city, or a principality within Metro Manila may levy and collect an
annual tax one percent (1%) on the assessed value of real property, within their
jurisdiction, in addition to the basic real property tax.

The proceeds shall exclusively accrue today Special Education Fund (SEF).

Illustration 24-7

Oneer owns an irrigated riceland in Iriga City with a market value of P655,000. The
assessment level for agricultural land per tax ordinance in the City of Iriga is 10%. Of the
tax rate for basic real property tax is 1.5%, how much is the amount payable by Oneer?

Basic real property tax:

Market value P655,000
x Assessment level _____10%
Assessed value 65,500
x Tax rate _ 1.5% P982.50

Special Education Fund Tax:

Assessed value 65,500
x Tax rate ______1% _655.00
Amount payable 1,637.50
Special levy on idle lands

A province or city, or a municipality within the Metropolitan Manila Area, may levy
an annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed
value which shall be in addition to the basic real property tax.

For purposes of real property taxation, idle lands shall include the following:

1. Agricultural lands more than one (1) hectare in area, suitable for cultivation, dairying,
inland fishery, and other agricultural uses, one-half (1/2) of which remain uncultivated or
unimproved by the owner of the property or person having legal interest therein.

2. Agricultural lands planted to permanent or perennial crops with at least fifty (50) trees
to a hectare shall not be considered idle lands. Lands actually used for grazing purposes
shall likewise be considered idle lands:

3. Lands, other than agricultural, located in a city or municipality, more than one
thousand (1,000) square meters in area one-half (1/2) of which remain utilized or
unimproved by the owner of the property or person having legal interest therein.

Regardless of land area, residential lots in subdivisions duly approved by proper

authorities, the ownership of which has been transferred to individual owners, who shall
be liable for the additional tax.

Provided, however, that individual lots of such subdivisions, the ownership of

which has not been transferred to the buyer shall be considered as part of the
subdivision, and shall be subject to the additional tax payable by subdivision owner or
operator.

Idle lands exempt from idle land tax

Idle lands may be exempt from additional levy by reason of force majeure, civi!
disturbance, natural calamity or any cause or circumstance which physically or legally
prevents the owner of the property or person having legal interest there in from
improving, utilizing or cultivating the same.
Special levy (special assessment) by local government units

This is imposed on lands comprised within its territorial jurisdiction specially

benefited by public works projects or improvements funded by the local government unit
concerned.

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

Provided, further, That the special levy shall not apply to lands exempt from basic
real property tax and the remainder of the land portions of which have been donated to
the local government unit concerned for the construction of such projects or
improvements.

Socialized housing tax

Consistent with the constitutional mandate that the ownership and enjoyment of
property bear a social function and to raise funds from the program, all local government
units are hereby authorized to impose additional one-half percent (0.5%) tax on the
assessed value of all lands in urban areas in excess of fifty thousand pesos (P50,000)
(Sec. 13, RA 7279).

Illustration 24-8

The City Government of Quezon City passed an ordinance imposing additional

one-half percent tax on assessed value of all islands in Quezon City exceeding
P100.000. The ordinance provides that the collection shall accrue to the Socialized
Housing Program of the city government. It further provides that the term of effectively
shall be five (5) years which shall commence January 2012.

The affected landowners opposed the ordinance. Accordingly, there is no

provision in the local Government Code which authorizes this imposition. Is the
ordinance valid?
∞ The ordinance is valid. The authorities are Section 43 of Republic Act No. 7279,
otherwise known as the Urban Development and Housing Act UDHA) of 1992 and Local
Finance Circular 1-97 of the Department of Finance.

Transfer tax on transfer of real property ownership

The province, city or municipality within Metro Manila Area may impose a tax on the
sale, donation, barter, or on any other mode of transferring ownership or title of real
property at the rate of not more than one-half percent (1/2%) in province/municipality
and three-fourth (4%) in cities of the total consideration involved in the acquisition of the
property or of the fair market value in case the monetary consideration involved in the
transfer is not substantial, whichever is higher.

The sale, transfer or other disposition of real property pursuant to RA 6657

(Comprehensive Agrarian Reform Law) shall be exempt from this tax.

For this purpose, the Register of Deeds of the province or city concerned shall,
before registering a deed, require the presentation of the evidence of payment of this
tax.

The assessor shall likewise make the same requirement before cancelling an old
tax declaration and issuing a new one in place thereof.

It shall be the duty of the seller, donor, transferor, executor or administrator to

pay the tax herein imposed within sixty (60) days from the date of the execution of the
deed or from the date of the decedent's death.

In general, the requirements for the payment of transfer tax are the following:

1. Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue,

2. Realty tax clearance from the Treasurer's Office; and

3. Official receipt for payment of documentary stamp tax paid to the Bureau Internal
Revenue.
Illustration 24-9

Fer sold to Trans his residential condominium unit in Pasig City with o floor area
of 50 square meters for a price of P2,000,000. The existing market value per tax
declaration is P1,000,000.

Who is liable to pay the tax? Assuming that the transfer tax role in Pasig City is
one-half percent (4%), how much is the tax payable?

∞
Being the seller, Fer is duty bound to pay the Transfer Tax to Pasig City.
The tax payable is P10,000, computed as follows:
Selling price (higher) P2,000,000
X Rate of tax _½%
Transfer tax __10,000

Collection of real property tax

1. Date of accrual of tax. - The real property tax for any year shall accrue on the first
(1st) day of January.

2. Payment of real property taxes in installment. - Except the special levy, the
payment of which shall be governed by the ordinance, the owner of the real property or
the person having legal interest therein may pay the basic real property tax and the
additional tax for the Special Education Fund (SEF) thereon without interest in four (4)
equal installments as follows:

1st installment - on or before March 31

2nd installment - on or before June 30

3rd installment- on or before September 30

4th installment - on or before December 31

3. Application of payment of real property taxes. - The payments shall first be applied
to prior years' delinquencies, interests, and penalties, if any, and only after said
delinquencies are settled may tax payments be credited for the current period.

4. Tax discount for advanced prompt payment. - If the basic real property tax and the
additional tax accruing to the SEF are paid in advance in accordance with the prescribed
schedule of payment are provided above, a discount of not exceeding twenty percent
(20%) of the annual tax due may be granted to the taxpayer.

5. Interests on unpaid real property tax. - in case of failure to pay the real property tax
(basic and special levies) upon the expiration of the periods for payment, or when due,
as the case maybe, shall subject the taxpayer to the payment of interest at the rate of
two percent (2%) per month on the unpaid amount or a fraction thereof, until the
delinquent tax shall have been fully paid, but not to exceed thirty-six (36) months.

Condonation or reduction of real property tax and Interest

Condonation or reduction of real property tax and interest may be done either thru an
ordinance, or by the President of the Philippines.

a. Condonation/reduction thru an ordinance. In case of a general failure of crops or

substantial decrease in the price of agricultural or agribased products, or calamity, the
sanggunian concerned, by ordinance passed prior to the first (1) day of January of any
year and upon recommendation of the Local Disaster Coordinating Council (LDCC), may
condone or reduce, wholly or partially, the taxes and interest thereon for the succeeding
year or years in the municipality affected by the calamity.

b. Condonation/reduction by the President. - The President of the Philippines may,

when public interest so requires, condone or reduce the real property tax and interest for
any year in any province or city or a municipality within the Metropolitan Manila Area.

Period to collect real property taxes

The basic real property tax and special levies shall be collected within five (5)
years from the date they become due. No action for the collection of the tax, whether
administrative or judicial, shall be instituted after the expiration of such period.
 In case of fraud or intent to evade payment of the tax, such action may be
instituted for the collection of the same within ten (10) years from the discovery of such
fraud or intent to evade payment.

The running of the prescriptive period within which to collect shall be suspended
for the time during which:

1. The local treasurer is legally prevented from collecting the tax;

2. The owner of the property or the person having legal interest therein requests for
reinvestigation and executes a waiver in writing;

3. The owner of the property or the person having legal interest therein is out of the
country or otherwise cannot be located.

Person or office tasked to collect the tax

The collection of the real property tax with interest thereon and related expenses,
and the enforcement of the remedies shall be the responsibility of the city or municipal
treasurer concerned.

The city of municipal treasurer may deputize the barangay treasurer to collect all
taxes on real property located in the barangay.

Provided, that the barangay treasurer is properly bonded for the purpose which
shall be paid by the city or municipal government concerned.
EXERCISE 24-1. DISCUSSION QUESTIONS

1. Requirement of public hearing; exceptions. The Sangguniang Panlungsod of a city

passed an ordinance increasing the tax rate on real property tax from 1% to 1.25% of
the assessed value of all real properties located within its jurisdiction. In the review of the
city ordinance by the Sangguniang Panlalawigan, a group of real property owners in said
city filed a protest on the ground that no public hearing was conducted and, therefore,
such ordinance is illegal. Is there a merit in the protest?

