TAXATION LAW

JURISTS LECTURE (VARIOUS PROFESSORS) NATURE AND SOURCE

1. Direct – granted by a direct mandate from the Constitution
LOCAL AND REALTY TAXES 2. Limited – limited and guidelines are set by Legislature
3. Legislative in Nature (important) – vested solely in the
ATTY. PHILIPP KING CARTAGENA (Jurists)
legislative body in each respective LGU;
(supplemente lecture: atty. William gan legal Edge) 4. Territorial

Local government taxation - Sanggunian of a LGU is authorized to prescribe fines or

other penalties for violation of tax ordinances. Penalty is not
A. Local Government Taxation less than Php 1,000.00 nor more than P5,000.00 nor
- Includes: Local Autonomy Act, Decentralization Act, Local imprisonment be less than 1 month nor more than 6 months.
Government Code
- The question is usually if the local ordinance or imposition is Authority to Grant Local Tax Exemptions
valid. - LGUs may approve, grant exemptions incentives or relies.
- LGU can only collect within their territories. (principle of - Grants shall not apply to regulatory fees which are levied
territoriality) under the police power of LGUs.
- In case of boundary disputes, there should be rules and
regulations to define their power to asses. Withdrawal of Exemptions
- Granted by the Constitution: power to create its own - On January 1, 1991 - onwards: What are the exemptions
sources of revenues and to levy taxes. and who are exempted? Apply the exemptions under the LGC
- The Congress cannot take away this power; but can set - January 1, 1991 – onwards: Congress can enact special laws
certain limitations and exemptions granting exemptions kasi meron ng LGC wala na silang
- Bakit may autonomy ang LGU? To prevent to be dependent autonomy
with the national government. - Before January 1, 1991: only the congress, as wala pang
- Refer to the LGC pag local government; pag national: NIRC. LGC.
- LGC provides for the specific guidelines and limitations on - GR: It is strictly construed against the taxpayer.
the taxing power of the LGUs. - Omnibus Investment Code does not impose tax exemptions
- Specific rates are provided for by the ordinance.
Authority to adjust local tax rates
CONSTITUTIONAL BACKGROUND - Not often once every 5 years but adjustment should not
- Sex. 5, Art. X, 1987 Constitution exceed 10% of the rates fixed under the LGC.
- This provision will determine the nature and character of - applicable lang yon limitation sa Local Government Taxation
taxation:
a. Direct Grant – granted by the Constitution. Residual Taxing Power of Local Government
b. Not unlimited - it must not be specifically enumerated in LGC; Not taxed
c. Legislative in Nature under the provisions of the NIRC; Not taxed under other
d. Territorial applicable laws.
- Doctrine of Preemption: if u want to tax a particular activity,
ADVANTAGES of the LGC of 1991 then check first the NIRC, it should not be taxed under the
1. Widens the tax base to include taxes which were prohibited NIRC.
by previous laws
2. Enough flexibility in imposing tax rates in accordance with Conditions that must be complied with in exercising the
their needs and capabilities residual taxing power of the LGU:
3. Removal of blanket exclusion of instrumentalities and 1. That it is not against any of the fundamental principles of
agencies of the National Government from the coverage of local taxation
local taxation. 2. That it is not one of the prohibited impositions under the
common limitations on the taxing powers of the LGUs
- Minimum and Maximum rates shall be determined through 3. That it is not one of the taxes, fees, or charges denied by
an ordinance. the LGUs by the LGC;
4. That the taxes, fees, or charges shall not be unjust,
FUNDAMENTAL PRINCIPLES excessive, oppressive, confiscatory or contrary to declared
national policy; and
a. Taxation shall be uniform in each local government unit;
5. That the ordinance levying such taxes, fees or charges
- Same type, same kinds must be taxed the same way
shall not be enacted without any prior public hearing
conducted for the purpose.
b. Each local government unit shall, as far as practicable,
evolve a progressive system of taxation.
SCOPE OF TAXING POWER
- Progressive system of taxation means: tax rate increases as
the tax base increases. - Limited only through the guidelines expressly provided for
by the legislature.
c. The collection of local taxes, fees, chargers and other - If it is expressly provided, it is not residual power already.
impositions shall in no case be let to any private person;
CASE: Cagayan de Oro City vs. Cagayan Electric Power & Light Co
d. The revenue collected shall inure solely to the benefit of, - Ordinance enjoy a presumption of validity. Thus, unless
and be subject to disposition by, the LGU levying the tax, fee, invalidity or unreasonableness is ostensibly apparent, one
charge or other imposition. seeking a judicial declaration of the invalidity of an ordinance
is duty-bound to adduce evidence that is convincingly
e. Taxes, fees, charges and other impositions shall: indicative of its infirmities or defects.
1. be equitable and based as far as practicable on the
taxpayer’s ability to pay; COMMON LIMITATIONS:
2. be levied and collected onlu for public purposes; Principle of pre-emption: unless otherwise provided, the
3. not be adjust, excessive, oppressive, or confiscatory exercise of the taxing powers of LGUs shall not extend to the
4. not be contrary to law, public policy, national economic following: (those under the NIRC)
policy, or in restraint of trade. a. Income tax (xpn: levied on banks and other financial
institutions)
- If fundamental principles are violated, the ordinance will be b. Documentary stamp tax;
violated c. Taxes on acquisitions mortis causa, except otherwise
provided (Estate tax is different from Donor’s Tax, or Transfer
CASE: Ferrer v. Quezon City; Validity of the Socialized Housing Tax)
Tax. d. Custom duties, charges, fees, and dues (xpn: wharfage
- Public purpose of a tax may legally exist even if the motive constructed and maintained by the LGU concerned)
which impelled the legislature to impose the tax was to favor e. Taxes, fees and charges, and other impositions upon goods
one over another. carried into or out of, or passing through the territorial
jurisdictions of LGU;
CASE: FDCP vs. City of Cebu; earmarking of amusement tax f. Taxes, fees, or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen;
- Revenues collected by the LGC inure solely to the benefit of,
g. Taxes on business enterprises certified to by the BOI as
and subject to disposition by the LGU levying the tax or other
pioneer or non-pioneer for a period of 6 and 4 years,
imposition.
respectively from the date of registration;
- Those earning less than PHP250,000 is exempt from taxes.

 h. Excise taxes (provided under the NIRC), taxes fees or and other farm inputs; Poultry feeds and other animal feeds;
charges on petroleum products School supplies; and Cement
i. Percentage or VAT on sales, barters or exchange of goods or
services except as otherwise provided. (d) On retailers, With gross sales or receipts for the Rate of
j. Taxes on the gross receipts of transaction contractors and Tax Preceding calendar year
persons engaged in transportation of passengers or freight by
hire and common carrier, except as provided in this Code; Provided, however, That Barangays shall have the exclusive
k. Taxes on premium paid by way or reinsurance or power to levy taxes, as provided under Section 152 hereof, on
retrocession; gross sales or receipts of the preceding calendar year of Fifty
l. Taxes, fees or charges for the registration of motor vehicle thousand pesos (P50,000.00) or less in the case of
and for the issuance of all kinds of licenses or permits for the municipalities.
driving thereof, except tricycles.
m. Taxes, fees or charges on Philippine products actually (e) On contractors and other independent contractors,
exported
n. Taxes, fees, or charges on Countryside and Barangay (f) On banks and other financial institutions, at a rate not
Business Enterprises and cooperatives. exceeding fifty percent (50% of one percent (1) on the gross
o. Taxes, fees or charges or of any kind on the National receipts of the preceding calendar year derived from interest,
Government, it’s agencies and instrumentalities, and LGU. commissions and discounts from lending activities, income
from financial leasing, dividends, rentals on property and
LOCAL TAXING AUTHORITY profit from ex change or sale of property, insurance premium.
- power to impose a tax, fee, or charge to generate revenue
under this Code shall be exercised by the Sanggunian of the (g) On peddlers engaged in the sale of any merchandise or
Local Government Unit concerned through an appropriate article or commerce, at a rate not exceeding Fifty pesos
ordinance. (P50.00) per peddler annually.

TAXING POWER OF PROVINCES (11) On any business, not otherwise specified in the
preceding paragraphs, which the Sanggunian concerned may
Section 135
deem proper to tax: Provided, That on any business subject
- Tax on transfer of real property ownership
to the excise, value-added or percentage tax under the
- Sale, donation, barter or any other mode of transferring
National Internal Revenue Code, as amended, the rate of tax
ownership
shall not exceed two percent (2%) of gross sales or receipts
- Rate of not more than 50% of 1% of the total consideration
of the preceding calendar year.
involved in the acquisition or FMV, whichever is higher
* for every item there is a tax table to be followed, except if
Section 136
rate is provided.
- Printing and Publication
- Books, cards, posters, leaflets, handbills, certificates,
RULES ON PAYMENT OF BUSINESS TAXES
receipts, pamphlets, and the like
- Rate: not exceeding 50% of the 1% of the gross annual a. Payable for every separate or distinct establishment or
receipts for the preceding calendar year. place where business subject to the tax is conducted
- However, books accredited by CHED to be used in schools, it - for every establishment there is a corresponding tax to be
will be exempted paid by the tax payer.

SECTION 138 b. Tax on a business must be paid by the person conducting

- Sand, Gravel and, other Quarry the same.
- Rate not more than 10% of the FMV in the locality per cubic
meter. c. 1 line of business does not become exempt by being
- extracted from public lands or public waters conducted with some other business subject to tax.

SECTION 139 d. In cases where a person conducts or operates 2 or more of

- Professional Tax (PTR) the businesses which are suject to the same tax rate, the tax
- Not exceed P300.00 per year shall be computed on the combined total gross sales or
- professions requiring government examination receipts of the said 2 or more related businesses.

