CHAPTER IV

REMEDIES

Tax remedies can be viewed both from the standpoint of the government and of the taxpayer. For the government,
tax remedies are means, both substantive and procedural, to ensure that the taxpayer is declaring and paying the
correct amount of taxes, and to collect the deficiencies when found to be due to the government.

For the taxpayer, tax remedies are also the means to respond to the government's examination of its books of accounts,
to challenge the deficiency found, and to reduce tax liability through compromise and abatement. In addition, the
taxpayer can, subject to conditions, refund for the tax erroneously or illegally collected.

Remedies of the Government

The tax remedies of the government are (1) Assessment and (2) Collection.

ASSESSMENT

Powers of the Commissioner Determine the Correct Tax

To determine the correct amount of tax, the Commissioner or his duly authorized representative is authorized to
perform the following powers:

a. To examine any book, paper, record, or other data of any person which may be relevant or material to
ascertain the correctness of any return, to make a return when none has been made, to determine the liability
of any person for any internal revenue tax, to collect such tax liability and to evaluate tax compliance. (Section
5(A), NIRC); and

b. To examine any taxpayer and the assessment of the correct amount of tax after a return has been filed.
(Section 6(A), NIRC)

The taxpayer's failure to file a return does not preclude or prevent the Commissioner or his duly authorized
representative from authorizing the examination of any taxpayer. (Section 6(A), NIRC) The Commissioner
may also issue summon and examine, and take testimony of persons in ascertaining the correctness of the
return filed, in making a return when none has been made, in determining the liability of any person for any
internal revenue tax, in collecting any such liability, and in evaluating tax compliance.

Assessment and Its Commencement

The term "assessment" refers to the determination of amounts due from a person obligated to make payments. In the
context of national internal revenue collection, it refers to the determination of the taxes due from a taxpayer under
the National Internal Revenue Code of 1997. (SMI-ED Phil. Technology, Inc. v. Commissioner of Internal Revenue,
G.R. No. 175410, November 12, 2014) Simply, assessment is the determination of the taxpayer's deficiency tax and
the formal demand for the payment of the same. Deficiency tax arises when the amount of tax imposed and due under
the Tax Code exceeds the amount of tax declared in the return and paid by the taxpayer.

Taxes are generally self-assessed. They are initially computed and voluntarily paid by the taxpayer. The government
does not have to demand for it. If the tax payments are correct, the BIR need not make an assessment. (SMI-ED Phil.
Technology, Inc. v. Commissioner of Internal Revenue, G.R. No. 175410, November 12, 2014)

The assessment process starts with the filing of tax return and payment of tax by the taxpayer. The initial assessment
evidenced by the tax return is a self-assessment of the taxpayer. The tax is primarily computed and voluntarily paid by
the taxpayer without need of any demand from government. If tax obligations are properly paid, the BIR may dispense
with its own assessment.

After filing a return, the Commissioner or his representative may allow the examination of any taxpayer for assessment
of proper tax liability. The failure of a taxpayer to file his or her return will not hinder the Commissioner from permitting
the taxpayer's examination. The Commissioner can examine records or other data relevant to his or her inquiry in order
to verify the correctness of any return, or to make a return in case of non-compliance, as well as to determine and
collect tax liability. (Section 56(A), NIRC; Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R No. 215957,
November 9, 2016)

Prescriptive Period of Assessment

As a rule, the government, through the Commissioner, has three (3) years to assess the taxpayer from the filing of the
return. Section 203 of the Tax Code states:

Section 203. Period of Limitation Upon Assessment and Collection. Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such taxes shall be begun after
the expiration of such period: Provided, that in a case where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section,
a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such
last day.

Under Section 203 of the Tax Code, internal revenue taxes must be assessed within three years counted from the
period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This mandate governs
the question of prescription of the government's right to assess internal revenue taxes primarily to safeguard the
interests of taxpayers from unreasonable investigation. Accordingly, the government must assess internal revenue
taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that
it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time.
(Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, December 16, 2004)

The prescriptive period in making an assessment depends upon whether a tax return was filed or whether the tax
return filed was either false or fraudulent. When a tax return that is neither false nor fraudulent has been filed, the BIR
may assess within three (3) years, reckoned from the date of actual filing or from the last day prescribed by law for
filing. (Commissioner of Internal Revenue V. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016; Section 203,
NIRC)

The taxpayer may file a tax return (1) before the deadline prescribed by law, (2) on the deadline or on the last day
prescribed by law, or (3) after the deadline prescribed by law also known as late filing.

When the taxpayer files a tax return before the deadline or on the deadline prescribed by law, the three (3)-year
prescriptive period to assess shall begin on the deadline for filing of the tax return prescribed by law. When the taxpayer
files a tax return after the deadline prescribed by law, then the three (3)-year prescriptive period shall begin on the
date of late filing.

Though it becomes a common interpretation that in case an income tax return filed, for example, on April 15, 2006,
the last day for the BIR to assess is on April 15, 2009, or three (3) years thereafter, the BIR has long issued Revenue
Memorandum Circular No. 48-90 on April 23, 1990 which provides that a 3-year prescriptive period for assessment or
collection purposes prescribed under Sections 203 of the Tax Code shall have an aggregate number of 1,095 days (365
days x 3 years = 1,095 days), reckoned from the date of filing of the return, or from the issuance of the assessment,
as the case may be. In other words, the 3-year prescriptive period expires on the 1,095th day, notwithstanding the
fact that within the period, there is a leap year which is of 366 days.

In Maersk-Tabacalera Shipping Agency (Filipinas), Inc. v. Commissioner of Internal Revenue, (CTA Case No. 5006,
February 20, 1996), the CTA held:

"The applicable provision of the law is found in Section 203 of the Tax Code, thus:

Section 203. Period of limitation upon assessment and collection. Except as provided in the succeeding section,
internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing
of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun
after the expiration of such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three year period shall be counted from the day the return was filed. For the purposes
of this section a return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day. (As amended by BP 700)
The abovecited law is explicit as it declares in no uncertain. terms that the prescriptive period for the assessment of
taxes is three-years counted from the time the return is filed or the last day prescribed by law for the filing thereof,
whichever is later.

To erase all doubts as to the number of days constituting the three-year period, the then Commissioner of
Internal Revenue, Jose U. Ong, issued RMC No. 48-90 declaring that the period shall have an aggregate
number of 1,095 days (365 days x 3 years= 1,095 days), thus:

Accordingly, in order to have a correct understanding of the procedure in determining the period of limitation
upon assessment and collection when the period covers a leap year, it shall be understood that years are of
365 days each as provided in Article 13 of the New Civil Code. Consequently, a 3-year prescriptive period for
assessment or collection purposes prescribed under Sections 203 and 223(c) of the Tax Code shall have an
aggregate number of 1,095 days (365 days x 3 years = 1,095 days), reckoned from the date of filing the
return or, from the issuance of the assessment, as the case may be. In other words, the 3-year prescriptive
period expires on the 1,095th day, notwithstanding the fact that within the period, there is a leap year which
is 366 days."

Period of Assessment in case of an Amended Return

Once a return, statement or declaration is filed, the taxpayer is not allowed to withdraw the same. However, the
taxpayer may modify, change or amend any return, statement or declaration within three (3) years from filing except
when a notice for audit or investigation of such return, statement or declaration has been actually served upon the
taxpayer. (Section 6(A), NIRC)

An amendment of a return may either be formal or substantial. An amendment of a return that changes the tax liability
previously contained in the original return is a substantial amendment. Substantial amendments include inclusion or
exclusion of an income or claim of additional expense as a deduction that modify and change the tax liability of the
taxpayer. An amendment that does not change or modify the tax liability contained in the original return is merely a
formal amendment.

In case of a formal amendment, the 3-year prescriptive period shall begin on the date of filing of the original return,
not the date of filing of the amended return. On the contrary, in case of a substantial amendment, the three 3-year
period shall be counted from the date of filing of the amended return, not on the filing of

the original return. (Commissioner of Internal Revenue v. Phoenix Assurance Co. Ltd., G.R. No. L-19727, May 20, 1965)

Exceptions to the Prescriptive Period of Assessment

The exceptions to the 3-year prescriptive period of assessment are (1) in case of extraordinary circumstance and (2)
the execution. of waiver of statute of limitations.

Extraordinary Circumstance

The first exception to the 3-year rule of prescriptive period of assessment is found in Section 222(A) of the Tax Code
which states:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud or omission: Provided, that in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for
the collection thereof.

When the taxpayer filed a fraudulent or false return with intent to evade tax, or if the taxpayer did not file a return,
the 3-year prescriptive period does not apply but a longer period of ten (10) years for the government to make an
assessment.
The 10-year prescriptive period to make an assessment will commence from the time of discovery of falsity or fraudulent
return, or after the discovery of the failure or omission to file a return.

Illustration: A taxpayer filed a fraudulent income tax return for the year 2005 on April 11, 2006. The BIR discovered
the fraud on February 20, 2007. The last day for the BIR to collect or send an assessment notice is on February 20,
2017. The BIR has ten (10) years from February 20, 2007, the date of discovery of the fraudulent return, to assess the
taxpayer.

To avail of the extraordinary period of assessment in Section 222(a) of the Tax Code, the Commissioner of Internal
Revenue should show that the facts upon which the fraud is based is communicated to the taxpayer. The burden of
proving that the facts exist in any subsequent proceeding is with the Commissioner of Internal Revenue. (Commissioner
of Internal Revenue v. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016)

The proper and reasonable interpretation of Section 222(a) (previously Section 332 of the Old NIRC) should be that in
the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, and (3) failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten (10) years after the discovery of the (1) falsity, (2) fraud, or (3) omission.