2. Actual use regardless of ownership. The residential property of Mr. and Mrs.
Angeles, situated in a commercial area in front of the public market, was declared in the
tax declaration as residential. In 2007, the spouses left for the United States to stay
there permanently with their children. The property has been rented to a businessman
engaged in the sale of appliances and agricultural products.

For purposes of assessment, the assessor reclassified the property as

commercial effective 2008. Is the reclassification proper?

3. Exemption from real property tax. Article VI, Section 28(3) of the 1987 Constitution
provides that charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries and all lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational purposes
shall be exempt from taxation.

Your client, an educational institution consulted you as to what kind of tax/es

is/are covered by this exemption.

a. What will be your answer?

b. What proof is necessary to avail of this exemption?

4. Special levies. Aside from the basic real property tax, what other real property taxes
may be imposed by provincial, city and municipalities in the Metro Manila area?
EXERCISE 24-2. MULTIPLE CHOICE QUESTIONS

1. There have been several issuances and enactment of laws on imposition of taxes on
real property. At present, the law governing taxation of real property in the Philippines is

A. Local Tax Code Real Property Tax Code

B. Real Property Tax Code
C. Local Government Code of 1991
D. National Internal Revenue Code

2. In the assessment of real property for tax purposes, the basis shall be the

A. actual use by the owner.

B. actual use by the person in possession.
C. Comprehensive Land Use Plan
D. Zoning ordinance

3. In valuing a real property for purposes of computing the tax, the assessor must base
the value of the property on the

A. zonal value
B. cost of acquiring the property
C. current and fair market value
D. value of a private real estate appraiser
4. The real property tax rate to the imposed

A. must not exceed 1% in a province and 2% in a city, of the market value.

B. must not exceed 1% in a province and 2% in a city, of zonal value.
C. is 1% in a province and 2% in a city of assessed value.
D. must not exceed 1% in a province and 2% in a city, of assessed value.
5. There are several special levies on real property. Which of the following is not one of
them?

A. Special education fund tax

B. Special assessment
C. Ad valorem tax on idle land
D. Transfer tax on transfer of real property ownership

6. The assessment level of agricultural land in a city should be approved by the

Sangguniang Panlungsod in an ordinance in which the rate

A. should be fixed at 40%.

B. should not exceed 40% of the assessed value.
C. should not exceed 40% of the market value.
D. should not exceed 40% of the zonal value.

7. Toral owns an agricultural land with an area of ten (10) hectares, suitable for
cultivation, dairying, inland fishery and other agricultural uses remains uncultivated and
unimproved by the owner to the extent of 7% of the land.

Which real property tax cannot be imposed on the property of Toral?

A. Basic real property tax

B. Idle land tax
C. Special education fund tax
D. Special levy tax

8. The City Government of Quezon City enacted an ordinance imposing a socialized

housing tax on all lands located within the territorial jurisdiction of the city. Lando, a
landowner whose land is being taxed questions the legality of such ordinance.

What is the legal basis of the city ordinance?

A. Real Property Tax Code

B. Local Tax Code
 C. Urban Development and Housing Act
D. Local Government Code

9. A transfer of real property ownership such as sale, donation or barter is subject to

transfer tax. Which of the following statements is not true about transfer tax?

A. The tax rate for cities should not exceed 3/4%.

B. b. It is payable within 60 days from the date of the execution of the deed or from
the date of the decedent's death.
C. It is payable to the office of the city treasurer.
D. All transfers of real property including the disposition under Comprehensive Tax
Reform Law (RA 6657) are subject to transfer tax.
10. You are consulted by a seller of real property as to what documents/prerequisites
are needed before a transfer tax is paid in the treasurer's office of the city.

Given the options below, which of them is not a prerequisite?

A. Certificate Authorizing Registration (CAR) from the Bureau of Internal Revenue;

B. Realty tax clearance from the Treasurer's Office
C. Registration of the document in the Registry of Deeds.
D. Official receipt for payment of documentary stamp tax paid to the Bureau of
Internal Revenue

11. A real property tax is not a/an

A. national tax
B. ad valorem tax
C. proportional tax
D. property tax
12. A parcel of land located in a residential area in Caloocan City and classified in the
tax declaration as industrial is leased and used as commercial. What will be the basis of
the city government in assessing the property?

A. Residential
B. Industrial
C. Commercial
D. Agricultural
13. Given the following formulas, which of them is false?

A. Taxable value Fair market value x Assessment level

B. Assessment level = Assessed Value x Market Value
C. Fair market value = Assessed Value/Assessment Level
D. Real property tax = Assessed Value x Tax Rate
14. The special levy on idle lands applies to what classification of large tract of land?
A. residential
B. agricultural
C. commercial
D. industrial

15. Collection of special assessment is subject to several rules. Which of the following
rules is not applicable to special assessment?

A. It cannot be imposed without public improvement.

B. It does not apply to properties which are exempt from real property tax.
C. The total amount to be collected should not exceed 50% of the expenses total
project cost and cost of acquiring the land.
D. It shall only be imposed on lands especially benefited by the par of
improvements.
EXERCISE 24-3. MULTIPLE CHOICE PROBLEMS

Items I to 3:

1. A parcel of land located in a city was assessed as commercial with a fair market value
of P4,000,000. How much would be the highest possible amount of annual basic real
property tax that can be collected from the owner?

A. P 40,000
B. 20,000
C. P 16,000
D. 8,000
2. How about if the property is located in a municipality?

A. 40,000
B. 20,000
C. 16,000
D. 8,000
3. How about if the property is assessed as residential in a municipality?

A. P 40,000
B. 20,000
C. P 16,000
D. 8,000
Questions 4 to 6 are based on the following information:

A tax declaration contains the following data:

Actual use of property Residential

Market value:
Land P500,000
Improvement 800,000
Assessment level:
Land - 15%
Improvement - 20%
4. How much is the taxable value on the land?

A. P500,000
B. 75,000
C. 539
D. P 750

5. If the tax rate is 1%, how much is the real property tax on the improvement?

A. P 2,350
B. 4,700
C. P 160,000
D. 1,600

6. How much is the total real property tax assessable on the properties?

A. P 2,350
B. 4,700
C. P 3,525
D. 1,500

Items 7 to 9 are based on the following information:

7. A vacant commercial land located in a city measuring 2,000 square meters has a
market value of P1,100 in the tax declaration and a zonal value of P800. If the city has
maximized the assessment level and tax rate to that allowed by law, how much is the
total real property tax payable?

A. P 22,000
B. 17,600
C. P 33,000
D. 9,900
8. In the preceding question, if the taxpayer paid in advance what is the maximum
amount of discount that will be allowed as deduction from his tax due?

A. P 26,400
B. 6,600
C. P 33,000
D. 44,000

9. In Question 7, how much is the total amount payable if the taxpayer pays his real
property tax after twelve (12) months of delinquency?

A. P 41,250
B. 33,000
C. P 27,500
D. 8,250

10. In question 7, how much is the total real estate tax payable if the lot is an ide
agricultural land and it is subject to an idle land tax of 1%?

A. P 33,000
B. 11,000
C. P 44,000
D. 22,000
CHAPTER 25:

OTHER LOCAL TAXES

Basis of local government units' power to tax

The power of provinces, cities, municipalities and barangays to impose and

collect taxes is based on the following:

1. Section 5, Art. X, 1987 Constitution. Each local government unit shall have the power
to create its own sources of revenue and to levy taxes, fees and charges subject to such
guidelines and limitation as the Congress may provide, consistent with the basic policy
of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.

2. Section 129, Local Government Code of 1991. Each local government unit shall
exercise its power to create its own sources of revenue and to levy taxes, fees and
charges subject to the provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees, and charges shall accrue exclusively to the local
government units.

Illustration 25-1

Congressman Sakim filed a bill in the House of Representatives providing for one
system of taxation only and withdrawing the taxing power of local goverment units.
Accordingly, it will be good for the country if the collection of taxes and the disbursement
of government funds will come solely from the national government. Would such a law
be approved in the Congress?

∞
No. Such legislation would be contrary to the constitutional provision on local
autonomy. The power of the local government units to create its own sources of revenue
is vested in the constitution. Thus, no law can be validly passed withdrawing such
power.

The only power granted to the Congress is to provide guidelines and limitations
on the imposition of local taxes.
Fundamental principles

The following fundamental principles shall govern the exercise of the taxing and
other revenue-raising powers of local government units:

1. Taxation shall be uniform in each local government unit;

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the taxpayer's ability to pay:

b. be levied and collected only for public purposes,
c. not be unjust, excessive, oppressive, or confiscatory:
d. d. not be contrary to law, public policy, national economic policy, restraint of
trade; or in

3. The collection of local taxes, fees, charges and other impositions shall in no case be
let to any private person;

4. The revenue collected pursuant to the provisions of this Code shall inure solely to the
benefit of, and be subject to disposition by, the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically provided herein; and

5. Each local government unit shall, as far as practicable, evolve a progressive system
of taxation.

Illustration 25-2

The Sangguniang Panlungsod of ABC City passed a resolution ratifying the contract
entered into between Mayor Gunggong and Palawan Express authorizing the latter to
collect all fees, taxes, licenses and other charges imposed by the city. In return, Palawan
Express will receive a commission 5% of its collection. Is the contract valid? How about
the resolution?