SECTION 140 e. In cases where a person conducts or operates 2 or more

- Amusement tax businesses which are subject to different rates of tax, the
- theaters, cinemas, concert halls, circuses, boxing stadia, gross sales or receipts of each business shall be separately
and the like places reported for the purpose of computing the tax due from each
- rate: Not more than 30% of the gross receipts from business
admission fees.
RETIREMENT OF BUSINESS
SECTION 141 - Upon termination, submit sworn statement of its gross sales
- Every delivery truck or Van of Manufacturers or Producers, or receipts of the current year. The difference shall be paid
Wholesalers of, dealers, or retailers in, certain products before the business is officially retired.
- distilled spirits, fermented liquors, soft drinks, cigar and
cigarettes, and other products
- Rate: not exceeding P500.00
CASE: MOBIL PHILIPPINES INC. vs MAKATI CITY
TAXING POWER OF MUNICIPALITIES ISSUE: are the business paid by Mobil in 1998 (after filing its
- Section 142 of the LGC application for retirement of business; Mobil paid business tax
- Municipalities may impose taxes in the following businesses: on 1997 based in gross sale/receipts), business taxes for
a. On manufacturers, assemblers, repackers, processors, 1997 or 1998?
brewers, distillers, rectifiers, and compounders of liquors,
distilled spirits, and wines or manufacturers of any article of SC: Business taxes for 1998. Under the LGC, the manner of
commerce of whatever kind of nature; computing the business tax is based on the previous year’s
gross sales/receipts. Hence, Mobil is not subject to additional
b. On wholesalers, distributors, or dealers in any article of assessment since the amount paid is more than amount
commerce of whatever kind or nature; computed.

c. On exporters, and on manufacturers, millers, producers, Difference between income tax and business tax:
wholesalers, distributors, dealers or retailers of essential Business taxes imposed in the exercise of police power for
commodities enumerated hereunder at a rate not exceeding regulatory purposes are paid for the privilege of carrying on a
one- half (1/2) of the rates prescribed under subsections (a), business in the year the tax was paid. It is paid at the
(b) and (d) of this Section: Rice and corn; Wheat or cassava beginning of the year as a fee to allow the business to operate
flour, meat, dairy products, locally manufactured, processed for the rest of the year. It is deemed a prerequisite to the
or preserved food, sugar, salt and other agricultural, marine, conduct of business.
and fresh water products, whether in their original state or
not; Cooking oil and cooking gas; Laundry soap, detergents, Income tax, on the other hand, is a tax on all yearly profits
and medicine; Agricultural implements, equipment and post arising from property, professions, trades or offices, or as a
harvest facilities, fertilizers, pesticides, insecticides, herbicides tax on a person’s income, emoluments, profits and the like. It
is tax on income, whether net or gross realized in one taxable
year. It is due on or before the 15th day of the 4th month

 following the close of the taxpayer’s taxable year and is

generally regarded as an excise tax, levied upon the right of a Community tax
person or entity to receive income or profits. A. individuals liable to community tax
- This is the head tax (?)
SITUS OF THE TAX: PLACE OF TAXATION (Section 150) - applies to every inhabitant of the PH who is 18 years of age,
A. Business maintain or operating a branch or sales outlet, regularly employed for at least 30 consecutive working days,
pay the tax to the municipality or city where such branch or who is engaged in business or occupation, or who owns real
sales outlet is located. In absence, the taxes shall pertain to property with an aggregate assessed value of P1,000.00 or
the city of municipality where the principal office of such more, or who is required by law to file an ITR shall pay annual
business is located. community tax of P5.00 and annual additional tax of P1.00 for
- if sales of the branch, record the sales at the branch and every P1,000.00 of income (shall not exceed P5,000.00)
pay where the branch is located.
B. Juridical Person
- Domestic or resident foreign
- Engaged in or doing business in the PH
- Annual Community tax P500.00 and additional tax of not
more than P10,000.00

EXCEPT from COMMUNITY TAX

a. Diplomatic and consular representatives; and
b. Transient visitors, stay in the PH not exceed 3 months.

PLACE OF PAYMENT:
a. Place of resident of individual
b. Place of principal office of the juridical entity

TIME OF PAYMENT AND PENALTIES FOR DELIQUENCY

B. The following sales allocation shall apply to manufacturers, - Start 1st day of January, shall be paid not later than last day
assemblers, contractors, producers, and exporters with of February of each year.
factories, project offices, plants, and plantations: - Person reaches 18 or loses the benefit of exemption on or
- 30% of all sales taxable by the city or municipality where before the last day of June, liability to the community tax will
the principal office is located; and be on the day he reaches such age or the day exemption
- 70% of all sales recorded in the principal office shall be ends.
taxable by the city or municipality where the factory, project - Under the Constitution, there’s no imprisonment for non-
office, plant or plantation is located. payment for toll or community tax. However, the person is
subject to penalties and charges.
(c) In case of a plantation located at a place other than the - If person reaches 18 years or loses the benefit of exemption
place where the factory is located, said seventy percent on or before the last day of march, he shall have 20 days to
(70%) mentioned in subparagraph (b) of subsection (2) pay the community tax without being delinquent.
above shall be divided as follows: - Rules apply to corporations.
- Sixty percent (60%) to the city or municipality where the
factory is located; and Rules on collection of taxes
- Forty percent (40%) to the city or municipality where the
Manner of Payment and Tax Period
plantation is located.
- January 1 to December 31 of that year (Tax period, calendar
year)
(d) In case where a manufacturer, assembler, producer,
- taxes may be paid in quarterly installments
exporter or contractor has two (2) or more factories, project
- Taxes shall accrue on the 1st day of January of each year.
offices, plants, or plantations located in different localities, the
- New taxes, fees or charges, or changes in the rates shall
seventy percent (70%) mentioned in subparagraph (b) of
accrue on the 1st day of the quarter next following the
subsection (2) above shall be prorated among the localities
effectivity of the ordinance imposing it.
where the factories, project offices, plants, and plantations
are located in proportion to their respective volume or
TIME OF PAYMENT
production during the period for which the tax is due.
- Paid within the first 20 days of January or of each
subsequent quarter.
(e) The foregoing sales allocation shall be applied irrespective
- Sanggunian may for a justifiable reason or cause, extend
of whether or not sales are made in the locality where the
the time of payment, but not exceeding 6 months.
factory, project office, plant or plan is located.
SURCHARGES AND PENALTIES
Taxing power of cities
- surcharge not exceeding 25% of the amount of taxes, fees
- Cities may levy the taxes, fees, and charges which the or charges not paid on time;
province or municipality may impose. - interest rate not exceeding 2% per month of unpaid taxes,
- It may exceed the maximum rates allowed by not more than fees or charges (surcharge included), until amount is paid.
50% except for professional and amusement taxes. - Total interest, in no case, unpaid shall not exceed 36
months.
Scope of taxing powers of barangay
- Taxes, service fees or charges (use of barangay-owner INTERESTS ON OTHER UNPAID REVENUED
properties or service facilities), barangay clearance, other fees - Not included: voluntary contributions or donations
and charges (commercial breeding of fighting cocks, - Interest rate will be added, the rate not exceeding 2% per
cockfighting and cockpits; places of recreation w/c charge month from the date it is due until it is paid.
admission fees; and billboards, signboards, neon signs, and - No case shall the total interest exceed 36 months.
outdoor advertisements).
Taxpayer’s remedies
- Stores and retailers with fixed business establishments A. Administrative appeal to the Sec of Justice to question the
gross sales or receipts of preceding calendar year legality or constitutionality of tax ordinance or revenue
a. 50,000.00 pesos or less in cities measure
b. 30,000.00 pesos or less in municipalities - raise the appeal within 30 days from the effectivity of the
rate: not exceeding 1% on such gross sales or receipts. tax ordinance or revenue measures. Grounds: Violation of
fundamental principle.
Common revenue-raising powers - Sec. of Justice decision within 60 days from the date of the
a. Service fees and charges – rendered by LGUs appeal. Appeal shall not have the effect of suspending the
b. Public Utility Charges effectivity of the ordinance and the accrual and payment of
c. Toll fee the tax, fee, or charges.
- XPN: toll fees shall not be collected from officers and - Within 30 days from receipt of the decision or lapse of 60
enlisted men of the AFP, PNP on mission, post office personnel day period without the SOJ acting on the appeal, the
delivering mail, physically-handicapped, and disabled citizens aggrieved party may file appropriate proceeding with a court
who are 65 years or older. of competent jurisdiction.

- Also, when public safety and welfare requires, the B. Protest

Sanggunian may discontinue the collection of the tolls, and - follow the period otherwise, you’re dead; it will be final and
the facility shall be free and open for public use. executory.

 - within 60 days from the receipt of the notice of assessment. - No case or proceeding shall be maintained in any court for
- taxpayer shall have 30 days from the receipt of the denial of the recovery of any tax, fee, or charge erroneously or illegally
the protest or from the lapse of 60 days within which to collected until a written claim for refund or credit has been
appeal to the Court of competent jurisdiction, otherwise filed with the local treasurer. No case or proceeding shall be
assessment become conclusive and unappealable. entertained in any court after the expiration of 2 years from
- Payment under protest may proceed with or without the date of the payment of such tax, fee, or charge, or from
payment. the date the taxpayer is entitled to a refund or credit.
a. Payment is NOT Made: procedural remedy is governed by
Section 195. In case of whole or partial denial, or inaction, - Administrative: written claim for refund with Local Treasurer
recourse is to file an appeal of the assessment with the court - Judicial: made within 2 years from date of payment of
of competent jurisdiction. The appeal does not seek refund erroneous or illegally collected tax, fee or charge.
but questions the validity or correctness of assessment.
b. Payment is made: maintain an action in court in B. REAL PROPERTY TAXATION
questioning the correctness of the assessment plus refund of
FUNDAMENTAL PRINCIPLES
the taxes.
For Real Property Taxes
- file a written protest with the local treasurer, otherwise - Always look at the government code, to determine if it is
assessment will be final and executory. taxable and real properties not the Civil Code.
- Local treasurer shall decide within 60 days from the time of
filing. - Appraisal, assessment, levy and collection shall be guided
- If it is wholly or partially meritorious, he shall issue a notice by the following principles:
cancelling wholly or partially the assessment; if assessment is a. RP shall be appraised at its current and fair market value;
correct, deny the taxpayer with notice. b. RP shall be classified for assessment purposes on the basis
of its actual use;
CASE: Manila vs cosmos bottling corp c. RP shall be assessed on the basis of a uniform classification
within each local government unit;
Computing of assessment of business tax should be based on
d. Appraisal, assessment, levy and collection of real property
taxpayer’s gross sales or receipts of the preceding calendar
tax shall not be let to any private person;
year.
e. Appraisal and assessment of RP shall be quitable.