The law should be interpreted to mean a separation of the three different situations of false return, fraudulent return
with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision
which segregates the situations. into three different classes, namely "falsity", "fraud" and "omission". That there is a
difference between "false return" and "fraudulent return" cannot be denied. While the first merely implies deviation
from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the
taxes due. (Jose Aznar v. Court of Tax Appeals, G.R. No. L-20569, August 23, 1974)

Fraud is a question of fact that should be alleged and duly proven (Commissioner of Internal Revenue v. Ayala Securities
Corp., G.R. No. L-29485, March 31, 1976) The willful neglect to file the required tax return or the fraudulent intent to
evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.
(Commissioner of Internal Revenue v. Air India, G.R. No. 72443, January 29, 1988) Fraud entails corresponding
sanctions under the tax law. Therefore, it is indispensable for the Commissioner of Internal Revenue to include the
basis for its allegations of fraud in the assessment notice. (Commissioner of Internal Revenue v. Fitness by Design,
Inc., G.R. No. 215957, November 9, 2016)

Waiver of Statute of Limitation

The second exception to the three (3)-year rule of prescriptive period of assessment is the execution by the taxpayer
of a waiver of statute of limitation. A waiver of the defense of prescription is a bilateral agreement between a taxpayer
and the BIR to extend the period of assessment and collection to a certain date. Section 222(b) of the Tax Code
provides:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

XXX

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.

In this case, the taxpayer and the BIR have agreed to extend the period of assessment and collections of taxes beyond
the 3-year period as provided in Section 203 of the Tax Code. There is no limitation as to length of extension as long
as it is agreed upon by the taxpayer and the BIR. In addition, the extended period may be further extended by
execution of another waiver before the expiration of the original or the first extension.

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers' right to
security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. (See
Ouano v. Court of Appeals, G.R. No. 129279, 398 SCRA 525, March 4, 2003 citing People v. Donato, G.R. No. 72969,
198 SCRA 130, June 5, 1991)
The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription. It is an
agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is
extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription
unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers
from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the
collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to
afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.
(Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc., G.R. No. 104171, February 24, 1999)

Execution of Waiver Under RMO No. 20-90

The proper execution of the waiver of the statute of limitations under the Tax Code was previously implemented by
Revenue Memorandum Order No. 20-90, dated April 4, 1990. Under Revenue Memorandum Order No. 20-90, internal
revenue taxes may be assessed or collected after the ordinary prescriptive period, if before its expiration, both the
Commissioner and the taxpayer have agreed in writing to its assessment and/or collection after said period.

The period so agreed upon may be extended by subsequent written agreement made before the expiration of the
period previously agreed upon. This written agreement between the Commissioner of Internal Revenue or his duly
authorized officer and the taxpayer is the so-called "Waiver of the Statute of Limitations."

Pursuant to Revenue Memorandum Order No. 20-90, the

following procedures should be followed:

1. The waiver must be in the form identified in Revenue Memorandum Order No. 20-90.

a. The form may be reproduced by the BIR office concerned but there should be no deviation from such form.

b. The phrase "but not after_19_" should be filled up. This indicates the expiry date of the period agreed upon
to assess/collect the tax after the regular three (3)-year period of prescription.

C. The period agreed upon shall constitute the time within which to effect the assessment/collection of the
tax in addition to the ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.

3. After the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official
authorized by him shall sign the waiver indicating that the BIR has accepted and agreed to the waiver.
4. The date of such acceptance by the BIR should be indicated.

5. Both the date of execution by the taxpayer and date of acceptance by the BIR should be before the expiration
of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is
executed.

6. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case,
the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original copy.

7. The above procedures shall be strictly followed.

On August 2, 2001, the BIR issued Revenue Delegation of Authority No. 05-01 amending the authority of the revenue
officials to sign and accept the waiver. In addition, Revenue Delegation of Authority Order No. 05-01 requires that the
authorized revenue official shall ensure that the waiver is duly accomplished and signed by the taxpayer or his
authorized representative before affixing his signature to signify acceptance of the same. In case the authority is
delegated by the taxpayer to a representative, the concerned revenue official shall see to it that such delegation is in
writing and duly notarized. The waiver shall not be accepted by the concerned BIR office and official unless duly
notarized.
Notably, Revenue Delegation of Authority Order No. 05-01 makes as an additional requirement that the delegation of
authority by the taxpayer to a representative to sign the waiver must be in writing and duly notarized. In addition, the
waiver itself must also be notarized before it may be accepted by the BIR or its officials.

The requirement that the delegation of authority to a representative of the taxpayer must be notarized is emphasized
by the Supreme Court in Commissioner of Internal Revenue v. Kudos Metal Corporation (G.R. No. 178087, May 5,
2010) when the Supreme Court invalidated the waiver for failure to comply to such requirement.

The procedures set forth in Revenue Memorandum Order No. 20-90 are not merely directory but must be carefully and
strictly construed. (Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, December 16,
2004) The prescriptive period on when to assess taxes benefits both the government and the taxpayer. Exceptions
extending the period to assess must, therefore, be strictly construed. (Commissioner of Internal Revenue v. Kudos
Metal Corporation, G.R. No. 178087, May 5, 2010)

Effect of a Defective Waiver

A waiver that does not comply with the procedures set forth in Revenue Memorandum Order No. 20-90 and Revenue
Delegation of Authority Order No. 05-01 is an incomplete and defective waiver. The waiver document that is incomplete
and defective does not toll or extend the three (3)-year prescriptive period. (Philippine Journalists, Inc. v. Commissioner
of Internal Revenue, G.R. No. 162852, December 16, 2004) A defective waiver does not validly. extend the original
three (3)-year prescriptive period. (Commissioner of Internal Revenue v. FMF Development Corporation, G.R. No.
167765, June 30, 2008)

The taxpayer has the primary responsibility for the proper preparation of the waiver of the prescriptive period for
assessing deficiency taxes. Hence, the Commissioner of Internal Revenue may not be blamed for any defects in the
execution of the waiver. (Asian Transmission Corporation v. Commissioner of Internal Revenue, G.R. No. 230861,
September 19, 2018)

Thus, an assessment issued after the 3-year period that was not extended due to an incomplete and defective waiver
is a null and void assessment for having been issued beyond the prescriptive period. In essence, the government losses
its right to assess after the 3-year period.

Estoppel in Period of Prescription

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company (G.R. No. L-11527, November 25, 1958), the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription against the efforts of the
government to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied as an
exception to the statute of limitations on collection of taxes and not on the assessment of taxes, as the BIR was able
to make an assessment within the prescribed period. More important, there was a finding that the taxpayer made
several requests or positive acts to convince the government to postpone the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second final return filed on
November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment, respondent requested
for at least one year within which to pay the amount assessed although it reserved its right to question the
correctness of the assessment before actual payment. Petitioner granted an extension of only three months.
When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28,
1950 demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a
reinvestigation and reconsideration of the assessment. When this request was denied, respondent again
requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was
appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953 to
July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26,
1955. This is the ruling which is now being questioned after a protracted negotiation on the ground that the
collection of the tax has already prescribed.

In Kudos Metal Corporation, the doctrine of estoppel was not applied an exception to the statute of limitations on the
assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the
BIR must strictly follow. As often declared by the Supreme Court, the doctrine of estoppel is predicated on, and has its
origin in, equity which, broadly defined, is justice according to natural law and right. (La Naval Drug Corporation v.
Court of Appeals, G.R. No. 103200, August 31, 1994) As such, the doctrine of estoppel cannot give validity to an act
that is prohibited by law or one that is against public policy. (Ouano v. Court of Appeals, G.R. No. 129279, March 4,
2003) It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the
administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them
requirements of the transactions in which they originate. (C & S Fishfarm Corporation v. Court of Appeals, G. R. No.
122720, December 16, 2002) Simply put, the doctrine of estoppel must be sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO
05 01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was
given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent
of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame
to the taxpayer. (Commissioner of Internal Revenue v. Kudos Metal Corporation, G.R. No. 178087, May 5, 2010)

To stress, a waiver of the statute of limitations, being a derogation of the taxpayer's right to security against prolonged
and unscrupulous investigations, must be carefully and strictly construed. (Philippine Journalists, Inc. v. Commissioner
of Internal Revenue, G.R. No. 162852, December 16, 2004)

Simply, under the principle of estoppel, the party who caused the defect and infirmity of the waiver shall not be allowed
to assail or challenge the validity of the waiver.

Effect If the Government and Taxpayer are In Pari Delicto in the Execution of Waiver of the Statute of
Limitation

Latin for "in equal fault," in pari delicto connotes that two or more people are at fault or are guilty of a crime. Neither
courts of law nor equity will interpose to grant relief to the parties, when an illegal agreement has been made, and
both parties stand in pari delicto. (Constantino v. Heirs of Constantino, Jr., G.R. No. 181508, October 2, 2013)

In tax cases specifically in the execution of waiver, in pari delicto means the government and the taxpayer are both at
fault and responsible in causing the incompleteness and defect of a waiver.

The issue now is if both the government and the taxpayer are at fault resulting to the incomplete and defective waiver,
what is the status of the waiver and the assessment arising from such waiver?

This was answered by the Supreme Court in Commissioner of Internal Revenue u. Next Mobile, Inc. (formerly Nextel
Communications Phils., Inc.) (G.R. No. 212825, December 7, 2015). In this case, the BIR and the taxpayer knew the
defect and infirmities of the waiver and yet they continued dealing with each other. The Supreme Court thus ruled:

"To be sure, both parties in this case are at fault.

Here, respondent, through Sarmiento, executed five Waivers in favor of petitioner. However, her authority to sign these
Waivers was not presented upon their submission to the BIR. In fact, later on, her authority to sign was questioned by
respondent itself, the very same entity that caused her to sign such in the first place. Thus, it is clear that respondent
violated RMO No. 20-90 which states that in case of a corporate taxpayer, the waiver must be signed by its responsible
officials and RDAO 01 05 which requires the presentation of a written and notarized authority to the BIR.