∞
 No. The Local Government Code is explicit that the collection of local taxes, fees,
charges and other impositions shall not be let to any private person.

The authority given to the corporation is violative of the fundamental principle of local
taxation.

Common limitations on the taxing power of local government units

Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:

1. Income tax, except when levied on banks and other financial institutions;
2. Documentary stamp tax;
3. Estate tax;
4. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues,
and all other kinds of customs fees, charges and dues except wharfage on wharves
constructed and maintained by the local government unit concerned;
5. Taxes, fees or charges and other impositions upon goods carried into or out of,
passing through, the territorial jurisdiction of local government units in the guise of
charges for wharfage, tools for bridges or otherwise, or other taxes, fees or charges
in any form whatsoever upon such goods or merchandise;
6. Taxes, fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;
7. Taxes on business enterprises certified to by the Board of Investments (BOI) as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively, from
the date of registration;
8. Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
9. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
10. Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in this Code;
11. Taxes on premiums paid by way of reinsurance or retrocession;
12. Taxes, fees and charges for the registration of motor vehicles and for the issuance of
all kinds of licenses or permits for the driving thereof, except tricycles;
13. Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided herein;
14. Taxes, fees, or charges on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act 9520 otherwise
known as the "Cooperatives Code of the Philippines” respectively; and
15. Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.

Illustration 25- 3

The City of San Sebastian enacted an ordinance imposing income tax on income
of business establishments that are operating within the territorial jurisdiction of the city.
When the validity of the ordinance was questioned, it reasoned out that there is no direct
duplicate taxation because the other income tax is being imposed by the national
government. Ai most, there is only indirect duplicate taxation. Hence, the ordinance is
valid. Decide.

∞
The ordinance is invalid. Local government units are prohibited to levy taxes
which are being imposed by the national government, such as internal revenue taxes
and customs duties.
Taxes imposable by the province

The following taxes may be imposed by the province:

1. Transfer tax on transfer of real property ownership

Transactions subject: Sale, donation, barter, or on any other mode of transferring

ownership or title of real property.

The sale, transfer or other disposition of real property pursuant to R.A. 6657
otherwise known as Comprehensive Agrarian Reform Law (CARL) shall be exempt from
this tax.

2. Tax on business of printing and publications

Subject: Persons engaged in the printing and/or publication of books, cards,

posters, leaflets, handbills, certificates, receipts, pamphlet, and other of similar
nature.
The receipts from the printing and/or publishing of books or other reading
materials prescribed by the Department of Education as school references shall be
exempt from this tax.

3. Franchise tax

Subject: Businesses enjoying a franchise.

4. Tax on sand, gravel and other quarry resources

Subject: Ordinary stones, sand, gravel, earth and other quarry resources, as defined
under the National Internal Revenue Code, as amended, extracted from public lands or
from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its
territorial jurisdiction.

5. Professional tax

Subject: Person engaged in the exercise or practice of his profession requiring

government examination.
 Every person legally authorized to practice his profession shall pay the
professional tax to the province or city where he practices his profession or
where he maintains his principal office in case he practices his profession in
several places.

Provided, however, that such person who has paid the corresponding
professional tax shall be entitled to practice his profession in any part of the Philippines
without being subjected to any other national or local tax, license, or fee for the practice
of such profession.
This tax is payable annually, on or before January 31. Any person first beginning
to practice a profession after the month of January must, however, pay the full tax before
engaging therein.
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 from
the payment of this tax.

6. Amusement tax
Subject: Proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement.

The holding of operas, concerts, dramas, recitals, painting and art

exhibitions, flower shows, musical programs, literary and oratorical presentations,
except pop, rock, or similar concerts shall be exempt from the payment of this
tax.

7. Annual fixed tax for every delivery truck or van of manufacturers or producers,
wholesalers of, dealers, or retailers in, certain products.

Subject: Every truck, van or any vehicle used by manufacturers, producers,

wholesalers, dealers or retailers in the delivery or distribution of distilled spirits,
fermented liquors, soft drinks, cigars and cigarettes, and other products as may be
determined by the sangguniang panlalawigan, te sales outlets, or consumers, whether
directly or indirectly, within the province.
 The manufacturers, producers, wholesalers, dealers, and retailers
referred to in the immediately foregoing paragraph shall be exempt from the tax
on peddlers.

Taxes imposable by Tax Base Tax Rate

province

1. Transfer tax Selling price or market Not more than ½%

value

2. Tax on business Annual gross receipts Not more than ½%; on

of printing and for the preceding year newly started business,
publication not exceeding 1/20 of
1% of capital
investment
3. Franchise tax Annual gross receipts Same with number 2
for the preceding year above

4. Sand and gravel Fair market value per Not more than 10%
tax cubic meter

5. Professional tax - Not exceeding P300

 6. Amusement tax Gross receipts from Not more than 30%
on admission admission fees

7. Fixed tax on - Not exceeding P500

delivery vehicles per delivery vehicle
of
manufacturers,
producers,
wholesalers,
dealers or
retailers in
certain products.

Illustration 25.4

The Sangguniang Panlalawigan upon motion of Board Member Magtutre enacted

a provincial ordinance imposing sand and gravel tax on stones, sand, gravel. earth and
other quarry resources.

A municipality within the province enacted similar tax ordinance. Which local
government unit should collect the tax?

∞
Tax on sand, gravel and other quarry resources may be imposed by a province,
but not by a municipality or barangay.

The permit to extract sand, gravel and other quarry resources shall be issued
exclusively by the provincial governor, pursuant to the ordinance of the sangguniang
panlalawigan.

Taxes by municipalities
 Except as otherwise provided in this Code, municipalities may levy taxes, fees
and charges not otherwise levied by provinces.

The municipality may impose taxes on the following business:

1. On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers,

and compounders or liquors, distilled spirits, and wines or manufacturers of any article of
commerce of whatever kind or nature;

2. On wholesalers, distributors, or dealers in any article of commerce of whatever kind or

nature;

3. Exporters and manufacturers, millers, producers, wholesalers, distributors, dealers or

retailers of essential commodities such as:

a. Rice and corn;

b. 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;
c. Cooking oil and cooking gas;
d. Laundry soap, detergents, and medicine;
e. Agricultural implements, equipment and post-harvest facilities, fertilizers,
pesticides, insecticides, herbicides, and other farm inputs;
f. Poultry feeds and other animal feeds g. School supplies; and
g. School supplies; and
h. Cement

4. Retailers

5. Contractors

6. Banks and other financial institutions

7. Peddlers

8. Fees for sealing and licensing of weights and measures.

9. Fishery rentals, fees and charges.

 The Sangguniang bayan may:

a. Grant fishery privileges to erect fish corrals, oyster, mussel or other aquatic beds or
bangus fry areas, within a definite zone of the municipal waters;

b. Grant the privileges to gather, take or catch bangus fry, prawn fry or kawag-wagan or
fry of other species and fish from the municipal waters by nets, traps or other fishing
gears to marginal fishermen free of any rental, fee, charge or any other imposition
whatsoever.

c. Issue licenses for the operation of fishing vessels of three (3) tons or less;

10. Any business, which the Sanggunian concerned, may deem proper to tax.

Illustration 25-5

The Municipality of Sta. Purification enacted an ordinance collecting transfer tax

on any transfer of ownership of real property which is located within the territorial
jurisdiction of said municipality.

Is the ordinance valid?

The ordinance is not valid. Municipalities are not authorized are not authorized to
levy taxes on transfers of real properties. Such tax is allowed only on cities and
provinces.

Taxes impossible by cities

Except as otherwise provided in this code, the city may levy the taxes, fees, and
charges which the province or municipality may impose

Provided, however, that the taxes, fees and charges levied and collected by
highly urbanized and independent component cities shall accrue to them and distributed
in accordance with the provision of his code.

The rates of taxes that the city may levy may exceed the maximum rates allowed
for the province or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes.

Thus, a city may impose a maximum transfer tax of 3/4 of 1% (0.75%) of the
selling price or fair market value of the property sold.
Illustration 25-6

Reynaldo Ocampo, a resident of Candelaria, Quezon, after several years of

being employed with Sycip, Gorres, Velayo and Company as a staff auditor decided to
establish an accounting office in Lucena City.

Should he pay his professional tax in Candelaria, Lucena City or Province of

Quezon? When?

He should pay in Lucena City, the place where he maintains his principal office.
The payment should be made before he starts to practice his profession.

In the succeeding year, he shall have to pay the tax on or before the 31 st day of
January.

Scope of taxing powers of barangays

The barangays may levy taxes, fees and charges, as provided in this Article,
which shall exclusively accrue to them:

1. Taxes – On stores or retailers with fixed business establishments with gross

sales of 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, at a rate of not
exceeding percent (1%) on such gross sales or receipts.