C. Refund COMPUTATION: FMV multiplied by the Assessment level

- there must be a written administrative claim, and judicial, shall (residential, commercial, industrial) = Assessed Value.
be made within 2 years from the date of payment. Assessed Value will be multiplied by the Tax Rate provided,
not exceeding 2% or 1% = Real Property Tax
CASE: City of Manila vs. Cosmos Bottling Corp
- issuance of “notice of assessment” is mandatory before the CASE: Meralco vs lucena city
local treasurer may collect deficiency taxes from the Section 199(o) of the LGC: machineries, to be subject to RPT,
taxpayer; para mas maging aware of the pending tax liability need no longer be annexed to the land or building as these,
is tax payer. “may or may not be attached, permanently or temporarily to
- di pwede mag off set sa mga taxes. the real property,” and in fact, such machinery may even be
mobile.
ASSESSMENT AND COLLECTION OF LOCAL TAXES For machineries to be subject to RP Tax:
- Local taxes, fees, or charges: assessed within 5 years from a. Actually, directly and exclusively used to meet the needs of
the date they become due. No action for the collection of a particular industry, business, or activity; and
taxes, administrative or judicial, shall be instituted after the b. By their very nature and purpose are designed for, or
expiration of such period. necessary for manufacturing, mining, logging, commercial,
- If there is fraud or intent to evade the payment of taxes, industrial, or agricultural purposes.
fees, or charges, assessment within 10 years from discovery
of the fraud or intent may be done. EXEMPTIONS FROM RPT
- Most topic in the bar comes from here
PRESCRIPTIVE PERIOD OF ASSESSMENT a. RP owned by Philippines or any of its political subdivisions
Local Taxes: (XPN: beneficial use has been granted, for consideration or
- shall be assessed within 5 years from the date they become otherwise to a taxable person)
due. However, pag may fraud or intent to evade, the b. Charitable institutions, churches, parsonages or convents
prescriptive period shall be 10 years from discovery. appurtenant, mosque, nonprofit or religious cemeteries and
- should be collected within 5 years from the date of all lands, buildings, and improvements actually, directly, and
assessment by administrative or judicial action. exclusively used for religious, charitable or educational
- Running of period of prescription is suspended for the time purposes.
during which c. All machineries and equipment that are actually, directly
a. Treasurer is legally prevented from making the assessment and exclusively used by local water districts and government-
of collection; owned or controlled corporations engaged in the supply and
b. Taxpayer requests for reinvestigation and executes a distribution of water and/or generation and transmission of
waiver in writing before the expiration of the period within electric power;
which to assess or collect; and d. All real properties owned by duly registered cooperatives
c. The taxpayer is out of the country or otherwise cannot be (RA No. 6938)
located. e. Machinery and equipment used for pollution control and
environmental protection. Any exemption from payment of
- Calendar year: January – December siya RPT previously granted to, or presently enjoyed are
- all taxes, fees and charges shall accrue on the 1st day of withdrawn upon the effectivity of this Code.
January of each year (relevant sa real property tax)
- taxes shall be paid first 20 days of January or of each - memorize which are exempt from Real Property tax.
subsequent quarter, as the case may be. - with regards to charitable institutions: it extends to facilities
- surcharge: not exceeding 25% of the total which are incidental to and reasonably necessary for the
- interest: 2% per month, until such is paid accomplishment of said purposes.
- Requisites for a valid examination of books - Lung Center case: payed wards (or private wards) are
a. business hours subject to tax.
b. Only once for every tax period - for burial grounds: it should be non-profit to enjoy
c. Certified by the examining official exemptions
- when it comes to machineries and equipment: actually,
- There should be prior authorization by the City Treasurer. directly, and exclusively USED. The test of exemption is the
Without a valid letter from the BIR, they cannot inspect, such use of machineries.
assessment is invalid. - All RP owned by duly registered cooperatives; it applies
even if the land is leased by the cooperative to individuals or
- Admin and Judicial remedies, same as the BIR, are not corporation
exclusive, they can simultaneously and concurrently until the
delinquent taxes has been paid CASE: Province of Agusan v. Filipinas Palm Oil
- Assessment should be delinquent muna. Pag deficiency pa Tignan ang wording ng law, walang distinction when it comes
lang, the Local Gov’t cannot collect. to lands owned by registered cooperatives.

CLAIM FOR REFUND OF TAX CREDIT Kinds of real property tax under the lgc:
1. Basic Real Property Tax;

 c. The taxpayer or person having legal interest is out of the

2. Special Levy on Education Fund; country or otherwise cannot be located.
- tax collected by LGU to fund the educational needs of the
LGU REMEDIES OF THE GOVERNMENT
- 1% on the assessed value of RP in addition to the basic RPT. A. Judicial Remedy – Civil action and criminal action
(Special education fund) B. Administrative Remedy – levy and tax lien

3. Special Levy on Idle Lands; TAXPAYER’S REMEDIES

- to discourage landowners from purchasing lands and not A. Protest
using it. - He must pay the tax under process
- annual tax rate of not exceeding 5% of the assessed value - After paying, receipt shall be annotated with the words “paid
of the property in addition to the basic RPT. under protest”
- idle lands are as follows: - Failure to indicate his intention, he shall the lose the right to
a. agricultural land protest.
- more than 1 hectare, the ½ remain uncultivated or - filed in writing within 30 days from payment
unimproved by the owner of the property or person having - Treasurer must decide protest within 60 days from receipt.
legal interest - Tax or portion paid under protest, shall be held in trust by
- land is suitable for cultivation, dairying, inland fishery, and the treasurer
other agricultural uses - If protest is decided in favor of tax payer, fund will be
- land planted to permanent or perennial crops with at least refunded or applied as tax credit against his existing or future
50 trees are not idle lands tax liability.
- grazing lands are not idle lands. - If denied or upon lapse of 60 days, the tax payer may
b. Other lands located in a city or municipality appeal to the LOCAL BOARD OF ASSESSMENT APPEAL within
- more than 1,000 sqm and ½ of it remains unutilized or 60 days from receipt of the denial.
unimproved by the owner of the property or person with legal - Upon denial of appeal, tax payer appeal to CENTRAL BOARD
interest. OF ASSESSMENT APPEAL within 30 days from receipt of the
- Applies to residential lots in subdivisions duly approved, to denial of the LBAA.
which ownership has been transferred to individual owners - CBAA denial, Taxpayer may appeal to the Court of Tax
(they’ll be liable for the additional tax) Appeal within 15 days from the CBAA.
- Individual lots of subdivisions, no transfer of ownership yet,
shall be subject to the additional tax payable by subdivision B. Refund/Credit
owner or operator. - Written claim for recovery of erroneous or illegal collected
- must be done two years from date of payment, includes
- Idle Lands Exempt from Tax: force majeure, civil judicial refund.
disturbance, natural calamity or any cause or circumstance w/
c physically or legally prevents the owner of the property or - Payment under protest
person have legal interest to improve, utilize, or cultivate the - to require will result to the closure of the business, kaya
same. may cases na posting of security bond is sufficient.

4. Special Levy on Public Works.

- Territorial jurisdiction only, funded by the LGU concerned CASE: Ty vs. Trampe:
- Not exceed 60% of the actual costs and improvements, this - Protest is required where there is question of
includes costs of acquiring the land and such other RP. reasonableness of the amount assessed, not when the
- not apply to lands exempt from basic RPT and the remained question raised is on the very authority and power of the
of the land portions of which have been donated to the LGU assessor to impose the assessment and of the treasurer to
concerned for the construction of such project or collect the tax.
improvement.
Procedure
- 1 and 2 can be imposed not only on lands, under the 1. File protest with local treasurer
expanded definition ALL real properties 2. Appeal to the Local Board of Assessment Appeals
- 3 and 4, these levies are imposed solely on LANDS. - within 60 days from notice of the written notice of
assessment
POWER TO LEVY RPT - MR with the local assessor would not toll the period
3. Appeal to the Central Board of Assessment Appeals
- belongs to the province, city, or a municipality within Metro 4. File to the CTA en banc
Manila.
- Annual ad valorem tax Effect of payment: it will not suspend the collection of the
- Rates: corresponding realty taxes.
a. Province: not exceeding 1% of the assessed value of the
RP
b. City or Municipality within the Metro Manila: not exceeding
2%

APPRAISAL AND ASSESSMENT OF RPT

- Current and fair market value prevailing in the locality
where the property is situated.
- Declaration is the responsibility of the property owners.
- if you buy a property within 60 days, you must notify the
assessor’s office. If you made any improvements, you must
also notify the city’s assessor’s office within 60 days.
- Failure to do so: the assessors can do it.
- Classification of the property is important because it will
determine the assessment level.
- for machineries and equipment, the value depreciates, that’s
why its reassess every year.

COLLECTION OF REAL PROPERTY TAX

- There is no 25% surcharge
- collected within 5 years from the date taxes became due.
- No action for the collection of the tax shall be instituted
after the expiration of such period
- XPN: case of fraud or intent to evade, action may be
instituted for the collection within 10 years from the
discovery.
- Running of period of prescription is suspended for the time
during which
a. Treasurer is legally prevented from making the collection;
b. Taxpayer requests for reinvestigation and executes a
waiver in writing before the expiration of the period within
which to collect; and

 General principles and national taxation REALIZATION OF INCOME

- only completed transaction is considered as income
ATTY. Rizalina lumbera (jurists)
Supplement: atty. William gan (legal edge) G r o s s r e c e i pt / Gross income Net income
gross sale
a. general principles of taxation
Gross Receipt: This is after the This is after the
selling service costs of sale a l l o w a b l e
deductions.
National taxation Local taxation
Gross Sale: selling
goods
NIRC/TRAIN-LAW Local Government Code of
1991
- EQUATION:
Taxes included in the Law: Local Taxes Include Gross Receipt/Gross Sale
a. Income Tax 1 . a . O r d i n a r y Ta x e s - (Costs of Sale)
b. Value Added Tax indicated in the Code = Gross Income
c. Donor’s Tax b. Ordinary Taxes – passed (deduction)
d. Percentage Tax by Local Sanggunian = Net Income
e. Excise Tax
f. Documentary Stamp Tax 2. Real Property Taxes ASK IN THIS ORDER:
g. Estate tax 1. Did you receive anything? If nothing, forget income tax.
You may receive in kind or in cash.
- VAT and Percentage Tax 2. If yes, is it income?
are called Business Tax 3. If yes, is it taxable?
- study the source of income, if within or without.
- Donor’s Tax and Estate - study the kinds of taxpayers
Tax: transfer tax (tax is on - study also the kind of income
the transfer) - study also inclusion or exclusions or exemptions
- study also deductions
- Excise Tax: manufacture - Capital gains vs capital loss; ordinary gains vs. ordinary
and production, and loss; ordinary assets vs ordinary gains; capital expenditures
importation vs. ordinary expenditures
- holding period
- Documentary Stamp Tax:
when executing documents 4. What kind of tax and rate do you apply?