Similarly, the BIR violated its own rules and was careless in performing its functions with respect to these Waivers. It
is very clear that under RDAO 05-01, it is the duty of the authorized revenue official to ensure that the waiver is duly
accomplished and signed by the taxpayer or his authorized representative before affixing his signature to signify
acceptance of the same. It also instructs that in case the authority is delegated by the taxpayer to a representative,
the concerned revenue official shall see to it that such delegation is in writing and duly notarized. Furthermore, it
mandates that the waiver should not be accepted by the concerned BIR office and official unless duly notarized.

Vis-a-vis the five Waivers it received from respondent, the BIR has failed, for five times, to perform its duties in relation
thereto: to verify Ms. Sarmiento's authority to execute them, demand the presentation of a notarized document
evidencing the same, refuse acceptance of the Waivers when no such document was presented, affix the dates of its
acceptance on each waiver, and indicate on the Second Waiver the date of respondent's receipt thereof.

Both parties knew the infirmities of the Waivers yet they continued dealing with each other on the strength of these
documents without bothering to rectify these infirmities. In fact, in its Letter Protest to the BIR, respondent did not
even question the validity of the Waivers or call attention to their alleged defects.
In this case, respondent, after deliberately executing defective waivers, raised the very same deficiencies it caused to
avoid the tax liability determined by the BIR during the extended assessment period. It must be remembered that by
virtue of these Waivers, respondent was given the opportunity to gather and submit documents to substantiate its
claims before the CIR during investigation. It was able to postpone the payment of taxes, as well as contest and
negotiate the assessment against it. Yet, after enjoying these benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its favor. In other words, respondent's act of impugning these
Waivers after benefiting therefrom and allowing petitioner to rely on the same is an act of bad faith.

On the other hand, the stringent requirements in RMO 20-90 and RDAO 05-01 are in place precisely because the BIR
put. them there. Yet, instead of strictly enforcing its provisions, the BIR defied the mandates of its very own issuances.
Verily, if the BIR was truly determined to validly assess and collect taxes from respondent after the prescriptive period,
it should have been prudent enough to make sure that all the requirements for the effectivity of the Waivers were
followed not only by its revenue officers but also by respondent. The BIR stood to lose millions of pesos in case the
Waivers were declared void, as they eventually were by the CTA, but it appears that it was too negligent to even
comply with its most basic requirements.

The BIR's negligence in this case is so gross that it amounts to malice and bad faith. Without doubt, the BIR knew that
waivers should conform strictly to RMO 20-90 and RDAO 05-01 in order to be valid. In fact, the mandatory nature of
the requirements, as ruled by this Court, has been recognized by the BIR itself in its issuances such as Revenue
Memorandum Circular No. 6-2005, among others. Nevertheless, the BIR allowed respondent to submit, and it duly
received, five defective Waivers when it. was its duty to exact compliance with RMO 20-90 and RDAO 05-01 and follow
the procedure dictated therein. It even openly admitted that it did not require respondent to present any notarized
authority to sign the questioned Waivers. The BIR failed to demand respondent to follow the requirements for the
validity of the Waivers when it had the duty to do so, most especially because it had the highest interest at stake. If it
was serious in collecting taxes, the BIR should have meticulously complied with the foregoing orders, leaving no stone
unturned.

The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No. 20-
90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, due to its
peculiar circumstances, We shall treat this case as an exception to this rule and find the Waivers valid for the reasons
discussed below.

First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two parties to a
controversy are equally culpable or guilty and they shall have no action against each other. However, although the
parties are in pari delicto, the Court may interfere and grant relief at the suit of one of them, where public policy
requires its intervention, even though the result may be that a benefit will be derived by one party who is in equal guilt
with the other.

Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the
principle that taxes are the lifeblood of the government. and their prompt and certain availability is an
imperious need. Taxes are the nation's lifeblood through which government agencies continue to operate
and which the State discharges its functions for the welfare of its constituents. As between the parties,
it would be more equitable if petitioner's lapses were allowed to pass and consequently uphold the
Waivers in order to support this principle and public policy.

Second, the Court has repeatedly pronounced that parties must come to court with clean hands. Parties who do not
come to court with clean hands cannot be allowed to benefit from their own wrongdoing. Following the foregoing
principle, respondent should not be allowed to benefit from the flaws in its own. Waivers and successfully insist on
their invalidity in order to evade its responsibility to pay taxes.

Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has repeatedly
held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for assessment
of taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application of estoppel
in this case would promote the administration of the law, prevent injustice and avert the accomplishment of a wrong
and undue advantage. Respondent executed five Waivers and delivered them to petitioner, one after the other. It
allowed petitioner to rely on them and did not raise any objection against their validity until petitioner assessed taxes
and penalties against it. Moreover, the application of estoppel is necessary to prevent the undue injury that the
government would suffer because of the cancellation of petitioner's assessment of respondent's tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after
voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other hand,
the BIR miserably failed to exact from respondent compliance with its rules. The BIR's negligence in the performance
of its duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was so lax such that it seemed
that it consented to the mistakes in the Waivers. Such a situation is dangerous and open to abuse by unscrupulous
taxpayers who intend to escape their responsibility to pay taxes by mere expedient of hiding behind technicalities.

It is true that petitioner was also at fault here because it was careless in complying with the requirements of
RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the
provisions imposing administrative liabilities upon the officers responsible for these errors. The BIR's right to
assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers,
especially in cases like this where the taxpayer is obviously in bad faith."

From the foregoing, when the government and the taxpayer are in pari delicto, public policy dictates that the
validity of the waiver must be upheld resulting to a valid extension of the period of prescription to make an
assessment.

RMO No. 14-2016 repealed RMO No. 20-90

Exactly twenty-six (26) years after the issuance of Revenue Memorandum Order No. 20-90, the BIR issued Revenue
Memorandum Order No. 14-2016 on April 4, 2016 revising the guidelines relative to the execution of waiver of the
statute of limitations under Section 222 in relation to Section 203 of the Tax Code.

Revenue Memorandum Order No. 14-2016 repealed Revenue Memorandum Order No. 20-90 and Revenue Delegation
of Authority Order No. 05-01 which imposed the very strict requirements for a valid waiver. Revenue Memorandum
Order No. 14-2016 was issued because of a rampant practice by the taxpayers to contest the validity of their own
waivers of the statute of limitations after having been availed of the benefits thereof. Thus, the BIR sees a clear
necessity to revise the procedures provided for the execution of such waivers.

Under Revenue Memorandum Order No. 14-2016, the following relaxed guidelines shall now govern the execution of
waiver of the statute of limitations:

1. The waiver may be, but not necessarily, in the form prescribed by Revenue Memorandum Order No. 20-90 or
Revenue Delegation of Authority Order No. 05-01. The taxpayer's failure to follow the aforesaid forms does not
invalidate the executed waiver, for as long as the following are complied with:

a. The Waiver of the Statute of Limitations under Section 222(b) and (d) shall be executed before the
expiration of the period to assess or to collect taxes. The date of execution shall be specifically indicated in
the waiver.

b. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.

C. The expiry date of the period agreed upon to assess/ collect the tax after the regular three (3)-year period
of prescription should be indicated.

2. Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the waiver need not specify
the particular taxes to be assessed nor the amount thereof, and it may simply state "all internal revenue taxes"
considering that during the assessment stage, the Commissioner of Internal Revenue or his duly authorized
representative is still in the process of examining and determining the tax liability of the taxpayer.

3. Since the taxpayer is the applicant and the executor of the extension of the period of limitation for its benefit in
order to submit the required documents and accounting records, the taxpayer is charged with the burden of ensuring
that the waivers of statute of limitation are validly executed by its authorized representative. The authority of the
taxpayer's representative who participated in the conduct of audit or investigation shall not be thereafter contested to
invalidate the waiver.
4. The waiver may be notarized. However, it is sufficient that the waiver is in writing as specifically provided by the
NIRC, as amended.

5. Considering that the waiver is a voluntary act of the taxpayer, the waiver shall take legal effect and be binding on
the taxpayer upon its execution thereof.

6. It shall be the duty of the taxpayer to submit its duly. executed waiver to the Commissioner of Internal Revenue or
official previously designated in existing issuances or the concerned revenue district officer or group supervisor as
designated in the Letter of Authority/Memorandum of Assignment who shall then indicate acceptance by signing the
same. Such waiver shall be executed and duly accepted prior to the expiration of the period to assess or to collect. The
taxpayer shall have the duty to retain a copy of the accepted waiver.

7. Note that there shall only be two (2) material dates that need to be present on the waiver:

a. The date of execution of the waiver by the taxpayer or its authorized representative; and
b. The expiry date of the period the taxpayer waives the statute of limitations.

8. Before the expiration of the period set on the previously executed waiver, the period earlier set may be extended
by subsequent written waiver made in accordance with Revenue Memorandum Order No. 14-2016.

Notably, the burden of ensuring the validity of the waiver of the statute of limitation now rests with the taxpayer. Thus,
as it stands now, the taxpayer should focus not only on the procedural or technical issues but also on the merits or the
strength of its substantive factual and legal bases against a tax assessment of the BIR.

Revenue Memorandum Circular No. 141-2019

On December 20, 2019, the BIR issued Revenue Memorandum Circular No. 141-2019 reiterating the salient points
arising from Revenue Memorandum Order No. 14-2016 on the proper execution of waivers of defense of prescription.
While it is premised as a "reiteration" of the procedures laid down by Revenue Memorandum Order No. 14-2016, it
appears that Revenue Memorandum Circular No. 141-2019 now provides for the recent BIR guidelines on the proper
execution of waiver of defense of prescription.