2. Service Fees or Charges – Barangays may collect reasonable fees or charges

for services rendered in connection with the regulation or the use of barangay-
owned properties or service facilities such as palay, copra, or tobacco dryers.

3. Barangay Clearance – No city or municipality may issue any license or permit

for any business or activity unless a clearance is first obtained from the barangay
where such business or activity is located or conducted. For such clearance, the
sangguniang barangay may impose a reasonable fee.

The application for clearance shall be acted upon within seven (7)
working days from the filing thereof.

In the event that the clearance is not issued within the said period, the city
or municipality may issue the said license or permit.
 4. Other Fees and Charges – The barangay may levy reasonable fees and
charges:

a. On commercial breeding of fighting cocks, cockfights and cockpits;

b. On places of recreation which charge admission fees; and
c. On billboards, signboards, neon signs, and outdoor advertisements.

Common revenue raising powers of the local government units

Provinces, cities, municipalities and barangays are authorized to impose and

collect the following fees and charges:

1. Service fees and charges for any service rendered;

2. Public utility charges for the operation of public utilities owned, operated and
maintained by them within their jurisdiction;
3. Tool fees or charges for the use of any public road, pier or wharf, waterway, bridge,
ferry of telecommunication system funded and constructed by the local government
unit concerned.

The amounts, rates and terms and conditions shall be fixed by the Sanggunian
concerned.

The following are exempts from the payment of toll fees and charges:

a. Officers and enlisted men of the Armed Forces of the Philippines and Philippines
National Police on mission;
b. Post office personnel delivering mail;
c. Physically handicapped and disabled citizens who are sixty-five (65) years or
older.

When public safety and welfare so requires, the Sanggunian concerned may
discontinue the collection of the tolls, and thereafter the said facility shall be free and
open for public use.

EXERCISE 25-1 DISCUSSION QUESTIONS

1. Use of government properties. The municipality of Balatan, with the aid of funds
from the national government, constructed a wharf in its municipality. Later on, it
passed an ordinance imposing berthing fee on vessels for mooring or berthing at its
municipal wharf. Is the ordinance valid?
2. Goods carried out of the territorial jurisdiction of local government units. The
City of Marikina enacted an ordinance imposing a tax of one peso (P1.00) on every
pair of shoes taken out of the municipality. Is the tax valid?

3. Goods carried in or out of the territorial jurisdiction of local government units.

The municipality of San Joaquin imposes a tax on the business of buying and/ or
selling goods passing through the town limits destined for sale in its neighboring
municipalities. If you are the taxpayers, how will you challenge the validity of the tax?

4. Legality of producer tax. The municipality of pepcoke enacted an ordinance

imposing producer tax of P5.00 per case of softdrinks produce or manufactured by
bottlers and manufactures of softdrinks within its territorial limits.

Pepcoke Bottling Company challenges the constitutionality on the ground that

it partakes of the nature of a sales tax which is beyond the power of the municipality
to impose. Is the contention of the bottling company correct?

5. PTR. In one taxation class, the tax teacher informed the students that before a
certified public accountant or any PRC which is a tax imposable by cities or
provinces.
a. What is the meaning of PTR?
b. Which local government unit is authorized to impose this tax? What tax is this?
c. How much should be paid by the professional?
d. Are professionals employed in the government required to secure PTR?

6. PTR. Atty. Mananaggol, a long-time CPA and a new lawyer decided to practice his
two professionals. He has his main office in Quezon City and a branch office in
Manila City.

A. How many professional taxes should be paid by atty. Mananaggol if he is

practicing both proferssion?
B. If he is a resident of Malabon, where should he pay his professional tax?
C. If the law office is a professional partnership of lawyers, will the partnership be
subject to profession tax?
EXERCISES 25-2 MULTIPLE CHOICES QUESTIONS

1. One of the following is not a current source of the local governments power to tax.
Identify:

A. The 1987 Constitution

B. The Local Government Code of 1991
C. Urban Development and Housing Act
D. Real Property Tax Code

2. The tax ordinance to be passed by the local legislative body must adhere to the
following principles, except:

A. It must be uniform within the territorial jurisdiction of each local government

unit.
B. Each local government unit shall, as far as practicable, evolve a progressive
system of taxation.
C. It must not be unjust, excessive, oppressive, or confiscatory.
D. The collection maybe coursed through special collecting agents.

3. A local government unit is empowered to collect this tax:

A. Documentary stamp tax
B. Income tax on income of local business establishments
C. Taxes, fees and charges on tricycles
D. Taxes on gross receipts of passenger buses

4. A province can impose the following taxes but not

A. Community tax
B. Franchise tax
C. Amusement tax on admission
D. Tax on quarry resources

5. Which of the following cannot be collected by barangay?

A. Barangay clearance
B. Community tax
C. Business tax on condominium associations
D. Real property tax

6. Which of the following statements is incorrect?

A. A city can collect taxes that can also be collected by a province.
 B. A city can collect taxes that can also be collected by a municipality.
C. A city can collect taxes that can also be collected by a barangay.
D. A city may detect not to collect taxes that can be collected by a province.

7. Which of the following statements is false?

A. A local government unit cannot collect value-added tax.
B. Local government units may levy documentary stamp tax on a sale of real
property.
C. A local government unit may impose a tax on the sale of agricultural products
to other towns in the exercise of taxing and police power.
D. Local government units cannot impose taxes, fees or charges on agricultural
and aquatic products when sold by marginal farmers or fishermen.

8. The City of Manila owns a sports complex. It is erected at Barangay 100 which is
also within the jurisdiction of the 1st congressional district. The fees for the use of the
sports complex shall accrue to the
A. City of Manila
B. Barangay 100
C. 1st District of Manila
D. Metropolitan Manila Development Authority

9. One of the following statements is incorrect, Identify:

A. Barangay clearance shall first be secured before a Mayor’s permit is issued by a
city or municipality.
B. A local government unit may collect toll fees or charges for the use of a public
road.
C. A professional may pay Professional Tax anywhere in the Philippines.
D. A franchise tax shall be based on the gross receipts of the franchise in the
preceding calendar year.

10. Tax on business of printing and publication has the same maximum tax rate with
A. Franchise tax
B. Sand and gravel tax
C. Amusement tax on admission
D. Tax on transfer of real property
EXERCISE 25-3 MULTIPLE CHOICE PROBLEMS

Questions 1 to 6 are based on the following information:

On June 20, 2018 Ben sold to Dee his residential land located in Quezon City with an
area of 2,000 squares meters. The zonal value per square meter is P2,300 while the fair
market value per City Assessor’s Office is P1,800. The lot is sold at P3,000 per square
meter. At the time of sale, the land is being leased to Liz Sy.

1. How much is the capital gains tax?

A. P 360,000
B. 216,000
C. 276,000
D. 69,000

2. How much is the documentary stamp tax?

A. P 90,000
B. 54,000
C. 69,000
D. 360,000

3. How much is the transfer tax payable if the city has fixed the tax rate at 50% of
1%?
A. P 30,000
B. 18,000
C. 23,000
D. 27,000

4. Who is liable to pay the transfer tax?

A. Ben, the vendor
B. Dee, the vendee
C. Liz Sy, the lessee
D. Anyone of them

5. When is the due date for the payment of the transfer tax?
A. August 20, 2018
B. July 5, 2018
C. July 20, 2018
D. August 19, 2018

6. Which of the following taxes is payable in the local treasurer’s office?

 A. Capital gains tax
B. Documentary stamp tax
C. Transfer Tax
D. All of them

7. The embassy of the Islamic Republic of Iran purchased a 1,500 sq. m.

commercial land in downtown Makati with a zonal value of P 400,000 per square
meter. The selling price is P450,000 per square meter while the assessor’s value
is P300,000 per square meter.

If the tax rate is .50%, how much is the transfer tax payable to the City of Makati?

A. P 3,000,000
B. 2,250,000
C. 3,375,000
D. None

8. The Sagguniang Bayan of Teresa, Rizal enacted an ordinance imposing a

producer tax of P 0.02 per liter of softdrinks that are being produced in the
municipality. During the year, the softdrinks company was able to manufacture 2
million liters and sold 1,985,000 liters. How much is the tax payable to the
municipality?
A. P 40,000
B. 39,700
C. Cannot be determined because the tax should be based on the value of
selling price per liter of softdrink.
D. None, a local government unit cannot a tax sale of softdrinks.