Second part of NIRC/TRAIN: - The Code includes TEST IN DETERMINING WHETHER INCOME IS EARNED FOR TAX PURPOSES
Remedies for the
1. Realization Test
Remedies for the government and taxpayers;
- Both is conditions are met: the earning process is complete
government and taxpayers - Collection, then there are
or virtually complete; and an exchange has taken place
in the Collection procedures.
2. Claim of Right Doctrine/Doctrine of ownership
3. Economic Benefit Test
This includes the procedures
4. Severance Test
- Tariff and customs duties are not included in the bar exams;
Comprehensive Modernization Tariff Tax is the law that applies - All of this test will determine if it should be taxable or not
to tariff and customs.
- In case of doubt, do not levy. In case of exemption, strictly METHODS OF ACCOUNTING
construed against the tax payer. 1. Cash Method of Accounting
- used usually by small business
National internal revenue code / train law - actual payment or receipt is needed
KINDS OF TAXPAYER
2. Accrual Method of Accounting
a. Natural Person: - If I earn an income, it will be automatically booked.
i. Compensation Income Earner: Wage ang only income - When you have already right of the payment, you include it
ii. Self – Employed Profession: Exercise of Profession in your taxes already
iii. Self - Employed Individual: Trade and Business
iv. Mixed income Earner: Wage plus Trade/Business or Wage SPECIAL METHOD
plus Exercise of Profession or Wage plus Trade/Business plus 1. Installment Method
Exercise of Profession (Atty. Lumbera is an example LOL, - Proportion of the received is included
babaeng walang pahinga) Available usually to properties
- I don’t need to declare 100% revenue
b. Corporation: - Collection does not exceed 25% of the selling price
i. Corporate Tax Payer: Trade or Business is the source of
income 2. Deferred Payment
- Recognize the entire sale, pag more than 25% na bayad
- When you’re earning, you already have income tax
- When engage in Trade/Business, you are subject to VAT or 3. Percentage of Completion
Percentage Tax. - Applicable to installation or construction covering a period in
- Double Taxation in a broad sense: a transaction may be excess of 1 year; mandatory sa kanila
taxed more than once.
- Income Expense Cycle: most important cycle in the Income
Tax: you earn, you buy (expense), another person earns.
B. Income Tax
Every time you have income and you have to spend, another KINDS OF INCOME TAX (general sense)
person realizes income, then will spend, the cycle goes on. a. Net Income Tax System (NIT): in 12 months taxable period
(Spend-Receive) (Calendar or fiscal year)
- You add all gross income then subtract authorize deductions
TAXABLE PERIOD (stated by law) = Taxable Net Income multiplied by the %
- this is always 12 months! It can be calendar year (January Rate
1st – December 31st) or Fiscal Year (beginning at first day of - ang sagot sa Taxable Net Income multiplied by the % Tax
any month then ends after 12 months period) Rate) is the Tax Due
- Individual or Corporation may use calendar year. - Pag may withholding tax ka, babawasan mo yon tax due.
- Only Corporation may use fiscal year.
RATE:
INCOME (motherhood term) Individual: 20-30%
- All wealth which flows to the taxpayer other than a mere Corporate: 30% (Corporate income tax)
return of capital. Income is a gain derived from labor or
capital, or both labor and capital; and includes the gain b. Withholding Tax:
derived from the sale or exchange of capital assets. - Tax is withheld at Source
- Two Kinds: Creditable withholding tax and final withholding
tax

 - Those who reduces the withholding tax will remit it to the

3. Non- here Here
BIR. The Source (or mag bibigay sayo ng income) with
Resident P r i m a r y
withhold the tax, then remit it to the BIR. Parang sa ballpen,
F o r e i g n source of
pag binigay sayo wala na yon takip, yon takip i-reremit.
Corporation income
- Final Withholding Tax: the transaction is already subjected
to tax, no additional tax. Unlike Creditable Withholding Tax,
wherein the income will be subjected to additional tax. Double Taxation
a. Direct Duplicate Double Taxation (broad sense) – this is the
c. Gross Income Tax acceptable one, allowed but frowned upon, not illegal, the law
- no authorized deduction. provides the remedies to reduce the impact
- multiply immediately with the tax rate - Common remedy is Tax Credit:
- income derived from whatever source: all income not
expressly excluded or exempted b. Indirect Duplicate Double Taxation (strict sense) – illegal,
unconstitutional, prohibited, equal protection clause under the
d. 8% tax (under the TRAIN LAW) constitution is violated
- self-employed professional/income - Requisites:
- gross receipts/income does not exceed P3Million. a. Taxing twice the
b. same subject matter
e. Fringe benefit tax, Minimum Corporate Tax, Improperly c. Same taxable period
Accumulated Earning Tax, Branch Profit Remittance Tax, Inter d. Same purpose
Corporate Dividend Tax e. Same Kind of tax
- can be applied to individual or corporate - absent any of the requisites it is Double Taxation in the
- Fringe Benefit: Only subject to tax if given to managerial broad sense.
employees
DEFINITION of TERMS(section 22-24)

1. Resident Citizen: residing in the Philippines

Damages received considered taxable income?
A: 2. Non-Resident Citizen:
a. loss of anticipated profits: taxable a. A citizen of the Philippines who establishes to the
b. Return of capital, moral damages, reimbursement of satisfaction of the Commissioner the fact of his physical
hospital bills: non-taxable presence abroad with a definite intention to reside
RECOVERY OF ACCOUNTS PREVIOUSLY WRITTEN OFF therein.
- this is bad debts: this is deductible; kasi nalugi ako.
- pag naging okay na si client na may utang, tapos binayaran b. A citizen of the Philippines who leaves the Philippines
ka, pasok na dito yon Tax Benefit Rule. during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
SECTIONS 22 – 30 OF THE NIRC
Source of income c. A citizen of the Philippines who works and derives income
from abroad and whose employment thereat requires him to
TAX PAYER KINDS OF INCOME be physically present abroad most of the time during the
TAXPAYER taxable year.

PH ABROAD d. A citizen who has been previously considered as

(WITHIN) (WITHOUT) nonresident citizen and who arrives in the Philippines at any
time during the taxable year to reside permanently in the
Philippines shall likewise be treated as a nonresident citizen
A. Individual 1. Resident Here here
for the taxable year in which he arrives in the Philippines with
C I E Citizen Primary
respect to his income derived from sources abroad until the
(compensation source of
date of his arrival in the Philippines.
income earner) income

2. Non- here Here e. The taxpayer shall submit proof to the Commissioner to
SEP/SEI
Resident P r i m a r y show his intention of leaving the Philippines to reside
(Self-employed
Citizen source of permanently abroad or to return to and reside in the
Profession, Self-
income Philippines as the case may be for purpose of this Section.
e m p l o y e d
- If you’re a NRC, immigrant, and decided to live in the PH
Individual)
3. Resident here Here permanently, from the date you arrived till end of calendar
Alien P r i m a r y year you will be classified as RC. Before your arrival, you are
MIE
source of considered as NRC.
(Mix income
income - HOWEVER, if you’re a RC and decided to migrate, you are
earner)
considered RC till the end of the Calendar year, even if
4. Non- here Here migrated abroad.
Resident P r i m a r y
A l i e n source of 3. The term "resident alien" means an individual whose
Engaged in income residence is within the Philippines and who is not a citizen
Tr a d e o r thereof.
Business
4. The term "nonresident alien" means an individual whose
residence is not within the Philippines and who is not a citizen
5. Non- here Here thereof.
Resident P r i m a r y a. AGGREGATE period of more than 180-day rule: stays in the
Alien not source of PH, automatically considered as NRA-ETB
engaged in income b. Principle of habituality, Alien habitually enters in a
Tr a d e o r commercial activity regardless of the period then he is a NRA-
Business ETB
Y E S c. If he puts a branch of his business here in the PH, he is a
(Principal NRA-ETB.
source of d. Appointments of agents: NRA-ETB
income e. Hiring of employees indicates he is a NRA-ETB
- if not part of this categories, he is an alien NRA-NETB.
Expats are also included in the classification of NRA-NETB
B. Corporation 1. Domestic Here here
Trade/BUSINESS Corporation Primary 5. The term "resident foreign corporation" applies to a foreign
source of corporation engaged in trade or business within the
income Philippines.
2. Resident here Here
6. The term 'nonresident foreign corporation' applies to a
F o r e i g n P r i m a r y
foreign corporation not engaged in trade or business within
Corporation source of
the Philippines.
income

 Domestic Corporation: Corporations incorporated in - Lex rei sitae yon rule.

accordance to Philippine laws
Foreign Corporation: incorporated other than the laws of the DIVIDENDS
Philippines. a. if the one who issued is a domestic corporation – it is
within
WHEN ARE THEY TAXED b. if the one who issued is a foreign corporation – it is within
EXCEPTION:
TAX PAYER KINDS OF INCOME
TAXPAYER

PH ABROAD
(WITHIN) (WITHOUT)

A. Individual 1. Resident TAXED TAXED

CIE Citizen
SEP/SEI
MIE 2. Non- TAXED NOT
Resident
Citizen

3. Resident TAXED NOT

Alien

4. Non- TAXED NOT EXPLANATION:

Resident Dividend to be issued in 2020 is PHP100,000. The total
A l i e n income, in the PH Branch of the FOREIGN CORPORATION, is
Engaged in P4M. Combining the income of the Foreign Corporation both
Tr a d e o r here and abroad: P18M. Divided by ½ (because 50% of the
Business gross income as stated in the law), is less than 50% (PHP4M
is less than the PHP9M):

5. Non- TAXED NOT Atty. Lumbera: 4M divide by 18M multiplied by the 100,000
Resident (dividend stocks) = P22,000 (taxable within) 78,000
Alien not (without).
engaged in
Tr a d e o r KINDS OF INCOME AND KINDS OF INCOME TAX AND RATES
Business
Y E S
(Principal
SECTION 24
source of Four Major Items:
income A. All income
B. Passive: interest on bank deposits, royalties, prices and
winnings, and dividends.
B. Corporation 1. Domestic TAXED TAXED C. Capital Gains on Sales of Stocks: domestic corporation and
Trade/BUSINESS Corporation capital assets (ang classification), binenta ng untraded
D. Capital Gains on Sale of Real Property: RP (land and/or
building), located in the PH, capital ang nature of the assets,
2. Resident TAXED NOT sold.
F o r e i g n
Corporation - Pag wala sa B, wala C, or D, ang tax mo nasa A.
- Rule: all income are taxable, except:
3. Non- TAXED NOT 1. If exempted by the Law
Resident 2. If excluded from computation of the Gross Income
F o r e i g n
Corporation
TAX PAYER KINDS OF KINDS OF INCOME/INCOME
TAXPAYER TAX AND RATES
- Only resident citizen and domestic corporations are taxable (four major items)
for income derived from within and without; the rest of the
classifications for individual tax payer are taxed from income A B C D
from within. (Section 24 – 27, NIRC)
A. Individual 1. RC NIT FWT FWT FWT
- Section 42 NIRC, determines income from sources within CIE o r
the PH. 5 items are: SEP/SEI 8%
a. Gross Items c. Taxable income from within MIE
b. Gross income from without d. Taxable income from 2.NRC NIT FWT FWT FWT
without o r
e. Combination partly within and partly without 8%
- pareho lang yon a and c; b and d.
3. RA NIT FWT FWT FWT
COMPENSATION o r
- Where the service is rendered 8%
- if you worked in the PH, it is within. If outside PH, without
un. 4. NRA- NIT FWT FWT FWT
- regardless where the payment and frequency of payment ETB o r
8%
INTEREST
5. NRA- G r o s s FWT FWT
a. Bank Deposit
NETB i nco me
- If bank is located in the PH, it is within. If bank is outside
tax, 25%
the PH, the interest income is without.
* FWT: Final withholding tax
b. Loans, obligations, debentures, promissory notes *NIT: Net Income Tax
- Debtor and creditor relationship
- Taxpayer is creditor (interest income). - find all income WITHIN only, forget those income WITHOUT
- Residents, corporate or otherwise, income within. – this - for all types of INDIVIDUAL tax payers, the exemption in
means: if the debtor is a non-resident of the PH, the interest CGT of 6% is applicable.
income paid to the CR is without. If debtor is resident of the - 8% applies only when Gross Receipt/Sales (of SEP/SEI)
PH, the interest income is within. does not exceed P3M in a year. Choose the 8% at the start of
the year (first quarter of the year), the choice is irrevocable
INCOME FROM REAL PROPERTY/RENTALS/ROYALTIES until the end of the year. Every year ka pipili: 8% or NIT.
- If located in the PH (property), within. If located outside, it - If you’re an CIE, NIT applies to you.
is without.