Under Revenue Memorandum Circular No. 141-2019, the new guidelines are:

a. The waiver is a unilateral and voluntary undertaking which shall take legal effect and be binding on the
taxpayer immediately upon his execution thereof.
b. The waiver need not specify the type of taxes to be assessed nor the amount thereof.
c. It is no longer required that the delegation of authority to
d. a representative be in writing and notarized. The taxpayer cannot seek to invalidate his waiver by contesting
the authority of his own representative.
e. It is the duty of the taxpayer to submit his waiver to the BIR officials prior to the expiration of the period
to assess or to collect, as the case may be.
f. In addition to the previously authorized officials, the RDO or Group Supervisor as designated in the Letter
of Authority or Memorandum of Assignment can accept the waiver.
g. The date of acceptance of the BIR officer is no longer required to be indicated for the waiver's validity.
h. The taxpayer shall have the duty to retain a copy of the submitted waiver.
i. Notarization of the waiver is not a requirement for its validity.
j. There is no strict format for the waiver. The taxpayer may utilize any form with no effect on its validity.

As stated, it is clearly apparent that the taxpayer is charged with the burden of ensuring that the waiver is validly
executed when submitted to the BIR. Thus, the taxpayer must ensure that the waiver is (1) executed before the
expiration of the period to asses or to collect taxes, (2) indicates the expiry date of the extended period, (3) indicates
the type of tax (for waiver of the prescriptive period to collect); and (4) is signed by his authorized representative.

Suspension of Running of Statute of Limitations

The 3-year or 10-year period to make an assessment and the beginning of a distraint or levy proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period in the following instances:
 a. During which the Commissioner is prohibited from making the assessment;
b. Beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter;
c. When the taxpayer requests for a reinvestigation which is granted by the Commissioner; and
d. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is
being assessed or collected.

If the taxpayer informs the Commissioner of Internal Revenue of any change in address, the running of the statute of
limitations will not be suspended when:

a. The warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and
b. No property could be located; and when the taxpayer is out of the Philippines. (Section 223, NIRC)

In case of estate tax and when the estate requests for an extension of payment of taxes, the running of the statute of
limitations for assessment as provided in Section 203 of the Tax Code shall be suspended for the period of such
extension. (Section 91(B), NIRC)

Jeopardy Assessment

Jeopardy assessment refers to a tax assessment which was assessed without the benefit of complete or partial audit
by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will
be jeopardized by delay because of the taxpayer's failure to comply with the audit and investigation requirements to
present his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or
credits claimed in his return. (Section 3, Revenue Regulations No. 30-2002).

GENERAL BIR TAX AUDIT PROCESS

In the conduct of tax assessment, the BIR generally follows the following tax audit process:

a. Issuance of Letter of Authority (LOA);

b. Conduct of Audit Examination;
c. Reporting of Results of Examination through issuance of Notice of Informal Conference (NIC);
d. Issuance of Preliminary Assessment Notice (PAN);
e. Issuance of Formal Letter of Demand and Final Assessment Notice (FLD/FAN); and
f. Issuance of Final Decision on Disputed Assessment (FDDA).

ISSUANCE OF LETTER OF AUTHORITY

Letter of Authority

A Letter of Authority (LOA) is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of account and other accounting records
of a taxpayer for the purpose of collecting the correct amount of tax. A LOA is premised on the fact that the examination
of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his
duly authorized representatives. (Medicard Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 222743,
April 5, 2017; Commissioner of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 12, 2010)

A LOA is the authority given to the appropriate revenue officer to examine the books of account and other accounting
records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities and for the purpose of
collecting the correct amount of tax, in accordance with Section 5 of the Tax Code, which gives the CIR the power to
obtain information, to summon/examine, and take testimony of persons. The LOA commences the audit process and
informs the taxpayer that it is under audit for possible deficiency tax assessment. (Commissioner of Internal Revenue
v. De La Salle University, Inc., G.R. No. 196596, 198841, & 198941, November 9, 2016)

A Revenue Officer assigned to perform assessment functions in any district may, pursuant to a LOA issued by the
Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct
amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could
have been performed by the Revenue Regional Director himself. (Section 13, NIRC)
On May 12, 2010, the BIR issued Revenue Memorandum Order No. 44-2010 mandating the issuance of an electronic
LOA (e-LOA). Thus, starting taxable year 2011, BIR will no longer issue manually prepared LOA.

Issuance and Approval of LOA

Revenue Memorandum Order No. 44-2010 dated May 12, 2010 provides the following BIR officials authorized to issue,
sign, and approve the LOA:

Investigating Office Approving Official

Revenue District Office Regional Director
LTS and its Divisions Assistant Commissioner (ACIR) -LTS
Enforcement Services and its Division Deputy Commissioner - Legal and Inspection Group
(DCIR LIG)
Task Forces and Special Teams Commissioner of Internal Revenue, or any other
authorized official

Requisites of a Valid LOA

The LOA to be valid must comply with the following requisites:

a. The electronic LOA shall bear the name, designation and electronic signature of the approving BIR official;
b. The serial number of an electronic LOA shall be system generated, while the date of the LOA shall reflect
the date when it was printed. All electronic LOAs shall be printed in triplicate;
c. The names of the Revenue Officers (ROS) assigned to a particular case shall be printed on the corresponding
electronic LOA. The first name of the space provided shall be the lead RO;
d. The tax types and taxable period to be covered by the audit shall be reflected on the electronic LOA;
e. The basis for the audit (i.e. regular audit program, special audit, etc.) shall be indicated in the LOA;
f. Any manually written character (alphabetical or numeric), notation erasure shall render the LOA invalid;
g. The electronic LOA shall contain a notation stating that the taxpayer is requested to verify the validity of
the LOA with authorized BIR official, at the address and contact information provided therein. (Revenue
Memorandum Order No. 44-2010)

Period Covered by LOA

Section C of Revenue Memorandum Order No. 43-90 provides that "a LOA should cover a taxable period not exceeding
one taxable year. The practice of issuing LOAs covering audit of unverified prior years is hereby prohibited. If the audit
of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in
the LOA." (Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941,
November 9, 2016)

As required by Revenue Memorandum Order No. 44-2010, the taxable period to be covered by the audit shall be
reflected on the e-LOA.

As explained in De La Salle University, Inc., what Section C of Revenue Memorandum Order No. 43-90 clearly prohibits
is the practice of issuing LOAS covering audit of unverified prior years. Revenue Memorandum Order No. 43-90 does
not say that a LOA which contains unverified prior years is void. It merely prescribes that if the audit includes more
than one taxable period, the other periods or years must be specified. The provision read as a whole. requires that if
a taxpayer is audited for more than one taxable year, the BIR must specify each taxable year or taxable period on
separate LOAS.

Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer
of the extent of the audit and the scope of the revenue officer's authority. Without this rule, a revenue officer can
unduly burden the taxpayer by demanding random accounting records from random unverified years, which may
include documents from as far back as ten (10) years in cases of fraud audit.

Thus, if a LOA is issued, for example for the year ending 2003 and unverified prior years, the LOA does not strictly
comply with Revenue Memorandum Order No. 43-90 because it includes unverified prior years. This does not mean,
however, that the entire LOA is void. The LOA is valid only for taxable year 2003. If an assessment is issued for taxable
years 2001 and 2002, the assessments are void for having been unspecified on separate LOAS as required under
Revenue Memorandum Order No. 43-90.

Service and Revalidation of LOA

The LOA must be served or presented to the taxpayer within thirty (30) days from its date of issue; otherwise it
becomes null and void, unless revalidated. The taxpayer has the right to refuse its service if presented beyond the 30-
day period depending on the policy set up by management. Revalidation is done by issuing a new LOA or by just simply
stamping the words "Revalidated" on the face of the copy of the LOA issued. (Revenue Audit Memorandum Order No.
01-00)

Furthermore, the General Audit Procedures and Documentation of the BIR explicitly states that a LOA must be served
to the concerned taxpayer within thirty (30) days from the date of issuance, otherwise, it shall become null and void.
The taxpayer shall then have the right to refuse the service of this LOA, unless the LOA is revalidated.

Revenue Memorandum Order No. 43-90 and Revenue Audit Memorandum Order Nos. 1-00 and 2-95 clearly mandate
that an audit should be conducted under a LOA and that it must be served on the subject taxpayer within thirty (30)
days from date of issue lest the authority becomes null and void. The terms "should" and "must" are couched in a way
that clearly impose a duty that is imperative and mandatory in nature. A deviation from these obviously renders the
result of the audit and examination defective.

A LOA not served to the taxpayer within thirty (30) days becomes null and void, unless revalidated. A LOA can be
revalidated through the issuance of a new LOA. (Revenue Memorandum Order No. 38-88; Dakay Construction and
Development Corporation v. Commissioner of Internal Revenue, CTA Case No. 8265, March 26, 2015) Revalidation can
be done only once if the LOA was issued by the Regional Office and twice if issued by the National Office.

However, pursuant to Operations Memorandum No. 26-2020 dated March 2, 2020, if the issued LOA has not yet been
served to the taxpayer and the 30-day period to serve it has lapsed, the original LOA shall be cancelled, and a new
LOA shall be issued. In case the issued LOA has been served or presented to the taxpayer beyond the 30-day period,
the original LOA must be retrieved from the taxpayer. The taxpayer shall be informed of its cancellation and the
issuance of replacement LOA.

LOA Distinguished from a Letter Notice

As stated, an LOA is the authority given to the appropriate revenue officer to examine the books of account and other
accounting records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities and for the
purpose of collecting the correct amount of tax, in accordance with Section 5 of the Tax Code, which gives the
Commissioner the power to obtain information, to summon/examine, and take testimony of persons. The LOA
commences the audit process and informs the taxpayer that it is under audit for possible deficiency tax assessment.
(Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. No. 196596, 198841, & 198941, November 9,
2016)

On the other hand, a Letter Notice (LN) is issued to a person found to have underreported sales/receipts per data
generated under the Reconciliation of Listing for Enforcement (RELIEF) system. Upon receipt of the LN, a taxpayer
may avail of the BIR's Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said
program, the BIR may avail of administrative and criminal remedies, particularly closure, criminal action, or audit and
investigation. (Revenue Regulations No. 12-2002)

In summary, the following are differences between a LOA and LN:

a. First, an LOA addressed to a revenue officer is specifically required under the NIRC before an examination
of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the
taxpayer that a discrepancy is found based on the BIR'S RELIEF System;

b. Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation; and
 c. Third, an LOA gives the revenue officer only a period of 120 days from receipt of LOA by the taxpayer to
conduct his examination whereas an LN does not contain such a limitation. (Medicard Philippines, Inc. v.
Commissioner of Internal Revenue, G.R. No. 222743, April 5, 2017)

An LN cannot substitute for a LOA. Absence of a LOA makes the assessment unauthorized and thus, void. This is
despite the prior issuance of an LN. The BIR's failure to issue a LOA constitutes a violation of due process and is
considered fatal to the tax audit.