9. The Iriga Cable TV Company is operating a cable TV service in some of the

municipalities of Camarines Sur per franchise granted to it by the provincial
government. Relative to payment of franchise tax, which of the following
statements is false?
A. It is exempt from the payment of franchise tax to the Provincial Government
of Camarines Sur if it is granted tax exemption in an ordinance passed by the
Sangguniang Panlalawigan.
B. It is exempt from the payment of local taxes.
C. It may be subject to franchise tax. Local government units should be able to
raise funds in order to perform its functions.
D. It can be subject to franchise tax if a tax ordinance is passed to this effect.
10. Malabo Printing Press in Davao City is engaged in the business of printing and
publication of books, cards, posters, etc. During the year, its gross receipts from
printing services amounted to P 1,000,000. If the city imposes the maximum rate
of tax, how much tax on the business of printing and publication is due on
Malabo Printing Press?
A. P 75,000
B. 50,000
C. Cannot be determined
D. Not taxable

11. Sand and Gravel Trucking in engaged in the business of delivering sand, gravel
and other quarry resources to its customers. During the period, it has extracted
10,000 cubic meters of quarry resources at an average fair market value of P150
per cubic meter. The expenses for the operation of the business amounted to
P 900,000. How much sand and gravel tax is due on Sand and Gravel Trucking if
the tax rate is 2%? To which local government unit is the sand and gravel tax
payable?
A. P 30,000 payable to the municipality where the quarry resources have been
extracted.
B. P 30,000 payable to the province where the quarry resources have been
extracted.
C. P 30,000 payable to the barangay where the quarry resources have been
extracted.
D. P 12,000 payable to the province where the quarry resources have been
extracted.

12. A local government unit can collect?

A. Business tax imposable at the beginning of the year as a fee to allow the
business to operate for the rest of the year.
B. Value-added tax on gross sales or receipts realized in month or quarter.
C. Amusement tax on cockpit, cabarets, night or day clubs.
D. Royalty tax on authors of books printed its publisher.

CHAPTER 26
 COMMUNITY TAX

Introduction

A community tax is a poll tax. It is a tax imposed to an inhabitant of the

Philippines and a resident of a particular community.
 It is used to be known as Cedula Tax and Residence Tax. However, they are
essentially different from each other. The cedula tax was imposed in the Philippines
during the Spanish Regime and was abolished before the World War II.

It was restored by Commonwealth Act No. 465 in the form of Residence Tax.
Later on, the Residence Tax was abolished with the introduction of the community Tax
under Republic Act 7160 otherwise known as the New Local Government Code of the
Philippines.

Thus, the levy, collection and administration of the community tax, as well as
rates and accrual of the proceeds thereof, are governed by the Local Government Code
expressing among, other things, that local government units may levy the tax in
accordance with the provisions thereof.

The persons liable to this tax are individuals and juridical persons.

Individuals liable to community tax

Every inhabitant of the Philippines eighteen (18) years of age or over:

1. Who has been regularly employed on a wage or salary basis for at least thirty (30)
consecutive working days during any calendar year, or
2. Who is engaged in business or occupation, or
3. Who owns real property with an aggregate assessed value of P 1,000 or more, or
4. Who is required by law to file an income tax return

Illustration 26-1

Alberto, a 16 year old boy is a working student. From 8:00 am to 5:00 in the
afternoon, he is working as a gasoline boy and from 5:30 in the afternoon up to 8:30 in
the evening, he is attending classes in a nearby university. Is he liable to pay community
tax?

No, because he is not yet 18 years old. This is inspite of the fact that he is already
employed in a gasoline station.

The amounts payable are the following:

1. Basic tax – P5.00

2. Additional tax – P1.00 for every P 1,000 of income regardless of whether from
business, exercise of profession or from property.
3. Maximum additional tax – P5,000
Illustration 26-2

Hiua Lai, a Vietnamese Filipino residing in Puerto Princesa City, Single, has the
following data during the year:
Salary P 120,560
Income from coconut plantalion in Davao City 167,905
Income from ricefield in General Santos City 101,258
Gross receipts from business:
Davao City 1, 578,845
General Santos City 985,067

REQUIRED: Compute the community tax due.

Basic tax
Additional: P5
Salary/Profession:
Salary (120,560/1,000= 120.56) P120

Real Property:
Income from account plantation P 167,905
Income from ricefield 101,258
Total 269,163
(269,163/1,000 = 269.163) P269
Business:
Davao City 1,578,845
General Santos City 985,067
Total 2,563,912
(2,563,912/1,000 = 2,563,912) 2,563 2,952

Total Community Tax 2,957

In this case of husband and wife, the additional tax to be imposed shall be based
upon the total property owned by them and the total gross receipts or earnings derived
by them.

Illustration 26-3

Pepe and Pilar, husband and wife, resident citizens, had the following data last
year:
Pepe:
Salaries and bonuses P 214,550
Apartment house in Camarines Sur:
Assessed value 2,568,000
Zonal value 2,700,500
Income from rent 860,000

Pilar:

Gross receipts from restaurant 1,940,845

Less: Cost of goods sold (846,793)
Expenses (590,546)
Income from restaurant 503,506
Earnings from profession 89,540

The spouses agreed that Pepe shall pay the additional community tax.

REQUIRED: Compute the tax payable by each.

1. Community tax payable by Pilar:

Basic tax P5

2. Community tax payable by Pepe.

Basic tax P5
Additional tax:
Salary and Profession:
Salaries and bonuses 214,550

Profession 89,540
Total 304,090
(304,090/1,000 = 304.09) 304
Real property:
Apartment house (860,000/1,000) 860
Business:
Restaurant (1,940,845/1,000 = 1,940,845) 1,940 3,104
Total community tax payable 3,109

Juridical persons liable to community tax

 Every corporation no matter how created or organized, whether domestic or
resident foreign, engaged in or doing business in the Philippines shall pay the following:

1. Basic tax – P 500.00

2. Additional tax – it shall in no case exceed P 10,000 which is computed in
accordance with the following schedule:

a. P 2.00 for every P 5,000 worth of real property in the Philippines owned by it
during the preceding year based on the valuation used for the payment of the
real property tax under existing laws, found in the assessment rolls of the city
or municipality where the real property is situated;

b. P 2.00 for every P 5,000 of gross receipts or earnings derived by it from its
business in the Philippines during the preceding year.

The dividends received by a corporation from another corporation however

shall, for the purpose of the additional tax, be considered as part of the gross receipts or
earnings of said corporation.

The term “corporation” includes partnerships, no matter how created or

organized, joint- stock companies, joint accounts (cuentas en participation), associations
or issuance companies but does not include general professional partnerships and a
joint venture or consortium formed for the purpose of undertaking construction projects
or engaging in petroleum, coal, geothermal, and other energy operations pursuant to an
operating or consortium agreement under a service contract with the government.

Illustration 26-4

Communal Corporation, a domestic corporation had the following data during the
immediately preceding year:

Gross sales P 2,580,000

Cost of goods sold 1,050,600
Operating Expenses 985,600
Dividend from Cabangan Corporation 69,780
Office building 1,854,009

REQUIRED: Compute the community tax payable by Communal Corporation

Basic tax P 500

Additional community tax:
Gross receipts/earnings P 2,580,000
Dividend 69,780
 Total 2,649,780
(2,649,780/5,000 = 370) x 2 P 1,058
Office building (1,854,009/5,000=370) x 2 740 1,798
Total community tax payable 2,298

Exemptions from the tax

The following are exempt from the community tax:

1. Diplomatic and consular representatives; and

2. Transient visitors when their stay in the Philippines does not exceed three (3)
months.

Place and time of payment

1. Place – The tax shall be paid in the place of residence of the individual, or in the
place where the principal office of the juridical entity is located.

2. Time - The tax shall accrue on the 1st day of January of each year which shall be paid
not later than the last day of February of each year.

Interest on delinquency

If the tax is not paid within the time prescribed above, there shall be added to the
unpaid amount an interest of twenty- four percent (24%) per annum from the due date
until it is paid.

Illustration 26-5

Merlen, resident citizen, an employee of a domestic corporation earned a total

compensation income of P 360,754 last year. How much is the total amount payable if
Merlin paid her community tax on April 15 of the current year?

Basic tax P 5.00

Add: Additional tax (360,754/1,000=360.754) 360.00
Amount due until last day of February 365.00
Add: Interest – March 1 to April 15 (365x24%x46/365) 11.04
Amount payable as of April 15 of the current year 376.04

Persons becoming liable for the first time

 If a person reaches the age of eighteen (18) years or otherwise loses the benefit
of exemption on or before the last day of June, he shall be liable for the community tax
on the day he reaches such age or upon the day the exemption ends.

However, if a person reaches the age of eighteen (18) years or loses the benefit
of exemption on or before the last day of March, he shall have twenty (20) days to pay
the community tax without becoming delinquent.

Person who come to reside in the Philippines or reach the age of eighteen (18)
years on or after the first (1st) day of July of any year, or who cease to belong to an
exempt class on or after the same date shall not be subject to the community tax for that
year.

Corporations established and organized on or before the last day of June shall
be liable for the community tax for that year.

But corporations established and organized on or before the last day of March
shall have twenty (20) days within which to pay the community tax without becoming
delinquent.

Corporations established and organized on or after the first day of July shall not
be subject to the community tax for that year.

Illustration 26-6

Analyn, a regular household helper, reached the age of 18 this year. When is she
liable to pay the community tax if her birthday is-

a. March 1?