 - P3M is the threshold, same as VAT. property. Pag nalugi ka or palugi, bayad ka donor’s tax. Benta
- If no choice is made, the default is NIT. If nag exceed ka ng ng tubo, bayad ka income tax.
P3M, you have no choice but to apply NIT.
- If you opted for 8%, it will be applied to your gross sales/ 4. If the asset sold are shares of stock in a Domestic
receipt in excess of P250K. If you are a mix earner, the P250K Corporation the corresponding is capital gains on the sales of
will not apply for SEP/SEI. stocks, tax is FWT at the rate of 15%. Sale of Real Property,
- If you’re a MIE, excess of P250,000.00 will not apply, 8% 6% of the FMV or the gross selling price or zonal valuation,
will apply tp All gross receipts/income not exceeding whichever is higher. Sa tax declaration siya makikita, ang
P3Million. FMV/assessed value. The BIR have the list of all zonal
valuation.
Kind of Tax Income
Tax Rate VAT REQUISITES FOR THE EXEMPTION OF THE CGT OF 6% SALE OF REAL
Payer Tax
PROPERTY
1. Sell actual principal residence
Compensation NIT N o t
2. within 30 days from the sale, you inform the BIR you are
Income Earner applicable
availing of the exemption (CGT is due 30 days from sale)
(pinapasa
3. Within 18 mos from the sale you buy or build another
lang sayo,
principal residence
pero not
4. You avail of the exemption once every 10 years
remitting
5. The historical costs will determine the costs exemption.
sa BIR)

Self-Employed Gross Income is NIT or N I T: no - in the case of condominium units are covered by the 6%.
Professional/ less than P3M 8% VAT. - pag ancestral house, tapos ibebenta ng mga heirs, the one
Self – Gross income is 8%: no living in the ancestral house is entitled to the exemption ONLY
Employed more than P3M vat. up to the amount of his share in the inheritance.
Income
NON RESIDENT ALIEN NOT ENGAGED IN TRADE/BUSINESS
Gross income is NIT VAT will - How will CGT apply to them?
more than P3M apply - They are the aliens employed in off shore bankings (or
branches), they are Expats.
- aliens can acquire real properties: inheritance, condominium
Mixed Income N o t units.
Earner applicable
Sweldo NIT CORPORATION TAX PAYERS
T A X KINDS KINDS OF INCOME/INCOME TAX AND RATES
Tr a d e or Apply the NIT or N o t
PAYER O F (four major items)
Business or Threshold: 8% Applicable TAXPAY
Profession (T/ Less than P3M: ER
A B C D
ICDT MCI IAET
T
B/P)
More than P3M NIT Applicable B. DC NIT: FWT FWT: FWT: DC- 2% 10%
Corporatio 30% 15% 6% DC:
n (fixed) (Lands Exempt
*If NIT is chosen Trade/ and
business Building
for T/B/P add s)
NIT for sweldo.
If 8% is chosen, RFC NIT:
30%
FWT FWT:
15%
Does
not
DC to
RFC:
2%
limit
Does
not
magkakahiwalay apply Exempt ed apply
becase to
computation. FC withi
cannot n
own
prop
PASSIVE INCOMES
NRFC GI: 30% FWT: N/A FWT: N/A N/A
a. Bank deposits: (interest) 15% 15%
- Peso Accounts/local currency: 20% FWT
- Foreign Accounts/Foreign Currency: 15% FWT ICDT: Inter-Corporate Dividends Tax
- Time deposits: MCIT: Minimum Corporate Income Tax (in lieu of NIT,
i. No pre-termination for 5 years: exempted from FWT Corporation may choose NIT or MCIT)
ii. Pre - termination on fourth: 5% IAET: Improperly Accumulated Earning Tax
ii. Pre – terminate on 3rd: 12% RFC and NRFC: incomes within are taxed.
iii. Pre – terminate below 3 years: 20% FWT
Corporations earn from Trade/Business
b. Royalties: 20% - Lahat ng kinita ng DC, within and without, is subject to NIT
- except literary and musical compositions: 10% (preferential) (or Corporate Income Tax), pag wala siya sa category ng B, C,
or D.
c. Pricing and Winnings: - Exemptions for CGT does not apply to corporations
- games of chance
- FWT: 20% Four Major Items:
- PCSO and Lotto Winnings A. All income
10,000.00 and below: no tax B. Passive: interest on bank deposits and royalties (walang
More than 10,000.00: 20% FWT literary and musical compositions)
C. Capital Gains on Sales of Stocks: domestic corporation and
Other games: Sugal/Casino/Raffle capital assets (ang classification), binenta ng untraded
10,000.00 and below: NIT D. Capital Gains on Sale of Real Property: RP (land and/or
More than 10,000.00: 20% FWT building), located in the PH, capital ang nature of the assets,
sold.
d. Dividends
- Domestic Corporation: 10% FWT PASSIVE INCOMES
- Foreign Corporation: shall be subject to NIT under column A a. Bank deposits: (interest)
(kasi wala sa B, ang nasa column B ay Domestic Corporation) - Peso Accounts/local currency: 20% FWT
- Foreign Accounts/Foreign Currency: 15% FWT
CAPITAL GAINS ON SALES OF STOCKS AND SALE OF REAL PROPERTY - Time deposits: 20% FWT
1. Classify if Capital asset or Ordinary asset: SECTION 39,
NIRC; pag ginagamit sa business, ordinary asset; pag hindi b. Royalties: 20%
ginagamit sa trade or business, capital - Regular royalties but never literary or musical compositions.

2. When the value of asset depreciates or appreciate, while MINIMUM CORPORATE INCOME TAX
you are using it whether capital or ordinary, you have no - Imposed on Domestic Corporation beginning the fourth year
income. immediately following the year in which such corporation
commenced its business operations, provided that the 2% on
3. Once you sold asset, and you realized income or loss, Gross Sales/Gross Income is higher than the Net Income.
there’s a corresponding tax. When computing income or loss,
do not include “puhunan”. Basis is FMV of the property at the IMPROPERLY ACCUMULATED EARNING TAX
time of sale, whether it is higher or lower when u bought the - in addition to all kinds of taxes.

 - Paid by Domestic Corporation an income, it is within, it is taxable. Rate: NIT at the rate of
- Rate: 10%, FWT. 30%
- When a Corporation did not distribute its dividends, retained
beyond business means, and pinagdamot niya, the c. If incomes from A and B were deposited in the bank, the
Government will charge the Corporation with 10% FWT (IAET) interest will be subject to FWT of 20% since this activity is
already for profit.
SECTION 30 OF THE TAX CODE
- Exempt Domestic Corporation in relation to incomes under d. If Charitable institutions received by Donation a real
column A (all income): property:
i. it will not be subject to Income Tax, under Section 32(B)(3).
(A) Labor, agricultural or horticultural organization not ii. Donor’s Tax (sec. 101) and Estate Tax (sec. 87) is different:
organized principally for profit; iii. No DT/ET: provided that not more than 30% is used for
administrative purposes.
(B) Mutual savings bank not having a capital stock iv. Is it deductible to the from Gross Income of the Donor?
represented by shares, and cooperative bank without capital (Section. 34H):
stock organized and operated for mutual purposes and 1. Individual is Compensation Earner: not deductible;
without profit; 2. Individual is SEP/SEI/MIE: 10% of the Taxable
income prior to the gift
(C) A beneficiary society, order or association, operating for 3. Corporation: 5% deduction
the exclusive benefit of the members such as a fraternal
organization operating under the lodge system, or mutual aid RELIGIOUS INSTITUTIONS
association or a nonstock corporation organized by employees - Same rules apply sa Charitable Institutions.
providing for the payment of life, sickness, accident, or other - RPT, No Tax if Real Property is ADE.
benefits exclusively to the members of such society, order, or - RPT, Not ADE, Taxable
association, or nonstock corporation or their dependents; - Those income of the Church from Mass, Wedding, other
religious activities, it is Not Taxable. If income comes from
(D) Cemetery company owned and operated exclusively for profitable institutions/corporations who rents the real
the benefit of its members; property, it is Taxable.
- If incomes from A and B were deposited in the bank, the
(E) Nonstock corporation or association organized and interest will be subject to FWT of 20% since this activity is
operated exclusively for religious, charitable, scientific, already for profit.
athletic, or cultural purposes, or for the rehabilitation of - If Charitable institutions received by Donation a real
veterans, no part of its net income or asset shall belong to or property:
inures to the benefit of any member, organizer, officer or any i. it will not be subject to Income Tax, under Section 32(B)(3).
specific person; ii. Donor’s Tax (sec. 101) and Estate Tax (sec. 87) is different:
iii. No DT/ET: provided that not more than 30% is used for
(F) Business league chamber of commerce, or board of trade, administrative purposes.
not organized for profit and no part of the net income of iv. Is it deductible to the from Gross Income of the Donor?
which inures to the benefit of any private stock-holder, or (Section. 34H):
individual; 1. Individual is Compensation Earner: not deductible;
2. Individual is SEP/SEI/MIE: 10% of the Taxable
(G) Civic league or organization not organized for profit but income prior to the gift
operated exclusively for the promotion of social welfare; 3. Corporation: 6% deduction