The BIR must issue a LOA prior to issuing a PAN, a FAN, or an FDDA to the taxpayer; otherwise, the assessment is
rendered void for lack of due process.

In Commissioner of Internal Revenue v. Sony Philippines, Inc. (G.R. No. 178697, November 17, 2010), the Supreme
Court ruled that there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the
absence of such an authority, the assessment or examination is a nullity.

Conversion of LN to LOA

In the event a taxpayer who has been issued an LN refutes the discrepancies shown in the LN, the concerned taxpayer
will be given an opportunity to reconcile its records with those of the BIR within one hundred twenty (120) days from
the date of issuance of the LN. However, the subject taxpayer shall no longer be entitled to the abatement of interest
and penalties after the lapse of the 60-day period from LN issuance.

In case the discrepancies remained unresolved at the end of 120-day period, the revenue officer assigned to handle
the LN shall recommend the issuance of LOA to replace the LN. (Revenue Memorandum Order No. 32-2005)

CONDUCT OF AUDIT EXAMINATION

After the LOA has been served to the taxpayer, the BIR officer can now conduct the audit examination.

Period of Investigation

Previously under the BIR's General Audit Procedures and Documentation, the Revenue Officer is allowed only one
hundred twenty (120) days from the date of receipt of a LOA by the taxpayer to conduct the audit and submit the
required report of investigation. If the Revenue Officer is unable to submit his final report of investigation within the
one hundred twenty (120)-day period, he must then submit a progress report to his head of office and is different from
revalidation of a LOA due to failure to serve the LOA to the taxpayer within thirty (30) days from its issuance.

The revalidation of a LOA shall give rise to the extension of the period within which the Revenue Officer assigned to
the case shall submit the report of investigation to higher authorities for review and approval, without the imposition
of applicable administrative sanctions. Depending on the classification of the pending tax case, said extension period
shall be equivalent to the original prescribed number of days within which to report the case under existing revenue
issuances. Failure on the part of the Revenue Officer to request for the revalidation of the LOA or the expiration of the
"revalidation period" does not nullify the LOA nor will it affect or modify the rules on the reglementary period within
which an assessment may be validly issued. However, this shall be considered as a ground for the imposition of
disciplinary action and demerit in the performance rating of the concerned Revenue Officer, including the reassignment
of the case to another RO if the Regional Director, upon the recommendation of the Revenue District Officer, deems it
necessary. (Revenue Memorandum Circular No. 23-2009)

Beginning June 1, 2010, the rule on the need for revalidation. of LOAS for failure of the revenue officials to complete
the audit within the prescribed period was withdrawn. Accordingly, there is no need for revalidation of the LOA even if
the prescribed audit period has been exceeded. However, the failure of the Revenue Officer to complete the audit
within the prescribed period is subject to the applicable administrative sanctions. (Revenue Memorandum Order No.
44-2010)

On September 15, 2015, the BIR issued Revenue Memorandum Order No. 19-2015 which provides the new periods for
the Revenue Officer to conduct and complete the examination. The Revenue Officer has one hundred eighty (180)
days for regional cases and two hundred forty (240) days for large taxpayer cases from the date of receipt of letter of
authority by the taxpayer to conduct the audit and submit the required report. Failure to complete within the period of
examination shall subject the Revenue Officer to applicable administrative sanctions.

Failure to Obey Summons

One of the powers of the Commissioner in ascertaining the correctness of the return in the conduct of the audit is to
summon the person liable for tax or required to file a return to appear at a time and place specified in the summons
and to produce such books, papers, records, or other data, and to give testimony. (Section 5(C), NIRC)

When the LOA is served to the taxpayer, it usually contains a checklist of requirements or list of documents and records
that the taxpayer must produce and submit to the BIR for the conduct of the audit. The taxpayer must submit the
documents within the time stated in the checklist of requirements. Request for extension of time to submit the
documents and records is allowed and usually entertained by the BIR.

If the taxpayer fails to submit the documents and records, the BIR usually issues a Second and Final Notice to submit
the documents. This time, a new period is given to the taxpayer to submit the documents with a warning that failure
to do so would result to issuance of a subpoena duces tecum. It is upon neglect to comply with the Second and Final
Notice that the BIR is prompted to issue a more coercive notice, i.e., the subpoena duces tecum.

If a person is summoned to appear to testify, or to appear and produce books of accounts, records, memoranda, or
other papers, or to furnish information, he must appear and testify or produce the books or accounts or records at the
date, time, and place stated in the subpoena.

If a person summoned neglects to appear or to produce such books of accounts, records, memoranda or other papers,
or to furnish such information he may be held criminally liable and if convicted, he shall be punished by a fine of not
less P5,000.00 but not more than P10,000.00. In addition, he shall suffer imprisonment of not less than one (1) year
but not more than two (2) years. (Section 266, NIRC) If the taxpayer is a corporation, an association or a general co-
partnership, there shall be imposed an additional fine of not less than P50,000.00 but not more than P100,000.00.

When the taxpayer refuses to comply with the subpoena duces tecum, the concerned BIR legal office shall file a criminal
case against the taxpayer for violation of Section 5 in relation to Sections 14 and 266 of the NIRC and/or initiate a
proceeding to cite the taxpayer for contempt, under Section 3(f), Rule 71 of the Revised Rules of Court.

If the taxpayer subsequently requests for the dismissal of the cases filed in court and submits the requested
information, the concerned BIR office shall concur with such request for dismissal upon the submission of the requested
documents/s and the payment of penalty by the taxpayer of P10,000.00 for the delayed compliance and violation of
pertinent provisions of the revenue regulations. (Revenue Memorandum Order No. 45-2010)

Under Revenue Memorandum Order No. 45-2010, the dismissal of the case filed in court may be made upon agreement
of the taxpayer and the BIR and on the condition that the documents requested are submitted and the penalty of
P10,000.00 is paid.

However, under Revenue Memorandum Order No. 10-2013 issued on April 17, 2013, it is now mandated that once the
Complaint Affidavit has been filed for violation of Section 266 of the NIRC, no prosecuting officer of the BIR shall cause
the withdrawal or dismissal of the case, notwithstanding the subsequent submission of documents indicated in the
subpoena duces tecum. Thus, subsequent compliance with the subpoena duces tecum and payment of penalty shall
not cause the dismissal or withdrawal of the case against a negligent taxpayer.

Frequency of Taxpayer's Examination

As a rule, the taxpayer's books of accounts and accounting records shall be examined and inspected by the BIR for
income tax purposes only once in a taxable year. As an exception, examination can be made more than once in the
following cases:

a. Fraud, irregularity, or mistakes, as determined by the Commissioner;

b. The taxpayer requests reinvestigation;
c. Verification of compliance with withholding tax laws and regulations;
d. Verification of capital gains tax liabilities; and
In the exercise of the Commissioner's power under Section 5(B) to obtain information from other persons in which
case, another or separate examination and inspection may be made. (Section 235, NIRC)

Previously, taxpayers are seldom audited for two (2) consecutive years. However, at present, taxpayers may be
subjected to three (3) consecutive years of audit. As a relief, Revenue Memorandum Order No. 19-2015 provides that
if the taxpayer has been audited for the last two (2) years and has been again selected for audit on the current or third
(3rd) year, the BIR office concern shall submit a written explanation to the Commissioner as to why such taxpayer
shall be subjected to audit for three (3) succeeding years, unless

the BIR office concern has established that such taxpayer has an under declaration of sales/income or overstatement
of expenses/ deductions by at least thirty (30%) (prima facie evidence of fraud). The deficiency assessment on these
cases is imposed with a fifty percent (50%) surcharge.

Revenue Memorandum Order No. 19-2015 was amended by Revenue Memorandum Order No. 64-2016 which now
requires that if the taxpayer has been audited for the last two (2) years and has been selected for audit on the current
or third (3rd) year, the BIR office concern shall encode right away the requested audit of the subject taxpayer in
eLAMS/eTIS-CMS which shall be approved by the Regional Director/Assistant Commissioner who heads the
investigating office. The Selection Code shall depend on the reason why the taxpayer has been selected. Further, the
deficiency assessment on these cases shall only be imposed with twenty-five percent (25%) surcharge unless the under
declaration of income or overstatement of expenses/deductions reaches thirty (30%) or more which shall be imposed
with fifty percent (50%) surcharge.

Preservation of Books and Accounts and Other Accounting Records

The taxpayer shall preserve and keep all of its books of accounts, including the subsidiary books and other accounting
records of corporations, partnerships, or persons until the last day prescribed by Section 203 of the NIRC, or until three
(3) years, within which the Commissioner is authorized to make an assessment. (Section 235, NIRC) This period may
however extend to ten (10) years in cases covered by Section 222 of the NIRC or in cases of assessment arising from
fraudulent return, false return, or failure to file a return.

Under Revenue Regulations No. 17-2013 issued on September 27, 2013, all taxpayers are required to preserve their
books of accounts, including subsidiary books and other accounting records, for a period of ten (10) years reckoned
from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the
return, for the taxable year when the last entry was made in the books of accounts.

The term "last entry" refers to particular business transaction or an item thereof that is entered or posted last or latest
in the books of accounts when the same was closed.