She shall have until March 21 to pay the tax without paying any interest.

b. April 10?

She has to pay on April 10, otherwise, she shall be considered delinquent.

c. September 16?

She shall be subject to the tax effective next year.

Community tax certificate

A community tax certificate shall be issued to every person or corporation upon

payment of the community tax.

A community tax certificate may also be issued to any person or corporation not
subject to the community tax upon payment of One Peso (1.00).

Presentation of community tax certificate on certain occasions

An individual shall be required to exhibit the certificate in the following cases:

1. When he acknowledges any document before a notary public;

2. When he takes the oath of office upon election or appointment to any position in the
government service;
3. When he receives any license, certificate, or permit from any public authority;
4. When he pays any tax or fee;
5. When he receives any money for any public fund;
6. When he transacts other official business; or
7. When he receives any salary or wages from any person or corporation.

It shall be the duty of any person, offer, corporation with whom such transaction
is made or business done or from whom any salary or wage is received to require such
individual to exhibit the community tax certificate.

The presentation of community tax certificates shall not be required in connection

with the registration of a voter.

When, through its authorized officer, any corporation subject to the community
tax exercises the transactions enumerated in (3), (4), (5) and (6) above, it shall be the
duty of the public official with whom such transaction is made or business done, to
require such corporation to exhibit the community tax certificate.

The tax certificate required above shall be the one issued for the current year,
except for the period from January until the 15th day of April each year, in which case, the
certificate issued for the preceding year shall suffice.

Non- imprisonment for non-payment of poll tax

A poll tax is a capitation tax; a fixed sum levied upon each person, a tax of a
fixed amount upon every person or upon every person of a certain class, resident within
a specified territory, without regard to his property or the occupation in which he may be
engaged.

Section 20 of the Article on Bill of Rights in the New Philippine Constitution is

explicit that “No person shall be imprisoned for debt or non-payment of poll tax”.

The original valid reason for the existence of the prohibition against imprisonment
for non-payment of a poll tax is the sense of humanity and sympathy for the plight of the
poorer elements of the population who cannot even afford to pay their cedula or poll
taxes (Sinco, Philippine Political Law, p. 660).

EXERCISE 26-1 TRUE OR FALSE QUESTIONS

1. A resident alien who is not a diplomatic or consular representative of a foreign

country may be required to pay a community tax.
2. A general professional partnership is required to pay community tax.
3. A Filipino citizen who is permanently living abroad is required to pay community tax.
4. An unemployed Filipino with nine (9) children whose only source of livelihood is to
work in his ricefield measuring 1,000 square meters may be required to pay
community tax.
5. An association may be required to pay community tax.
6. A Taiwanese tourist whose stay in the Philippines is six (6) months may be required
to pay community tax.
7. An applicant for a CPA Board Examination who is a resident of Naga City may
legally secure a community tax certificate in Legaspi City.
8. A resident of barangay San Isidro, Iriga City who is in urgent need of a community
tax certificate may pay the community tax in barangay San Nicolas, a neighboring
barangay, if there is no available certificate in San Isidro.
9. The community tax certificate for 2015 may still be validly used on April 15, 2016.
10. A person who reaches the age of 18 years old on July 12, 2015 shall start to become
liable for the payment of community tax in 2016.
11. A business partnership which is established and organized on March 10, 2015 shall
have until March 20, 1016 to pay the community tax without becoming delinquent.

12. In case of failure of the taxpayer to pay the community tax within the prescribed date,
both the basic and the additional taxes shall be subject to a twenty-four (24%)
percent interest.

13. A 15-year old high school student may secure community tax certificate upon
payment of P5.00.

14. A person who does not pay a community tax cannot be imprisoned for its non-
payment.
15. Non-payment of additional community tax shall be a ground for imprisonment.
16. The printing of the community tax certificate shall be caused by the Bureau of
Internal Revenue (BIR) although the collection of the tax shall be done by the local
government units.
17. Non-payment of community tax by a corporation shall make the heads responsible
for such non-payment.
18. Whenever the members of the Philippine Army orders that all constituents of a
remote barangay which is a NPA infested area, all persons in that barangay must secure
a community tax certificate.
19. A community tax certificate is a reliable document to prove the residence and
personality of a certain person.
20. The additional community tax of the spouses may be paid only by the husband

EXERCISE 26-2. MULTIPLE CHOICE QUESTIONS

1. Non-payment of the following is not ground for imprisonment

A. Income tax C. Community tax

B. Value-added tax D. Real Property tax

2. Community tax is a (an)

A. National tax C. Excise tax
B. Local tax D. Property tax

3. Which political subdivision may levy community tax?

A. Barangay C. City
B. Province D. Region

4. Statement 1: Resident aliens are exempt from the payment of community tax.
Statement 2: The law on community tax is found in the provisions of the National
Internal Revenue Code (NIRC).

a. True; True c. False; False

b. True; False d. False; True
5. Statement 1: For purposes of community tax, a general professional partnership
is taxable as a corporation.

Statement 2: Aliens who have stayed in the Philippines most of the time during
the taxable year are required to pay community tax in the Philippines.

a. Both are correct

 b. Both are incorrect
c. Only first is correct
d. Only second is correct

6. Statement 1: Ambassadors from foreign countries are required to pay the

community tax.
Statement 2: If a person loses the benefit of exemption on June 20 of the current
year, he shall be liable for the community tax on June 20 of the same year.

A. Both are correct c. Only the first is correct

B. Both are incorrect d. Only the second is correct

7. Payment of community tax is required among inhabitants of the Philippines

whose age is at least‒
a. 15 c. 21
b. 18 d. 24
8. Maximum community tax payable by an individual and a corporation

Individual Corporations
1. P 5,000 P 10,000
2. 5, 005 10,005
3. 5,005 10,200
4. 5,005 10,500

9. An exempt individual may secure community tax certificate by paying an amount

by an amount of
1. P 5.00 c. 0
2. 1.00 d. 10.00

10. Mon I. Ty, Filipino seaman who have stayed in an international vessel most of
the time last year had the following data during the year:

Salary P352,225
Gross receipts:
Ladies dormitory 100,500
Passenger jeepney 150,650
Expenses:
Ladies dormitory 60,000
Passenger jeepney 101,250
 The community tax payable by Mon I. Ty is ‒
a. P 613 c. 608
b. 612 d. 456

EXERCISE 26-3. MULTIPLE CHOICE QUESTIONS

1. Salariosa, a resident of Cubao, Quezon City, single, owns a restaurant in C.M. Recto
Ave, Manila and in Cubao, Quezon City. In 2017, it had the following data:

Gross receipts Expenses

Manila P 4,055,015.20 P 3,296,423.10

Quezon City 3, 264,980.60 3,025,114.80

In 2018, the total basic and additional community tax payable by

Salariosa is

A. P 7,074 C. 1,363
B. 7,699 D. 5,005

2. In item 1 above, the community tax for 2018 is payable on or before‒

A. April 15, 2018

B. December 31, 2018
C. February 28, 2018
D. February 28, 2019
3. In item 1 above, if the tax is paid March 30, 2018, the amount payable is‒
a. P 5,005.00 c. 5,102.00
b. 5,103.73 d. Cannot be determined

4. Joanne, a resident of Cainta, Rizal owns a grocery store in Pasig City. Last year, the gross
receipts amounted to P 2,654,951.

Statement 1: Joanne should pay her community tax in Pasig City.

Statement 2: The additional community tax payable is P 2,654.95

a. Statement 1 is true; Statement 2 is true;

b. Statement 1 is true; Statement 2 is false;
c. Statement 1 is false; Statement 2 is false;
d. Statement 1 is false; Statement 2 is true.

5. Mared Corporation was registered with the Securities and Exchange Commission on June 5
but started with its operation in September of the current year.

Statement 1: It shall be subject to the community tax effective next year.

Statement 2: The community tax shall be paid in the place where the principal office
is located.

Statement 1 Statement 2 Statement 1 Statement 2

a. False False c. True False

b. False True d. True True

6. S1: Barangay treasurers can be deputized to collect the community tax in their respective
jurisdictions.

S2: The printing of the community tax certificates shall be caused by the Bureau of
Internal Revenue.

Statement 1 Statement 2

a. False False
b. False True
c. True False
d. True True
7. The community tax of an individual who is working and owns real property shall be paid in
the city/municipality where
a. The real property is situated
b. He is working
c. He is residing
d. He is either working or residing or his real property is situated.

8. The law which defines and authorizes the imposition of community tax.
a. Civil Code of the Philippines
b. Local Government Code of 1991
c. National Internal Revenue Code
d. Local Tax Code

9. If the community tax is collected by a barangay of a municipality the collection

a. Shall be apportioned equally between the municipality and the barangay where
the tax is collected.
b. Shall accrue entirely to the municipality
c. Shall accrue entirely to the barangay where the tax is collected.
d. Shall be apportioned equally between the province, the municipality and the
barangay where the tax is collected.