(H) A nonstock and nonprofit educational institution; Non stock non-profit EDUCATIONAL INSTITUTION
- All revenue and assets of non-stock non-profit educational
(I) Government educational institution; institution which are A-D-E for educational purposes are
exempted from taxes and duties (RPT and all internal revenue
(J) Farmers' or other mutual typhoon or fire insurance taxes, tariff and customs duties).
company, mutual ditch or irrigation company, mutual or - RPT: all ADE: no Tax; Not ADE, pay Tax.
cooperative telephone company, or like organization of a - Tuition Fee for ADE use, no income Tax; Rentals for ADE
purely local character, the income of which consists solely of use, no income tax (according to constitution). According to
assessments, dues, and fees collected from members for the Sec. 30(H): tuition fee = no tax, rental (income from real
sole purpose of meeting its expenses; and property) = pay tax
- If incomes from A and B were deposited in the bank, the
(K) Farmers', fruit growers', or like association organized and interest will be subject to FWT of 20% since this activity is
operated as a sales agent for the purpose of marketing the already for profit.
products of its members and turning back to them the
proceeds of sales, less the necessary selling expenses on the
CASE: dlsu vs cir
basis of the quantity of produce finished by them;
- In case of non-stock, non-profit educational institution,
apply the constitution, all types of income, as long as, ADE for
Notwithstanding the provisions in the preceding paragraphs,
educational purpose the same is exempt from tax.
the income of whatever kind and character of the foregoing
- There must be proof of ADE use of such type of revenues,
organizations from any of their properties, real or personal, or
audited financial statement will be the proof. Otherwise, the
from any of their activities conducted for profit regardless of
income will be taxed.
the disposition made of such income, shall be subject to tax
- Section 30(H) is declared null and void as what will be
imposed under this Code.
followed is the tax exemption under the Constitution.
- Common of all these corporations, what income is free in
- If Educational Institution received by Donation a real
Column A.
property:
CHARITABLE INSTITUTION i. it will not be subject to Income Tax, under Section 32(B)(3).
ii. Donor’s Tax (sec. 101) and Estate Tax (sec. 87) is different:
- Churches, Convents, non-profit cemeteries, parsonages, iii. No DT/ET: provided that not more than 30% is used for
mosques, including all their lands, buildings, and administrative purposes.
improvements – actually, directly, and exclusively (ADE) used iv. Is it deductible to the from Gross Income of the Donor?
for Charitable, Religious or Educational purposes are exempt (Section. 34H):
from real property tax (as stated in the Constitution). 1. Individual is Compensation Earner: not deductible;
- Areas rented to other institutions/profitable institutions, not 2. Individual is SEP/SEI/MIE: 10% of the Taxable
ADE is taxable. income prior to the gift
- When it comes to income tax, apply Sec. 30(E): There are 3. Corporation: 5% deduction
two kinds of income when the Charitable Institution rents a
part of their land to profitable, non-charitable institution Proprietary eDUCATIONAL INSTITUTION
(restaurants)
- Real Property Tax, for ADE use, the basis is Local
Government Code Sec. 234; Non-ADE use, pay RPT.
a. Income coming from crafts made by wards of Charitable
Institutions (examples are bashan or Christmas cards made - Rules on Income:
a. Related Trade or Activity (including Tuition fee), basis will
by Lola/Lolo in Home for the Aged), it is an income, it is
be Section 27(B)
within but it is not taxable.
b. Unrelated trade or activity (Rentals)
b. Income coming from rents paid by non-prof institutions,
renting a portion of the land of the Charitable Institution: It is

 ILLUSTRATION: Total income for tuition fee is P2M, income for Additional information for income tax
UTA or rentals is P1M, total is P3M. P3M divided by 2 to get INCLUSIONS AND EXCLUSIONS
the 50% = P1.5M. The UTA Income did not exceed the 50%
of the total income. Thus, according to Sec. 27(B) the total Items of Inclusion
income (P3M) will be subject to the preferential rate of 10%. - Sec. 32(A): CGDIRAP
If income from UTA exceeds the 50%, the income will be a. Compensation
subject to NIT of 30%. b. Gross Income: TBP
c. Gains
- If proprietary educational institution received by Donation of d. Interests
a real property: e. Rents
i. it will not be subject to Income Tax, under Section 32(B)(3). f. Royalties
ii. Donor’s Tax (sec. 101) and Estate Tax (sec. 87) is different: g. Dividends
iii. No DT/ET: provided that not more than 30% is used for h. Annuities
administrative purposes. i. Prizes and Winnings
iv. Is it deductible to the from Gross Income of the Donor? j. Pensions; and
(Section. 34H): k. Partner’s distributive share from the net income of the
1. Individual is Compensation Earner: not deductible; general professional partnership
2. Individual is SEP/SEI/MIE: 10% of the Taxable
income prior to the gift - Taxpayer is a person and a CIE, you have a NIT but no VAT.
3. Corporation: 5% deduction But if you are a SEP: you have NIT or 8% depending on your
gross receipts, and if you’re gross receipts/income, exceeds
Government EDUCATIONAL INSTITUTION P3M, VAT will be applied.
- These are public elementary school, high school, science
high school or state schools. Basic Pay Overtime Deminimis Other Benefits (plus the
- Tax Code: Sec. 30(i) P a y , Benefits excess in the DMB )
Holiday (not over
p a y , the limit) If not I f
- RPT: all areas used ADE for educational purposes: no Tax, Hazard exceeding P90K exceeding
basis is LGC 234; Not Beneficial use (Non-ADE), pay RPT. Pay P90K
- INCOME: Basis is Sec. 30 of the Tax Code (i)
Managerial Compensati None (di Exempted Exempt FBT; If not
Supervisory on: NIT sila nag F B T, Ta x
Tuition fee P2M No Tax receive) siya sa
NIT
Rentals P1M Last paragraph of Even if these
Sec. 30 (Taxable income were used Rank and Compensation: NIT Exempted Exempt NIT
File
NIT (column A) for the benefit of
the Educational Minimum Statutory Exempte Exempted Exempt NIT
Interest on Bank Last paragraph of Institution, it will W a g e Minimum d from
Earner Wage: tax
Deposits Sec. 30 (Taxable not be exempted E x e m p t
FWT column B) from tax. from tax.

- Pag minimum wage earner ang tinatax lang sayo is Fringe

- If government educational institution received by Donation Benefits or other benefits na lagpas sa P90K.
of a real property: - If it is for the convenience of the Employer or is necessary in
V v v i. it will not be subject to Income Tax, because the Trade or Business, it is not taxable.
gifts, items and bequests are items of exclusion.
ii. If you donate in favor of the government, it will not be Items of excluded
subject to any tax. The entire thing will not be subject to - Sec. 32(B)
donor’s or estate tax, calling it transfer for public use (Sec.
87(6) and 101 of the Tax Code). A. Proceeds of Life Insurance policies
iv. Is it deductible to the from Gross Income of the Donor? - Hindi siya taxable. But if the proceeds of the Insurance
(Section. 34H): received by the beneficiary during his life time or his death,
1. Individual is Compensation Earner: not deductible; the interest of the proceeds will be subject to tax.
2. Individual is SEP/SEI/MIE/corporation: deductible
in full provided it is declared as priority project of the B. Amount Received by insured as return of premium
government. If not, the 10% and 5% rates will
apply. C. Gifts, Bequests, and devises
Income Tax Purposes Donor’s Tax or Estate Tax
Charitable hospitals
- Apply the same rules as a charitable institutions No Tax Subject to Tax all is subject
to tax EXCEPT
Non-stock/non-profit hospital a. Charitable Institution
- Apply the same rules as non-stock/non-profit educational b. Religious institution
institutions. c. Non-Stock, Non-Profit
Institution
Proprietary hospitals
- Apply the same rules as a proprietary schools. - If donated to the
government:
government In full no Donor’s Tax or
Estate Tax
GR: The government cannot tax itself.
- Gov’t Agencies’ income from exercise governmental function If the property received if earning, the earning is part of the
is not subject to tax. gross income, the property is exempt.
Exceptions
1. Income of governmental agencies from proprietary function D. Income Exempt under Treaty
is subject to tax of 30% (Corporate tax)
- Real Properties owned shall be exempt from RPT except the E. Compensation for injuries or sickness
beneficial use refers to non-exempt entity. - If you got paid or reimbursed due to reparation of damage
- gifts in favor of the government: (reason of payment): exempt from tax, actual damages lang
a. Not taxable income exempt from tax.
b. For DT/ET, not subject to income tax. - Moral, Exemplary, and other damages: form part of gross
c. Is it deductible to the from Gross Income of the Donor? income.
(Section. 34H):
1. Individual is Compensation Earner: not deductible;
2. Individual is SEP/SEI/MIE/corporation: deductible
in full provided it is declared as priority project of the
government. If not, the 10% and 5% rates will
apply.

- GOCCs not subject to Tax: SSS, Philhealth, pag-ibig, PCSO.

Other GOCCs are subjected to tax.

 F. Retirements Benefits, Pensions, Gratuities, etc. Items of deduction

- General Rule: exempt, not subject to tax.
TAX PAYER KINDS OF
TAXPAYER
Private sector Government Labor Code A B C D
A. Private All retirements Resignation Taxable
Retirement Fund benefits and A. Individual 1. RC NIT
a. At least 50 pensions are not D i s m i s s a l , Only the CIE o r
years old taxable. without cause Atty’s fees SEP/SEI 8%
b. BIR approved (reinstate, moral and cost of MIE
retirement fund damages, atty’s suit will be 2.NRC NIT
c. rendered fees and taxable if
continuous backpay) the award o r
service for 10 is more 8%
years than the FWT
d. Fund is only a c t u a l 3. RA NIT
for the benefit of expense.
the employee
o r
Other fees
n o t 8%
B. if no private taxable.
retirement 4. NRA- NIT
a. 60 years of Separation ETB o r
age pay is not
b. service of 20 subject to
8%
years tax (for a
c a u s e 5. NRA- G r o s s
FWT
beyond the NETB i nco me
control of tax, 25%
t h e
employee)

Installation of Not taxable T A X KINDS OF KINDS OF INCOME/INCOME TAX AND RATES

Labor Saving for they PAYER TAXPAYER (four major items)
D e v i c e are causes
( r e d u n d a n c y, beyond the A B C D
automation, control of
B. DC NIT: 30% FWT FWT: 15% FWT: 6% (Lands and
retrenchment, t h e Corporatio (fixed) Buildings)
severe business employee n
l o s s e s ) Trade/ RFC NIT: 30% FWT FWT: 15% Does not apply
business
Separation pay becase FC cannot
own prop

NRFC GI: 30% FWT: 15% N/A

G. Miscellaneous

1. Prizes and Awards

RULES:
- This is not games of chance.
1. Income subject to NIT ang may deduction;
- Recognition of: religious, charitable, scientific, educational,
- No Deductions: NRA- NETB and NRFC
artistic, literary, or civic achievements BUT ONLY IF: selected
without any action on his part to enter the contest or
2. If the income is subject to FWT or GIT no deductions.
proceedings; and not required to render substantial future
services as a condition to receive the prize or award.
3. If you are purely compensation income earner, no
deductions.
2. Income derived by foreign government
- Classic example is Debt. PH is debtor, Foreign is Creditor.
4. There are two kids of deductions: Optional standard
- Interest income not subject to tax of the foreign
deduction (40% of the GS/I) or itemized deduction. Can only
government.
claim from income from Trade or Business or Exercise of
Profession for individual or corporation. If you failed to
3. Income derived by the government or its political
choose, the default deduction is itemized deduction. You can
subdivisions
choose yearly.
4. Prizes and awards in Sports Competition
5. if the option of 8% is chosen and applied, no deduction will
- Sanctioned by the sports’ commission
be allowed.
5. 13th Month pay and other benefits

6. Contribution to labor unions

7. Government remittances

- All are excluded by way of deduction.