On July 30, 2014, the BIR issued Revenue Regulations No. 5-2014, amending Revenue Regulations No. 17-2013.
Revenue Regulations No. 5-2014 retains the ten (10)-year period to preserve the books of accounts and accounting
records but now requires that within the first five (5) years, the taxpayer shall retain hardcopies of the books of
accounts and accounting records. Thereafter, the taxpayer may retain only an electronic copy of the hardcopy (paper)
of the books of accounts and accounting records in an electronic storage system which complies with the requirements
set forth under Revenue Regulations No. 5-2014.

REPORTING OF RESULTS OF EXAMINATION

After the audit is completed and the findings internally reviewed by the BIR, the BIR cannot immediately proceed with
the collection of deficiency taxes found during the audit. The BIR must inform the taxpayer of the result of the audit
examination and the taxpayer must be given an opportunity to refute or challenge the findings of the audit examination.
At this stage, the taxpayer's remedies come into play.

Tax assessments must observe the due process requirements of tax assessment. The taxpayer must be informed of
the nature of the assessment as well as the legal and factual bases thereof. Part of the due process requirement is the
opportunity given to the taxpayer to answer or dispute the assessment both in the administrative stage and the judicial
stage. Any violation of the due process requirement renders the assessment void.

Due process in the issuance of a deficiency tax assessment requires the BIR to issue:
 a. Notice of Informal Conference (NIC);
b. Preliminary Assessment Notice (PAN);
c. Formal Assessment Notice/Formal Letter of Demand (FAN/FLD); and
d. Final Decision on Disputed Assessment (FDDA).

Notice of Informal Conference

After the conclusion of the audit of the BIR, the taxpayer shall be informed of the result of audit or the findings of the
examining revenue officer. This is usually done through the issuance of a Notice of Informal Conference (NIC). This is
the first time that the taxpayer is informed of the result of the audit and the deficiency taxes found during the audit.

An NIC is a written notice informing a taxpayer of the findings of the audit conducted on his books of accounts and
accounting records and indicate that additional taxes or deficiency assessments have to be paid.

Under Revenue Regulations No. 12-99 dated September 14, 1999, the Revenue Officer who audited the taxpayer's
records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer
is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Revenue Officer's submitted
report of investigation, the taxpayer shall be informed, in writing of the discrepancy or discrepancies in the taxpayer's
payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to afford the taxpayer with
an opportunity to present his side of the case. This notice is the NIC.

Further under Revenue Regulations No. 12-99, if the taxpayer fails to respond within fifteen (15) days from date of
receipt of the notice for informal conference, he shall be considered in default, in which case, the issuance of the PAN
shall be recommended.

In Commissioner of Internal Revenue v. Fitness By Design Inc., (G.R. No. 215957, November 9, 2016), the Supreme
Court upheld the declaration of the Court of Tax Appeals that the assessment is invalid because of, among others,
failure of the BIR to issue an NIC as an indispensable requirement of due process. Note that the assessment in Fitness
By Design was issued during the effectivity of Revenue Regulations No. 12-99.

On November 28, 2013, the BIR issued Revenue Regulations No. 18-2013 removing the NIC as part of the due process
requirement in the issuance of deficiency tax assessment.

Thereafter on January 22, 2018, the BIR issued Revenue Regulations No. 7-2018 restoring the issuance of the NIC as
once again part of the due process requirement in the issuance of deficiency tax assessment. Revenue Regulations No.
7-2018 took effect on February 16, 2018. Noticeably, Revenue Regulations No. 7-2018 provides that the

informal conference shall not extend beyond thirty (30) days from the taxpayer's receipt of the NIC. This is a new
requirement because Revenue Regulations No. 12-99 did not expressly provide for the period within which the informal
conference may extend.

There is no issue if after the informal conference, the taxpayer is amenable to the findings of the BIR. When the
taxpayer agrees with the findings, he will be required to pay the deficiency taxes and the audit/assessment is deemed
terminated.

When the taxpayer is found to be still liable for deficiency taxes after presenting his side or if the taxpayer is not
amenable, the case will be endorsed to the Assessment Division of the Revenue Regional Office or to the Commissioner
or his duly authorized representative within seven (7) days from conclusion of the informal conference for issuance of
a deficiency tax assessment or the PAN.

As to whether the issuance of NIC is mandatory part of the due process requirement in the issuance of deficiency
assessment, the date on when the assessment is issued must be ascertained. If the assessment is issued during the
effectivity of Revenue Regulations 12-99, i.e., from September 14, 1999 up to November 27, 2013, the issuance of NIC
is mandatory as part of the due process requirements. On the other hand, if the assessment is issued during the
effectivity of Revenue Regulations No. 18-2013, i.e., from November 28, 2013 up to February 15, 2018, the issuance
of NIC is not required. Finally, if the assessment is issued during the effectivity of Revenue Regulations No. 7-2018,
i.e., from February 16, 2018 onwards, the issuance of NIC is once again mandatory as part of the due process
requirements.
Preliminary Assessment Notice

A Preliminary Assessment Notice (PAN) is a communication issued by the Regional Assessment Division, or any other
concerned BIR Office, informing a taxpayer who has been audited of the findings of the Revenue Officer, following the
review of these findings. A PAN is issued when the taxpayer disagrees with the findings of the Revenue Officer as
discussed during the informal conference.

A PAN does not bear the gravity of a formal assessment notice. A PAN merely gives a tip regarding the BIR's findings
against a taxpayer for an informal conference or a clarificatory meeting. (Commissioner of Internal Revenue v.
Menguito, G.R. No. 167560, September 17, 2008)

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment
is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations
that taxpayers should be able to present their case and adduce supporting evidence. (Commissioner of Internal
Revenue u. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010 citing Ang Tibay u. Court of Industrial
Relations, 69 Phil. 635)

It is clear that the sending of a PAN to a taxpayer to inform him of the assessment made is but part of the "due process
requirement in the issuance of a deficiency tax assessment," the absence of which renders nugatory any assessment
made by the tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the
service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and
the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of the
taxpayer's right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the
assessment was made as required by Section 228 of R.A. No. 8424, the assessment is void. (Commissioner of Internal
Revenue v. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010)

NIC and PAN are part of due process. They give both the taxpayer and the Commissioner the opportunity to settle the
case at the earliest possible time without the need for the issuance of a Final Assessment Notice. (Commissioner of
Internal Revenue v. Avon Products Manufacturing, Inc., G.R. Nos. 201398-99 & 201418 19, October 3, 2018)

Requisites of a Valid PAN

To be valid, the PAN must be in writing and shall show in detail the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based. The PAN must also be signed by duly authorized personnel
of the BIR. (Section 2, Revenue Regulations No. 18-2013)

Exceptions to the Issuance of PAN

Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any of the following cases:

a. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
appearing on the face of the tax return filed by the taxpayer; or

b. When a discrepancy has been determined between the tax withheld and the amount actually remitted by
the withholding agent; or

C. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

d. When the excise tax due on excisable articles has not been paid; or

e. When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

In the above-cited cases, a FLD/FAN shall be issued outright. (Section 228, NIRC; Section 2, Revenue
Regulations No. 18-2013)
Reply to PAN

As part of due process, the taxpayer is given the right to be heard upon the issuance of the PAN. The taxpayer has
fifteen (15) days from the date of receipt of the PAN to respond thereto by filing a reply. If the taxpayer, within fifteen
(15) days from date of receipt of the PAN, responds that he disagrees with the findings of deficiency tax or taxes, an
FLD/FAN shall be issued within fifteen (15) days from filing/submission of the taxpayer's response, calling for payment
of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.

The failure of the taxpayer to respond within fifteen (15) days from date of receipt of the PAN shall make him in default,
in which case, a Formal Letter of Demand and Final Assessment Notice

(FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties. (Section 2, Revenue Regulations No. 18-2013) Failure to file a reply to the PAN does not make the assessment
final and demandable. It simply makes the taxpayer in default and results to the immediate issuance of FLD/FAN.

The 15-day period to file a reply to the PAN is mandatory and non-extendible. While the issuance by the BIR of the
PAN is mandatory part of due process, the taxpayer's reply against the PAN is optional or not mandatory. (Revenue
Memorandum Order No. 26 2016)

Non-observance of the 15-day period to protest the PAN and the issuance of the FAN prior to the
taxpayer's receipt of the PAN violates its right to due process

In Commissioner of Internal Revenue v. Metro Star Superama, Inc. (G.R. No. 185371, December 8, 2010), the Supreme
Court emphasized the importance of complying with the requirement to send a PAN to the taxpayer as an integral part
of due process in the issuance of a deficiency tax assessment. It then declared in no uncertain terms that the failure
of the Commissioner to strictly comply with the requirements laid down by law and its own rules is a denial of Metro
Star's right to due process. Undeniably, providing the taxpayer with a copy of the PAN is meaningless to the concept
of due process if, after all, his right to respond to it within the prescribed period would be ignored.

In several cases, the CTA has declared void any assessment that fails to comply with the due process requirement. In
A Brown Co., Inc. v. Commissioner of Internal Revenue (CTA Case No. 6357, June 7, 2004), the CTA ruled that an
assessment is void because of the multiple violations of due process committed by the BIR. The violations include,
among others: (1) issuance of the final assessment only four (4) days after the issuance of the PAN; and (2) the lack
of opportunity given to the taxpayer to reply to the PAN within fifteen (15) days from its receipt.

Similarly, in Puratos Philippines, Inc. v. Commissioner of Internal Revenue (CTA Case No. 6980, October 4, 2010), the
CTA ruled that given the FAN was issued on the same day Puratos Philippines received the PAN, it is evident that
Commissioner violated the provisions of Section 228 of the NIRC of 1997, as well as

of the provisions of Revenue Regulations Nos. 12-85 and 12-99 and Revenue Memorandum Order No. 37-94, which
give the taxpayer a period of 15 days within which to reply to the PAN. Further, the CTA ruled that even assuming that
there was an informal conference that took place between Puratos Philippines and the Commissioner, and that during
the conference and even thereafter, Puratos Philippines, through its counsel, requested a copy of the FAN, the fact
remains that as indicated in the FAN, it was issued on the same day the PAN was received by Puratos Philippines.
Clearly, Puratos Philippines was denied its right to due process.