10. Which of the following statements is true?

I. A corporation may be issued a community tax certificate upon payment of
P1.00.
II. A community tax certificate is required in connection with the registration as a
voter.

a. I only c. II only
b. Both I and II d. Neither I nor II

EXERCISE 26-4. MULTIPLE CHOICE QUESTIONS/ PROBLEMS

1. Non-payment of additional community tax. Juan Pag-anapa, resident citizen with an

annual salary with an annual salary of P48,000, secured a Community Tax Certificate by
paying only P5 basic tax. Can he be imprisoned for not paying the additional community
tax?

2. Community tax on minor. Daisy Saez, 16 years old, a full time high school student, a
secured community tax certificate from the municipal hall of their town. The personnel in the
treasurer’s office informed her that her tax liability amounts to P55 consisting of the basic tax
of P5 and the additional community tax of P50.
 a. Is Daisy Saez required under the law to pay community tax?
b. Is the assessment made by the employee in the treasurer’s office correct?
c. How much should be paid by Daisy?

3. Taxpayer is a single individual. Yuan Dimaguiba, single, Filipino and resident of 145 Juan
Luna St., Binondo, Manila is a businessman and a professional. Last year, he had the
following data:

Income from profession P 355,500

Residential house in Binondo (assessed value) 3,503,340
Condominium unit in Seatle, Washington, U.S.A 2,544,000
Rent income from the condominium unit 405,760
Receipts on lease of car 89,500

REQUIRED: Compute the community tax payable for this year.

4. Taxpayers are husband and wife. Juan and Rolanda Matubis, husband and wife, resident
Filipinos, had the following data last year:

Juan Matubis:

Sales (38% uncollected) P1,578,912

Building (assessed value, P 1,600,000) 1,890,451
Inter vivos donation from father 400,000

Rolanda Matubis:

Dividend from a corporation 10,000

Salaries and other allowances 144,590
Land inherited from parents 2,500,000
Income on the land 132,650

The spouses own a house and lot with an asset value P1,900,000

REQUIRED: Compute the community tax payable by Juan and Rolanda Matubis.

5. Place of payment. Marie, a resident of Iwacloy, Buhi, Camarines Sur and a reviewee of
Academic Review and Training School, Inc. (ARTS CPA Review), filed her application to
take the CPA Licensure Examinations in the Regional Office of the Professional Regulation
Commissions (PRC) in Legaspi City. Considering that her application papers require her
community tax certificate number, she paid her community tax in the nearby City Hall of
Legaspi City and paid P30 instead of paying it in her hometown in Buhi where she has to
travel back 70 kilometers from Legazpi.

a. Did Marie correctly pay her community tax in Legaspi City?

b. What will happen to her payment in Legaaspi City?
 SUPPLEMENT
Documentary stamp tax
&
Excise tax
DOCUMENTARY STAMP TAX

An excise tax levied on documents, instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto.

The amount of tax is either fixed or based on the par or face value of the document or
instrument.

The tax is paid by the person making, signing, issuing, accepting or transferring the documents.
However, whenever one party to the taxable document enjoys exemption from the tax, the other
party thereto who is not exempt shall be the one directly liable for the tax.

Failure to stamp a taxable document shall not invalidate the same. However, it shall not be
recorded (i.e. in the Registry of Deeds) or admitted or used as evidence in any court until the
requisite stamp is affixed thereto and cancelled.

Furthermore, no notary or other officer authorized to administer oaths shall add his jurat or
acknowledgement to the document unless the proper documentary stamp is affixed thereto and
cancelled.

The documentary stamp taxes payable on documents or instruments are as follows:

Documents/Instruments Tax Base and Rate

P2.00 per P200, or fraction thereof, of the par value

1. In the case of shares of stock without par value,

Original issue of shares of the amount of the DST shall be based upon the
stock (Sec. 174) actual consideration for the issuance of such
shares of stock.
2. In the case of stock dividends, on the actual
value of each share.

P1.50 per P200 or fraction thereof, of the par value

1. Only one tax shall be collected on each sale or

transfer of stock from one person to another,
Sales, agreements to sell, regardless of whether or not a certificate of stock
memoranda of Sales, is issued, indorsed, or delivered in pursuance of
Deliveries or Transfer of such sale or transfer.
Shares or Certificates of 2. In the case of stock without par value the amount
Stock (Sec. 175) of documentary stamp tax herein prescribed shall
be equivalent to fifty percent (50%) of the
documentary stamp tax paid upon the original
issue of said stock.
 Bonds, debentures,
certificates of stocks or P1.00 per P200, or fraction thereof, of the face/par
indebtedness issued in value
foreign countries (Sec. 176)
Certificates of profits or
interest in property or P1.00 per P200, or fraction thereof, of the face value
accumulation (Sec. 177)
Bank checks, drafts,
certificates of deposit not
bearing interest and other P3.00 per check, draft or certificate
instruments draft or
certificate (Sec. 178)
P1.50 per P200, or fraction thereof, of the issue price

1) For such debt instruments with terms of less than

one (1) year, the documentary stamp tax to be
Debt instruments (Sec. 179) collected shall be of a proportional amount in
accordance with the ratio of its term in number of
days to 365 days.
2) Only one documentary stamp tax shall be
imposed on neither loan agreement, or
promissory notes issued to secure such loans.
Bills of exchange or drafts P0.60 per P200, or fraction thereof, of the face value
(Sec.180)

Acceptance of bills of
exchange and others (Sec. P0.60 per P200, or fraction thereof, of the face value
181)

Foreign bills of exchange

and letters of credit (Sec. P0.60 per P200 or fraction thereof, of the face value
182)
When the consideration, or value received or contracted to be
paid for such realty, after making proper allowance of any
encumbrance:

Deeds of Sale, Not more than P1,000 ‒ P15.00

Conveyances and
Donation of Real For each additional One thousand pesos (P1,000), or fractional
Property part thereof in excess of One thousand pesos (P1,000)of such
consideration or value‒P15.00

Base: Selling price or fair market value, whichever is higher.

When one of the contracting parties is the Government, the tax

shall be based on the actual consideration.
On all conveyances, donations, deeds, instruments, or writings,
other than grants, patents or original certificates of adjudication
issued by the Government, whereby any land, tenement, or
 other realty sold shall be granted, assigned, transferred, donated
or otherwise conveyed to the purchaser, or purchasers, or to any
other person or persons designated by such purchaser or
purchasers, or donee.
Deeds of Sale,
Conveyances and Transfer exempt from donor’s tax (gifts made to government or
Donation of Real non-stock non-profit entity) shall be exempt from this tax.
Property
When it appears that the amount of the documentary stamp tax
payable hereunder has been reduced by an incorrect statement
of the consideration in any conveyance, deed, instrument or
writing subject to such tax the Commissioner, provincial or City
Treasurer, or other revenue officer shall. From the assessment
rolls or other reliable source of information, assess the property
of its true market value and collect the proper tax thereon.
Certificates P30.00 – On each certificate of damage or otherwise, and on
every other certificate or otherwise, and on every other
certificate or document issued by any customs officer, marine
surveyor, or other person acting as such, and on each certificate
issued by a notary public, and on each certificate of any
description required by law or by rules or regulations of a public
office, or which is issued for the purpose of giving information, or
establishing proof of a fact, and not otherwise specified herein
Mortgages, pledges, and P40 for the first P5,000 of the amount secured + P20 on every
deeds of trust P5,000 thereafter

Filing of return and payment of tax

The return shall be filed and the tax paid within five (5) days after the close of the month when
the taxable document was made, signed, issued, accepted or transferred.

In lieu of the foregoing, the tax may be paid either through purchase of DST stamp and actual
affixture, or by imprinting a secured stamp on the taxable document through the web-based
Electronic Documentary Stamp Tax (eDSt) System.

EXCISE TAX

The excise tax shall be in addition to VAT. The gross selling price of goods subject to ad
valorem tax is the price, excluding VAT, at which the goods are sold at wholesale in the place of
production or through their sales agent to the public.
Basic Concept

Excise Tax is a tax on the production, sale or consumption of a commodity in a country.

Applicability

 On goods manufactured or produced in the Philippines for domestic sale or consumption or

for any other disposition; and
 On goods imported.