 Kind of Tax Tax Income Percentagee Deductions • Charitable and other contributions
VAT • Research and development
Payer Rate Tax tax
• Pension trusts
Compensation NIT N o t N o t zero
I n c o m e applicable applicable - Purchase of Real Property (15-30 years) or Tangible
Earner
Personal Property (5 years) you cannot claim it as an
S e l f - Gross NIT or N I T: n o NIT: yes NIT: OSD expense, rather claim it under depreciation. Two ways of
Employed Income 8% VAT. o r depreciation under PH Jurisprudence: Straight line method
Professional/ is less Itemized and diminishing method.
Self – t h a n 8%: no 8%: Not Deduction
Employed P3M vat. applicable
Income 8%: 0 - Ang bawal sa batas is bumili ka ng asset na gagamitin mo
p e r o sa T/B tapos ideduct mo one time, what you can claim is
entitled ka depreciation while using the asset. This is Capital
sa in
excess of
Expenditure.
P250K
- You cannot use capital expense to purchase a capital asset.
Gross NIT Will apply N o t OSD or ID It is always using a capital expense to purchase an ordinary
income applicable
asset. Di pwede sa isang asset na mag claim ka ng
is more
t h a n business expenses and depreciation at the same time.
P3M
- It must necessary in trade and business, actually incurred
(accrual basis or recording of your transaction) or paid (in
Mixed Income Earner
cash), and must be reasonable in amount; and must be
Compensation NIT N o t N o t zero
documented. Without any documents, it cannot be
I n c o m e applicable applicable deducted.
Earner
- Compensation income earner is not entitled to any
Tr a d e or Gross NIT or N I T: n o NIT: yes NIT: OSD
Business or income 8% VAT. or ID
deductions.
Profession (T/ is less - The more you have authorized deduction, the lesser the tax
B/P) t h a n 8%: no 8%: Not 8%: 0 you pay.
P3M vat. applicable - When you incur expense in capital asset must be used in
ordinary expense.
Gross NIT Applicable N o t OSD or ID
Income applicable - Marketing expense with the purpose of maintaining the sale
is more is in the nature of goodwill therefore not allowed as
t h a n business expense (deductible) as it is considered as Capital
P3M
Expenditure. But if the purpose is to increase the sale, then
it will not be deductible.
CORPORATION
Elements of Bad Debt:
a. Incurred in the Trade or Business (business of lending)
TRADE OR Gross NIT N o t Applicable OSD or ID
BUSINESS income Applicable and
is less b. Determined to be worthless and completely charged off.
t h a n
P3M
- Bad debts is claimed by Creditor; while interest expense is
Gross NIT Applicable N o t OSD or ID claimed by the Debtor.
Income applicable - Under Section 34, the 33% is the Tax Arbitrage Rule.
is more
t h a n
P3M
Tax Arbitrage Rule: Corporation cannot deduct in full
the interest of a loan, if Corporation have an interest income
OSD: Optimized Standard Deduction na subjected to Final Withholding Tax.
ID: Itemized Deduction

OPTIMIZED AND ITEMIZED DEDUCTION: SEC. 34 (L) Tax Benefit Rule: in relation to bad debts. The unpaid
creditor will be the one to claim under this rule. If he already
- In OSD: get the gross receipt and gross sales minus the
claimed as Bad debt, the subsequent recovery is considered
cost of sale the difference is the gross income (get the 40%
as shall form part of gross income in the year of recovery.
here) this is the OSD (no receipts needed). The result is the
- It will apply to Bad Debts, Taxes, and Casualty Losses.
60% of the gross income (Taxable net income) multiplied by
the rates (30% individual to 35%, or 30% corporation); less
Taxes
tax credit if any
Illustration:
- only get those income and deductions WITHIN the 12 mos, RPT on Land and Building (Separate) used in trade and
whether calendar year or fiscal year, period. business is an example of taxes that may be deducted.

- For Itemized Deductions: applied only to Net Income Losses

Taxation Casualty cause: theft, robbery, fire, storm, embezzlement,
- Gross Receipt/Sales minus the Cost of Sale, difference is shipwrecks, or natural calamities provided the same is not
Gross income here deduct Authorized Deductions. The compensated for by any insurance.
difference is your Taxable Net Income that will be multiplied
by the tax rate less the Tax credit if any. - Item stolen/destroyed is part of business/trade.
- example if one of your asset is stolen, you cannot claim
Requirements: for depreciation.
1. Necessary in Trade or Business - The subsequent recovery of the asset in the Casualty
2. Reasonable in Amount loss, after claiming the deduction for casualty loss: the
3. Actually paid or incurred tax benefit rule applies. The owner must declare the
- Dapat may receipt amount (FMV at the time of recovery of the property) in
his gross income pursuant to the Tax Benefit Rule .
Get the gross receipt and gross sales minus the cost of sale
the difference is the gross income. Then less the authorized Charitable and other distributions
deduction (Expenses, Interest, Taxes, Losses, Bad Debts, - After claiming all itemized deduction, you will create a
Depreciation, Depletion, Charity, Pensions, Research and temporary taxable net income, dun ka pa lang mag
Developments). Section 34 provides EXCLUSIVELY babawas for Charitable and other distributions: 10% or
5% (10% if SEI; 5% if Corporation) whichever is lower,
Itemized Deductions (Section 34) this is for cases of home for the aged
• Expenses - For government donations, you can deduct in full
• Interest provided it is a priority project. But if it is not a priority
• Taxes project apply the 10% or 5% rule
• Losses - These applies to Business/Trade Company; pag individual
• Bad debts no deductions
• Depreciation
• Depletion of oil and gas wells and mines

 Pensions Q: What if your gross sales/receipt did not exceed Php 3M?
- Private retirement plans; company contributes to the A: You do not need to register to VAT as your gross receipt is
retirement plans of the Employee, deductible siya. less than P3M, you are exempted to VAT. When you are
- Life Insurance: if company got premium insurance for all exempted from VAT, you have to pay percentage tax which is
employees, he cannot get deduction because it is not a 2% of your gross sales/receipt.
regular business expense.
C. Donor’s Tax and Estate Tax
Research and development Donor’s Tax
- applicable only to the company - This is a transfer tax
- if it was used in relation to his/her business, can claim for - Php 250,000.00 free from tax.
deduction. - Rate is 6% of the FMV, AV, or ZV; subject to tax are Real
Property, Tangible Personal Property, and Intangible
- NRE-NETB/FCNETB: Not allowed to claim deductions. Personal Property.
- Formula: Gross Donation less Authorized Deduction the
B. Value Added Tax (Co Related to Income Taxation) difference is the Taxable Net Gross which will be
Value added Tax (co related to income Taxation) multiplied by 6% the answer will be the Tax Due. (GD -
AD = TNG x 6% = Tax Due); depending on the location
- Scenario: X is company ETB or an individual ETB; Y is CIE; X
of the property (taxability)
and Y are both taxpayers, both have revenues. Si X meron
Tapsilugan, si Y sweldo. Expenses: si X expenses sa
a. Inter Vivos: Donor or donee may be an individual or
Tapsilugan, si Y may expenses din as a buyer (plain
corporation. Basis is the Fair Market Value or Assessed Value
consumer).
or Zonal Value (Real Property) at the time of gift whichever is
the highest. Calendar year is applied here (12 Months January
- VAT: is a form of indirect tax; it is passed on; it becomes
to December); this is gratuitous and voluntary, there is no
expense or part of cost of goods.
monetary consideration.
- Transactions covered by VAT:
- a. Sale of Goods in connection in T/B;
Subject to Donor’s Tax:
- b. Sale of Service in Connection in T/B;
Kinds of Location of the Property Gift to Gift to
- c. Importation of goods; universal ito.
Donors within without government Exempt
- Basta nag import ka, subject to VAT yan. Pag institutions
import and binenta mo, dalawa na ang VAT (point (charitable,
of importation and selling price). VAT is 12%. religious,
etc)
a. Resident All All Deductible Deductible
- If you’re the seller, VAT is called output. Pag si buyer Citizen properties properties in full in full
naman mag babayad COST plus VAT, it is called input. taxable taxable
Non All All Deductible Deductible
- If sobra nabayaran yon buwis (excess input vat): tax Resident properties properties in full in full
Citizen taxable taxable
credit for the next quarters. Output less input. More input
Resident All All Deductible Not more
than output, wala ka babayaran na VAT, kasi may input Alien properties properties in full than 30% of
ka pa, claim tax credit. You must be BIR Registered. If taxable taxable the gift is
below PHP3Million sales, exempt ka. This is only for those Non All Not taxable Deductible used by the
engaged in trade or business and VAT Registered. Resident properties in full donee for
Alien taxable administrati
on purposes
- Pag Compensation income earner, no deduction sa
(Check handwritten notes ahehehe)
expenses sa income tax. Ma-lessen lang yon VAT, if you
are VAT Registered. Every input tax and input VAT is only
MIGHT BE ASKED IN THE BAR QUESTION
add to your expenses, no effect in tax.
b. Political or Campaign Contribution:
- Pag dating naman kay X or Individual engaged in Trade/
- According to the old corporation law, donation to political
Business, compute all output tax and input tax; then less
or campaign purposes is not allowed; it is considered
input tax sa output tax.
illegal donation. However, in the Revised Corporation Law,
donations for campaign purposes are now recognized
Zero Rated vs Exempt Transactions
(political parties or political candidate)
Zero Rated vs exempt transactions
Rules:
Zero Rated Transactions: 1.Campaign contributions dapat within the official campaign
- Pag Zero Rated, VAT-able siya but the rate is 0. period;
- Apply Zero Rated transactions on Sale of Goods/Sale of 2.Subject to creditable withholding tax of 5%;
Service. Walang Zero Rated Transaction sa importation. 3.The candidate should have filed SOCE (Statement of
May zero rated sa export (export sales is zero rate) pag Contribution and Expenditures;
import sale VAT is 12%. 4.The gift must be for campaign period.
- If this rules are not followed, everything shall be part of
Distinctions between Zero Rated and Exempt Transaction donor’s tax; not exceeding Php 250,000.00. Not also
- In Zero Rated Transaction, the transaction is not subject subject to income tax.
to VAT at all stages. While in Exempt Transaction, only a
particular stage is not subject to VAT. HOW TO COMPUTE DONOR’S TAX
- In ZRT the input VAT attributable to the Zero Rated Handwritten notes
Transaction is allowed to be credited against other output
VAT. In ET, the input VAT is not allowed to be credited Estate Tax
against the output taxes. - Tao lang namamatay. Mortis Causa transfer of properties.
- Basis is the Fair Market Value or Assessed Value or Zonal
- When you have excess input VAT in ZRT you may file a Value (Real Property) at the time of death whichever is
claim refund for the excess input VAT. Because you are the highest. Location of property is important
allowed to credit. - Paid only once so calendar/fiscal year is not important
- Tax Rate is 6%; There is no in excess of Php 250,000.00
Exempt Transactions:
- An example for the line “… only a particular stage is Gross Estate - Authorized Deduction = TNE x 6% = Tax Due
exempt from VAT” is sale of goods in the original state. (Remember 6% Capital Gain Tax, Donor’s Tax, and Estate
- Under the TRAIN Law, Sec. 109 A-BB. Only get the Tax)
important ones.