In Yumex Philippines Corporation v. Commissioner of Internal Revenue (CTA Case No. 8331, 28 November 2013), the
assessments were cancelled on the ground of non-observance by the Commissioner of the 15-day period granted to
the taxpayer to respond to the PAN.

Formal Letter of Demand and Final Assessment Notice

A Formal Letter of Demand and Formal Assessment Notice (FLD/FAN) shall be issued whether the taxpayer filed a reply
or not to the PAN. If the taxpayer responds to the PAN within fifteen (15) days from receipt of the PAN that he/it
disagrees with the findings of deficiency taxes, an FLD/FAN shall be issued within fifteen (15) days from filing or
submission of the reply.
A notice of assessment is a declaration of deficiency taxes issued to a taxpayer who fails to respond to the PAN within
the prescribed period of time, or whose reply to the PAN was found to be without merit. The notice of assessment shall
inform the taxpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the
audit shall be given due course.

The formal letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the fact, the law,
rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and
the notice of assessment shall be void. (Commissioner of Internal Revenue v. Enron Subic Power Corporation, G.R. No.
166387, January 19, 2009)

Requisites of a Valid FLD/FAN

An FLD/FAN shall be issued by the Commissioner of Internal Revenue or his duly authorized representative. The
FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall

state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the
assessment shall be void. (Revenue Regulations No. 18-2013)

The FLD/FAN shall be in writing which contains the legal and factual bases of the tax assessment made against the
taxpayer. The use of the word "shall" in these legal provisions indicates the mandatory nature of the requirements laid
down therein. (Commissioner of Internal Revenue v. Enron Subic Power Corporation, G.R. No. 166387, January 19,
2009)

In Commissioner of Internal Revenue v. United Salvage and Towage (Phils.) Inc. (G.R. No. 197515, July 2, 2014), the
Supreme Court invalidated the assessment for failure of the BIR to comply with the mandatory notice in writing of the
legal and factual bases of the assessment.

In Commissioner of Internal Revenue v. Enron Subic Power Corporation (G.R. No. 166387, January 19, 2009), the
Supreme Court disagreed with the BIR and declared that the advice of tax deficiency, given by the Commissioner to
an employee of Enron, as well as the preliminary 5-day letter, were not valid substitutes for the mandatory notice in
writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the
Commissioner's duties in correctly assessing a taxpayer. The requirement of issuing a preliminary or final notice, as
the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the Commissioner issued an advice, a preliminary letter
during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron
was informed of the law and facts on which the deficiency tax assessment was made.

The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and
Revenue Regulations No. 12-99 would be rendered nugatory. The alleged "factual bases" in the advice, preliminary
letter and "audit working papers" did not suffice. There was no going around the mandate of the law that the legal
and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment
notice.

The reason for requiring that taxpayers should be informed in writing of the facts and law on which the assessment is
made is the constitutional guarantee that no person shall be deprived of his property without due process of law.
Merely notifying the taxpayer of its tax liabilities without elaborating on its details is insufficient. (Commissioner of
Internal Revenue v. Liquigaz Philippines Corp., G.R. Nos. 215534 & 215557, April 18, 2016)

FLD/FAN Must Contain a Demand for Payment and with Definite Due Dates

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed
period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the
taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the
taxpayer. Thus, the NIRC imposes a twenty five percent (25%) penalty, in addition to the tax due, in case the taxpayer
fails to pay deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest
of twenty (20%) per annum, or such higher rates as may be prescribed by rules and regulations, is to be collected
from the date prescribed for its payment until the full payment. (Commissioner of Internal Revenue v. Pascor Realty
and Development Corporation, G.R. No. 128315, June 29, 1999)
It must be emphasized that it is not enough that the FLD/ FAN contains a demand for payment. To reiterate, an
assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period.
The requirement to indicate a fixed and definite period within which a taxpayer must pay the tax deficiencies is vital to
the validity of the assessment. An assessment notice, to be valid, must indicate a fixed and definite period within which
a taxpayer must pay the tax deficiency. (Commissioner of Internal Revenue v. San Miguel Foods, Inc., CTA EB No.
1880, August 6, 2019)

In Commissioner of Internal Revenue v. Fitness By Design, Inc. (G.R. No. 215957, November 9, 2016), the Supreme
Court emphasized the importance of the issuance of a valid formal assessment, i.e., it must demand payment of the
taxes described within a specific period. As ruled by the Supreme Court, the issuance of a valid formal assessment is
a substantive prerequisite for collection of taxes.

Neither the NIRC nor the revenue regulations provide for a "specific definition or form of an assessment." However,
the NIRC defines its explicit functions and effects. An assessment does not only include a computation of tax liabilities;
it also includes a demand for payment within a period prescribed. Its main purpose is to determine the amount that a
taxpayer is liable to pay.

Assessment containing an indefinite amount of tax liability is void.

In Alphaland Makati Place, Inc. v. Commissioner of Internal Revenue (CTA Case No. 9609, January 15, 2020), the BIR
issued an FLD which states, among others, "Please take note that the interest will have to be adjusted if paid beyond
November 20, 2015." In declaring that the FLD is void, the CTA held that a careful reading of the foregoing would
reveal that the subject tax assessment lacks the definite amount of tax liabilities for which Alphaland is accountable.
By stating that the interest will still "be adjusted if paid beyond November 20, 2015," the amount thereof remains
indefinite, since the said tax assessment is still subject to modification or adjustment, depending on the date of payment
by Alphaland. Simply, an assessment where the amount of tax liability is indefinite is void.

Substantial Compliance with the Requirements of Section 228 of NIRC

The requirement of providing the taxpayer with written notice of the facts and law used as basis for the assessment is
not to be mechanically applied. Emphasis on the purpose of the written notice is important. The requirement should
be in place so that the taxpayer could be adequately informed of the basis of the assessment enabling him to prepare
an intelligent protest or appeal on the assessment or decision.

However, substantial compliance with the requirements of Section 228 of the Tax Code may be allowed depending on
the circumstances present. In Samar-I Electric Cooperative v. Commissioner of Internal Revenue (G.R. No. 193100,
December 10, 2014), the Supreme Court elaborated:

"The above information provided to petitioner enabled it to protest the PAN by questioning respondent's interpretation
of the laws cited as legal basis for the computation of the deficiency withholding taxes and assessment of minimum
corporate

income tax despite petitioner's position that it remains exempt therefrom. In its letter-reply dated May 27, 2002,
respondent answered the arguments raised by petitioner in its protest, and requested it to pay the assessed deficiency
on the date of payment stated in the PAN. A second protest letter dated June 23, 2002 was sent by petitioner, to which
respondent replied (letter dated July 8, 2002) answering each of the two issues reiterated by petitioner: (1) validity of
EO 93 withdrawing the tax exemption privileges under PD 269; and (2) retroactive application of RR No. 8-2000. The
FAN was finally received by petitioner on September 24, 2002, and protested by it in a letter dated October 14, 2002
which reiterated in lengthy arguments its earlier interpretation of the laws and regulations upon which the assessments
were based.

Although the FAN and demand letter issued to petitioner were not accompanied by a written explanation of the legal
and factual bases of the deficiency taxes assessed against the petitioner, the records showed that respondent in its
letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length the factual
and legal bases of the deficiency tax assessments and denying the protest.

Considering the foregoing exchange of correspondence and documents between the parties, we find that the
requirement of Section 228 was substantially complied with. Respondent had fully informed petitioner in writing of the
factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an "effective" protest, much
unlike the taxpayer's situation in Enron. Petitioner's right to due process was thus not violated."

Thus, substantial compliance with the requirement under Section 228 of the NIRC is permissible, provided that the
taxpayer would be eventually apprised in writing of the factual and legal bases of the assessment to allow him to file
an effective protest. (Commissioner of Internal Revenue v. Liquigaz Philippines Corp., G.R. Nos. 215534 & 215557,
April 18, 2016)

Quasi-Judicial Power of the Commissioner or His Authorized Representative

In deciding on the taxpayer's protest, the Commissioner exercises an administrative adjudicatory power or quasi-judicial
function in adjudicating the rights and liabilities of persons under the Tax Code. Quasi-judicial power has been described
as the power of the administrative agency to adjudicate the rights of persons

before it. It is the power to hear and determine questions of fact to which the legislative policy is to apply and to decide
in accordance with the standards laid down by the law itself in enforcing and administering the same law. The
administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially
of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably necessary
for the performance of the executive or administrative duty entrusted to it.

In carrying out these quasi-judicial functions, the Commissioner is required to "investigate facts or ascertain the
existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial. nature." Tax investigation and assessment necessarily demand the observance of
due process because they affect the proprietary rights of specific persons.

The principle of due process furnishes a standard to which. governmental action should conform in order to impress it
with the stamp of validity. Fidelity to such standard must of necessity be the overriding concern of government agencies
exercising quasi-judicial functions. Although a speedy administration of action implies a speedy trial, speed is not the
chief objective of a trial. Respect for the rights of all parties and the requirements of procedural due process equally
apply in proceedings before administrative agencies with quasi-judicial perspective in administrative decision making
and for maintaining the vision which led to the creation of the administrative office.

In Ang Tibay v. The Court of Industrial Relations, the Supreme Court observed that although quasi-judicial agencies
"may be said to be free from the rigidity of certain procedural requirements, it does not mean that it can, in justiciable
cases coming before it, entirely ignore or disregard the fundamental and essential requirements of due process in trials
and investigations of an administrative character." It then enumerated the fundamental requirements of due process
that must be respected in administrative proceedings:

(1) The party interested or affected must be able to present his or her own case and submit evidence in
support of it.
(2) The administrative tribunal or body must consider the evidence presented.
(3) There must be evidence supporting the tribunal's decision.
(4) The evidence must be substantial or "such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion."
(5) The administrative tribunal's decision must be rendered on the evidence presented, or at least contained
in the record and disclosed to the parties affected.
(6) The administrative tribunal's decision must be based on the deciding authority's own independent
consideration of the law and facts governing the case.
(7) The administrative tribunal's decision is rendered in a manner that the parties may know the various issues
involved and the reasons for the decision. (Commissioner of Internal Revenue v. Avon Products Manufacturing,
Inc., G.R. Nos. 201398-99, October 03, 2018)

The above requirements are the same standards that the Commissioner must observe and comply in the exercise of
his quasi judicial power in deciding the protest on the assessment.