Types of excise tax and manner of computation

1) Specific tax‒ refers to the excise tax imposed which is based on weight or volume
capacity or any other physical unit of measurement

Computation:

No. of Units/other measurements x Specific Tax Rate = Specific Tax

2) Ad valorem tax‒ refers to the excise tax which is based on selling price or other specified
value of the goods/articles

Computation: No. of Units/other measurements x Selling Price of any specific value per unit x
Ad Valorem Tax Rate = Ad Valorem Tax

Major classification of excisable articles

1. Alcohol Products
a. Distilled Spirits
b. Wines
c. Fermented Liquors
2. Tobacco Products
a. Tobacco Products
b. Cigars & Cigarettes
c. Inspection Fee

3. Petroleum Products
4. Miscellaneous Articles
 a. Automobiles
b. Non-essential Goods
c. Non-essential Service (Sec 150-A)(TRAIN)
d. Sweetened Beverages (Sec 150-B)(TRAIN)

5. Mineral Products

Persons liable to excise tax

In general:

a. On Domestic or Local Articles

 Manufacturer
 Producer
 Owner or person having possession of articles removed from the place of production
without the payment of the tax
b. On Imported Articles
 Importer
 Owner
 Person who is found in possession of articles which are exempt from excise taxes other
than those legally entitled to exemption

Others:

a. On Indigenous Petroleum
 Local Sale, Barter or Transfer
o First buyer, purchaser or transferee
 Exportation
o Owner, lessee, concessionaire or operator of the mining claim

“Indigenous petroleum” shall include locally-extracted mineral oil, hydrocarbon gas,

bitumen, crude asphalt, mineral gas and all other similar or naturally associated
substances with the exception of coal, peat, bituminous shale and/or stratified mineral
deposits.

Time of payment

In general
1) On domestic products- Before removal from the place of production
2) On imported products- Before release from the custom’s custody
 Excise Tax Rates

A. Alcohol Products

Particulars 2017 2018

ONWARDS
o DISTILLED SPIRITS, AD VALOREM &
SPECIFIC TAX
1) AD VALOREM TAX RATE – Based
on the Net Retail Price (NRP) per
proof (excluding the excise and value- 20% 20%
added taxes); and
Tax rate shall
2) SPECIFIC TAX – Per proof liter P 21. 63 be increased
by 4% every
year
o WINES. Per liter of volume capacity
1) Sparkling wines/champagnes, where
the NRP (excluding the excise and
VAT) per bottle of 75oml volume
capacity, regardless of proof is:
P500.00 or less P292.47
More than P500.00 818.90
2) Still wines and carbonated wines
containing 14% of alcohol by volume 35.10
or less
3) Still wines and carbonated wines
containing more than 14% (of alcohol
by volume) but not more 25% of 70.20
alcohol by volume
4) Fortifies wines containing more than Tax as
25% of alcohol by volume (taxed as distilled
distilled spirits) spirits

o FERMENTED LIQUORS ( Per liter)

1) Fermented liquors, regardless of the P23.50 4% increase
NRP every year

2) If brewed and sold at microbreweries

or small establishments such as pubs 32.76
and restaurants, regardless to the
NRP

B. TOBACCO PRODUCTS
 TOBACCO PRODUCTS, per kilogram 2017 2018
ONWARDS
1. Tobacco Products
1) Tobacco twisted by hand or Specific tax
reduced into a condition to be P2.05 rate shall be
consumed in any manner other increased by
than the ordinary mode of drying 4% every year
and curing;
2) Tobacco prepared or partially
Jan 1, 2018 July 1, 2018 Jan 1, 2020
prepared with or without the use
CIGARETTES, per pack until June 30, until Dec 31, until Dec 31,
of any machine or instrument or P2.05
2018 2019 2021
without being pressed or
1. Cigarettes packed by
sweetened; and
hand (or by machine) P32.50 P35.00 P37.50
2. Chewing tobacco unsuitable for use
in any other manner P1.75
CIGARS, per cigar
3. Cigars
a) Based on the NRP per cigar
(excluding the excise and value- 20%
added taxes), and
b) Per cigar P5.85

INSPECTION FEE – There shall be collected inspection fees on leaf tobacco, scrap, cigars,
Cigarettes and other manufactured tobacco product as follows:

PRODUCT TYPE INSPECTION FEE

1. Cigars P0.50 per thousand pieces or fraction thereof
2. Cigarettes P0.10 per thousand sticks or fraction thereof
3. Leaf Tobacco P0.002 per kilogram or fraction thereof
4. Scrap & other manufactured tobacco P0.03 per kilogram or fraction thereof

CA. PETROLEUM PRODUCTS

PRODUCT TYPE EFFECTIVITY (TRAIN

Law)
1-1-18 1-1-19 1-1-20
a) Lubricating oils and greases, including but
not limited to base stock for lube oils and
greases, high vacuum distillates, aromatic
extracts and other similar preparations,
and additives for lubricating oils and
greases, whether such additives are
 petroleum based or not, per liter and
kilogram respectively, of volume capacity
or weight P8.00 P9.00 P10.00
(a.1) Locally produced or imported oils
previously taxed but are subsequently
reprocessed, re-refined or recycled, per liter and
kilogram of volume capacity or weight
b) Processed gas, per liter of volume capacity
c) Waxes and petrolatum, per kilogram
d) Denatured alcohol to be used for motive
power, per liter of volume capacity
e) Asphalt, per kilogram
f) Naphtha, regular gasoline, pyrolysis
gasoline and other similar products of
distillation, per liter of volume capacity 7.00 9.00 10.00
g) Unleaded premium gasoline, per liter of
volume capacity
h) Kerosene, per liter of volume capacity 3.00 4.00 5.00
i) Aviation turbo jet fuel aviation gas, per liter
of volume capacity 4.00 4.00 4.00
j) Kerosene when used as aviation fuel, per
liter of volume capacity
k) Diesel fuel oil, and on similar fuel oils
having more or less the same generating
power, per liter of volume capacity
l) Liquified petroleum gas used for motive
power, per kilogram 2.50 4.50 6.00
m) Bunker fuel oil, and on similar oils having
more or less the same generating power,
per liter of volume capacity
n) Petroleum coke, per metric ton
o) Liquified petroleum gas per kilogram 1.00 2.00 3.00
p) Naphtha and pyrolysis gasoline, when
used as raw material in the production of
petrochemical products or in the refining of
petroleum products, or as replacement
fuel for natural-gas-fired-combined cycle
powerplant, in lieu of locally-extracted 0.00 0.00 0.00
natural gas during the non-availability
thereof, per liter of volume capacity

q) Liquified petroleum gas, when used as

 raw material in the production of
petrochemical products, per kilogram
r) Petroleum coke when used as feedstock
to any power generating facility

MINERALS AND MINERALPRODUCTS

PRODUCT TYPE TAX RATES (TRAIN Law)

January 1, 2018 ‒ P 50.00

Coal and coke (Domestic and Imported) January1, 2019 ‒ P 100.00
January 1, 2020 ‒ P 150.00
and onwards

Nonmetallic Minerals and Quarry Resources 4% based on the actual market

(Locally extracted or produced) value of the gross output thereof
at the time of removal
Nonmetallic Minerals and Quarry Resources
(Imported) 4% based on the value used by
the Bureau of Customs (BOC) in
determining tariff and customs
duties, net of excise tax and
value-added tax
Locally-extracted natural gas and liquefied
natural gas Exempt

All Metallic Minerals (locally extracted or

produced copper, gold, chromite and other 4% based on the actual market
metallic minerals) value of the gross output thereof
at the time of removal
Imported copper, gold, chromite and other
metallic minerals 4% based on the value used by
BOC in determining tariff and
customs duties, net of excise tax
and value added tax

6% of the fair international market

price thereof, on the first taxable
sale, barter, exchange or such
similar transaction, such tax to be
paid by the buyer or purchaser
On indigenous petroleum before removal from the place of
production. The phrase “first
taxable sales, barter, exchange or
similar transaction” means the
transfer of indigenous petroleum
in its original, state to a first
taxable transferee. The fair
international market price shall be
determined in consultation with
 appropriate government agency.

NOTE:
In the case of mineral concentrates not traded in commodity exchanges in the
Philippines or abroad, such as copper concentrate, the actual market value shall
be the world price quotations of the refined mineral products content thereof
prevailing in the said commodity exchanges, after deducting the smelting,
refining and other charges incurred in the process of converting the mineral
concentrates into refined refined metal traded in those commodity exchanges.

On minerals and mineral products sold or consigned abroad, the actual cost of
ocean freight and insurance shall be deducted from the tax base.

C. AUTOMOBILES AND OTHER MOTOR VEHICLES

NET MANUFACTURER’S PRICE/ TAX RATES

IMPOTER’S SELLING PRICE (TRAIN Law)

OVER UP TO RATE

0 P 600,000 4%

P 600,000 1,000,000 10%

1,100,000 4,000,000 20%

4,000,000 over 50%

F. Non-Essential Goods

 20% based on the wholesale price or the value of importation used by the
Bureau of Customs in determining Tariff and Custom Duties, net of Excise and
Value-Added taxes
G. Sweetened Beverages (TRAIN Law)

PRODUCT TAX RATE

Per Liter of
Volume Capacity

Using purely caloric sweeteners, and purely non-

Caloric sweeteners, or a mix of caloric and non-caloric P 6.00
Sweeteners

Using purely high fructose corn syrup or in combination with P 12.00

Aby caloric or non-caloric sweetener
 Using purely coconut sap sugar and purely steviol glycosides Exempt

H. INVASIVE COSMETIC PROCEDURES – (TRAIN Law)

SERVICE TAX RATE

Performance of Services on Invasive Cosmetic Procedures 5%