RENTALS OF APARTMENT UNITS

- Threshold is now at Php 15,000.00

- Increase of Exempt Transactions when your Gross

Receipt does not exceed Php 3,000,000.00

SALE OF PROPERTIES
- Threshold is now at Php 3,000,000.00

 Kinds of Location of the Property Gross Estate Non deductible 5M 10M deductible deductible
Decedents under Sec. 85 Resident
of the Tax Citizen
Code; see Resident deductible 5M 10M deductible deductible
discussion Alien
within without below
Resident Citizen All properties All properties Include Non deductible; in 500,000php Not deductible; in Not
proportion to applicable proportion to Applicable
taxable taxable Resident properties in properties in
Alien PH PH
Non Resident All properties All properties Include
- Funeral Expense, Judicial Expense, and Medical Expense is
Citizen taxable taxable
removed
Resident Alien All properties All properties Include - NOTE: Hanapin niyo Ito:
taxable taxable a. Estate Tax: Sino namatay
Non Resident All properties Not taxable Include b. Donor’s Tax: Sino nag bigay
Alien taxable c. Income Tax: Sino kumita

Apply rules in Sec. 104 (check HWN) Vanishing Deductions:

- Requirement: identified property, that the estate tax for
Under Gross Estate: Decedent’s Interest, Transfer in the prior estate is paid; and we are now computing for the
Contemplation of Death, Revocable Transfer, Property Passing estate of the current decedent wherein the vanishing
under General Power of Appointment, Proceeds of Life deduction will be allowed.
Insurance, Prior Interest. Basis is decree of control over the
property. - Bahay and lupa owned by X. A is X’s child. X died. A
inherited the Bahay and lupa. Magcompute ng gross estate
Rule of Thumb in Estate Tax: it will be asked, do you have a ni X, kasama sa computation yon bahay and lupa. X is now
degree of control, interest or ownership over a particular Prior decedent.
property. - Si A ngayon owns the bahay and lupa, A died. He is now
Yes - include that property in computation of that Gross the present decedent. In computing the gross estate, the
Estate. bahay and lupa is included.
No - don’t include.
- In order to reduce the impact of double taxation in a broad
Transfer in Contemplation of Death sense, the law says that the present decedent estate is
- buhay ka pa ang property binenta mo na kasi mamatay ka now entitled to claim vanishing deduction.
na. The basis of transfer is: mamatay ka na. It then forms - How much? It depends on the period of time between the
part of the gross estate. death of the prior decedent and the present decedent. If
the present decedent died within 0 - 1 year from the death
Transfer for Insufficient Consideration: of the prior decedent, 100%. Within 1 - 2 years, 80%;
- The difference between the FMV at the time of death and within 2 - 3 years, 60%; Within 3 - 4%, 40%. Within 4 -
the consideration, ang isasama dito. 5%, 20% Beyond 5 years, the estate of the present
decedent is no longer entitled to Vanishing Deduction.
- (G) Transfers of Insufficient Consideration. - If any one of
the transfers, trusts, interests, rights or powers enumerated - No longer need to file notice of death; period of payment is
and described in Subsections (B), (C) and (D) of this Section now 1 year from death (TRAIN Law).
is made, created, exercised or relinquished for a consideration
in money or money's worth, but is not a bona fide sale for an
adequate and full consideration in money or money's worth,
D. Remedies under the NIRC as amended by TRAIN LAW
there shall be included in the gross estate only the excess of - Handwritten notes
the fair market value, at the time of death, of the property - Always study part of Gov’t and Tax Payer, hand in hand.
otherwise to be included on account of such transaction, over - Cause of Action: magbayad ang taong bayan ng buwis;
the value of the consideration received therefor by the - There is not counter claims, etc.
decedent. - Effect of failing to file returns, 1 day after deadline: 25%
penalty plus interest of double the legal interest (12% per
Proceeds of life insurance: annum computed on a daily basis from day of delay);
- In Income tax, except for the interest, the income from (Legal interest is 6%)
insurance received by the beneficiary is exempt from tax. - In case of Fraud or Bad faith, penalty: 50% plus 12% per
- In Estate Tax, follow the rules: annum.
a. If the beneficiary is himself, his estate, his - You can amend the return. You can amend the return
administrator, or executor whether the designation is within 3 years from date of the filing of the original return.
irrevocable or not, include in the gross estate. Provided, no notice of investigation is received by the tax
b. If the beneficiary is other than himself, his estate, payer.
administrator or executor, and is revocable, include - Pag No Return is filed: the BIR will file a return on your
in the Gross estate. behalf.
c. If the beneficiary is other than himself, his estate, - If you filed in the wrong BIR Jurisdiction, it is as if you did
administrator or executor, and is irrevocable, not file any return and no taxes were paid.
EXCLUDE from computation of gross estate.
Terms:
Allowed Deductions a. Returns: verified statement prepared by tax payer
Kinds of Unpaid Unpaid Casualty Claims Claims Transfer providing for the material information relevant to the tax you
Loss, within against
Deceden Mortgage Taxes 1 year after Estate;
against for are paying for.
ts (Ang Insolvent Public
your death Debtor yon
namatay Person;
Utang and no namatay. Use
DR, pero insurance; dead is b. Substituted Filing: applies only when an employee who is a
meron mo sa pag na Creditor.
security) gov’t claim mo na purely Compensation Income Earner, only has 1 employer, the
will Ito as GE, employer will file the tax return on behalf of the employee.
di mo na
Deduct forever pwede
mo yon survive iclaim sa IT.
utang na Preliminary Assessment Notice
you.
di paid - after investigation the BIR will give the Tax Payer a PAN.
Resident deductible deductible deductible deductible deductible deductible
- Taxpayer is given 15 Days to Reply from PAN.
Citizen
- With or without the Reply, the BIR can issue a Final
Non deductible deductible deductible deductible deductible deductible Assessment Notice to the Tax Payer.
Resident
Citizen
Instances wherein PAN is not needed (Sec. 228):
Resident deductible deductible deductible deductible deductible deductible
Alien a. When it involves Excise Taxes
b. Mathematical Error appearing on the Face of the Return
Non In In In In In deductible
c. When a discrepancy has been determined between the
proportion proportion proportion proportion proportion
Resident
Alien
located in
the PH
located in
the PH
located in
the PH
located in
the PH
located in
the PH
tax withheld and the amount actually remitted by the
Withholding agent
d. When a taxpayer who opted to claim a refund or tax
Kinds of Conjugal Standard Family Vanishing Retirement
Decedents share of Deduction home Deduction
Benefits (add credit of excess creditable withholding tax for a taxable
muna to GE
Surviving
before period was determined to have carried over and
Spouse deducting) automatically applied in the same amount claimed
Resident deductible 5M 10M deductible deductible
against the estimated tax liabilities for the taxable
Citizen
quarter/s of the succeeding taxable year;

 e. When the Article locally purchased or imported by an

exempt person, such as, but not limited to, vehicle,
capital equipment, machineries and spare parts has
been sold, traded or transferred to non-exempt
persons.

Final Assessment Notice

Q: Until When will BIR issue PAN? (Prescription period)
A: When Return is filled:
a. In good faith
i. Before due date - within 3 years from due
ii. After due date - w/in 3 years from actual
date filed
b. Fraud/Bad Faith: within 10 years from discovery
c. No return: within 10 years from discovery of no
filing.
Q: What is a waiver?
A: Waiver is a contract between the BIR and Taxpayer,
wherein the BIR can issue FAN beyond the prescriptive period.
Must be executed prior to the expiration of the period, must
be within the original prescriptive period.

Q: What are the essential requisites of a waiver?

A:
a. In writing
b. Signature of the Tax payer and date signed must be
seen on the face of the Waiver
c. Signature of the BIR Officer
d. Date of Acceptance by the BIR indicated on the face of
the waiver
e. Duly notarized
- 3 Copies: Taxpayer, BIR, and case failure
- In case of non compliance: waiver is not valid.

Q: What are the requisites of a valid FAN?

A:
a. In writing;
b. Addressed to the Tax Payer (the addressed indicated in
the return);
c. Providing for the basis in fact and in law of the amount
of the tax due;
d. Providing for the amount of tax due, naka break down;
e. Demand to pay the tax due;
f. Due date to pay the tax is indicated;
g. Signed by the Duly Authorized BIR Representative; and
h. Validly served to the tax payer.

- Service of FAN is the same as service of summons:

Personal Service of the FAN; Substituted Service to the
person of sufficient discretion, there must be a witness
(kuha ka ng kagawad - Atty. Lumbera); or Registered Mail.
- Pag di nireceive or ayaw tanggapin: gawa ka ng affidavit
na wala si Tax payer or si person of sufficient discretion.
- FAN does not need to be received within the prescriptive
period.
- Motion for Reconsideration, presumption is no submission
of additional evidence/documents; However in Motion for
reinvestigation, presumption is mag submit ng additional
documents.
- While the case is on going, the government can collect
taxes. The right of the government to collect taxes is
independent of the procedure. (Lifeblood doctrine). No
injunction can be filed.

Determination of Jurisdictional Amount:

- The only amount that matter is the Principal Amount.

MTC - RTC (appellate jurisdiction) - CTA en Banc (within 30

days) - SC
RTC (original jurisdiction) - CTA division - CTA en Banc - SC

CTA - tax due is more than P1,000,000.00 BIR can go directly

to the CTA.