When is an Assessment Made or Deemed Made

The assessment is deemed made when the notice to this effect is released, mailed, or sent to the taxpayer for the
purpose of giving effect to said assessment. The assessment is made when sent within the prescribed period even if
received by the taxpayer after its expiration. (Bautista and Corrales Tan v. Collector of Internal Revenue, G.R. Nos. L-
12250 & L-12259, May 27, 1959; Basilan Estates v. Commissioner of Internal Revenue, G.R. No. L-22492, September
5, 1967)

Under Section 203 of the National Internal Revenue Code, the Commissioner had three (3) years from the last day for
the filing of the return to send an assessment notice to petitioner. In the case of Collector of Internal Revenue v.
Bautista (105 Phil. 1326), it was held that an assessment is made within the prescriptive period if notice to this effect
is released, mailed, or sent by the CIR to the taxpayer within said period. Receipt thereof by the taxpayer within the
prescriptive period is not necessary. At this point, it should be clarified that the rule does not dispense with the
requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice
which was timely released, mailed, and sent. (Barcelon, Roxas Securities v. Commissioner of Internal Revenue, G.R.
No. 157064, August 7, 2006)

In the case of Nava v. Commissioner of Internal Revenue (G.R. No. L-19470, January 30, 1965), the Supreme Court
stressed on the importance of proving the release, mailing or sending of the notice. The Supreme Court instructs:

"While we have held that an assessment is made when sent within the prescribed period, even if received by the
taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it
the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere
notations made without the taxpayer's intervention, notice, or control, without adequate supporting evidence, cannot
suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.

In the present case, the evidence offered by the respondent fails to convince this Court that Formal Assessment Notice
No. FAN-1-87-91-000649 was released, mailed, or sent before 15 April 1991, or before the lapse of the period of
limitation upon assessment and collection prescribed by Section 203 of the NIRC. Such evidence, therefore, is
insufficient to give rise. to the presumption that the assessment notice was received in the regular course of mail.
Consequently, the right of the government to assess and collect the alleged deficiency tax is barred by prescription."

It must be noted that the requirement of the law is that the assessment must be released within the prescriptive period.
The assessment is deemed made when notice to this effect is released, mailed or sent by the BIR to the taxpayer and
it is not required that the notice be received by the taxpayer within the prescriptive period. (Basilan Estate, Inc. v.
Commissioner of Internal Revenue, G.R. No. L-22492, September 5, 1967 citing Collector of Internal Revenue v.
Bautista, L-12250 & L-12259, May 27, 1959)

Service of assessment by mail is allowed under existing rules and regulations and considering the period it takes before
the taxpayer may receive the assessment, it is possible that the receipt thereof may happen beyond the prescriptive
period. While the BIR enjoys the presumption of regularity in the performance of official functions, this presumption is
rebuttable. The burden to prove that the assessment was released prior to the expiration of the prescriptive period is
shifted to the BIR when the taxpayer has presented competent evidence showing otherwise.

FAN/FLD Must Be Issued within the Prescriptive Period of Assessment

Bear in mind that what must be released or sent to the taxpayer within the prescriptive period (three (3) years, ten
(10) years, or period under a valid waiver) is the FAN, not the LOA, NIC, nor the PAN. The assessment is deemed made
only when the FAN is released, mailed, or sent to the taxpayer for the purpose of giving effect to said assessment.
Again, what is important is the release, sending or the mailing of the FAN not the receipt thereof by the taxpayer within
the prescriptive period.

As clearly explained by the Supreme Court in Commissioner of Internal Revenue v. Transitions Optical Philippines, Inc.
(G.R. No. 227544, November 22, 2017):

"Considering the functions and effects of a PAN vis a vis a FAN, it is clear that the assessment
contemplated in Sections 203 and 222 of the National Internal Revenue Code refers to the
service of the FAN upon the taxpayer.

A PAN merely informs the taxpayer of the initial findings of the Bureau of Internal Revenue. It contains the
proposed assessment, and the facts, law, rules, and regulations or jurisprudence on which the proposed
assessment is based. It does not contain a demand for payment but usually requires the taxpayer to reply
 within 15 days from receipt. Otherwise, the Commissioner of Internal Revenue will finalize an assessment and
issue a FAN.

The PAN is a part of due process. It gives both the taxpayer and the Commissioner of Internal Revenue the
opportunity to settle the case at the earliest possible time without the need for the issuance of a FAN.

On the other hand, a FAN contains not only a computation of tax liabilities but also a demand for payment
within a prescribed period. As soon as it is served, an obligation arises on the part of the taxpayer concerned
to pay the amount assessed and demanded. It also signals the time when penalties and interests begin to
accrue against the taxpayer. Thus, the National Internal Revenue Code imposes a 25% penalty, in addition
to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment
in the notice of assessment. Likewise, an interest of 20% per annum, or such higher rate as may be prescribed
by rules and regulations, is to be collected from the date prescribed for payment until the amount is fully paid.
Failure to file an administrative protest within 30 days from receipt of the FAN will render the assessment
final, executory, and demandable.".

Issuance of Final Decision on Disputed Assessment

When the taxpayer files a protest, either through reinvestigation or reconsideration, against an assessment, the
assessment becomes a "disputed assessment." In this regard, the Commissioner or his duly authorized representative
has a duty to resolve and decide on the disputed assessment. This decision is called the "Final Decision on Disputed
Assessment."

Requisites of a Valid FDDA

Revenue Regulations No. 12-99 provides that the decision of the Commissioner or his duly authorized representative
shall state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, and
that the same is his final decision. If the decision does not comply with the above requirements otherwise, the decision
shall be void. In which case, such decision shall not be considered a decision on a disputed assessment. Note that this
requirement is similar to that of the FLD/FAN and failure to comply shall render the FLD/FAN void.

The requirements of a valid FDDA are emphasized by the Supreme Court in Commissioner of Internal Revenue v.
Liquigaz Philippines Corporation (G.R. Nos. 215534 & 215557, April 18, 2016), to state:

"Meanwhile, Section 3.1.6 of RR No. 12-99 specifically requires that the decision of the CIR or his duly
authorized representative on a disputed assessment shall state the facts, law and rules and regulations, or
jurisprudence on which the decision is based. Failure to do so would invalidate the FDDA.

The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the requirement of
informing the taxpayer of the legal and factual bases of the assessment and the decision made against him
is mandatory. The requirement of providing the taxpayer with written notice of the factual and
legal bases applies both to the FLD/FAN and the FDDA.

Section 228 of the NIRC should not be read restrictively as to limit the written notice only to the assessment itself. As
implemented by RR No. 12-99, the written notice requirement for both the FLD and the FAN is in observance of due
process - to afford the taxpayer adequate opportunity to file a protest on the assessment and thereafter file an appeal
in case of an adverse decision.

To rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file an intelligent appeal before the
CTA as they would be unaware on how the CIR or his authorized representative appreciated the defense raised in
connection. with the assessment. On the other hand, it raises the possibility that the amounts reflected in the FDDA
were arbitrarily made if the factual and legal bases thereof are not shown."

A Void FDDA Does Not Ipso Facto Render the Assessment Void

A void FDDA does not ipso facto render the assessment void. In so explaining, the Supreme Court in Liquigaz Philippines
Corporation states:
"The CIR and Liquigaz are at odds with regards to the effect of a void FDDA. Liquigaz harps that a void FDDA will lead
to a void assessment because the FDDA ultimately determines the final tax liability of a taxpayer, which may then be
appealed before the CTA. On the other hand, the CIR believes that a void FDDA does not ipso facto result in the
nullification of the assessment.

In resolving the issue on the effects of a void FDDA, it is necessary to differentiate an "assessment" from a "decision."
In St. Stephen's Association v. Collector of Internal Revenue, the Court has long recognized that a "decision" differs
from an "assessment," to wit:

In the first place, we believe the respondent court erred in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days
prescribed by Section 11 of Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is
not liable therefor, the assessment becomes

a "disputed assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax
Appeals only upon receipt of the decision of the Collector on the disputed assessment, in accordance with
paragraph (1) of section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax
Appeals to review "decisions of the Collector of Internal Revenue in cases involving disputed assessment... "

The difference is likewise readily apparent in Section 7 of R.A. 1125, as amended, where the CTA is conferred with
appellate jurisdiction over the decision of the CIR in cases involving disputed assessments, as well as inaction of the
CIR in disputed assessments. From the foregoing, it is clear that what is appealable to the CTA is the "decision" of the
CIR on disputed assessment and not the assessment itself.

An assessment becomes a disputed assessment after a taxpayer has filed its protest to the assessment
in the administrative level. Thereafter, the CIR either issues a decision on the disputed assessment or fails to act
on it and is, therefore, considered denied. The taxpayer may then appeal the decision on the disputed assessment or
the inaction of the CIR. As such, the FDDA is not the only means that the final tax liability of a taxpayer is fixed, which
may then be appealed by the taxpayer. Under the law, inaction on the part of the CIR may likewise result in the finality
of a taxpayer's tax liability as it is deemed a denial of the protest filed by the latter, which may also be appealed before
the CTA.

Clearly, a decision of the CIR on a disputed assessment differs from the assessment itself. Hence, the invalidity of one
does not necessarily result to the invalidity of the other unless the law or regulations otherwise provide.

Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not informed in writing of the law
and the facts on which it is based. It is, however, silent with regards to a decision on a disputed assessment by the
CIR which fails to state the law and facts on which it is based. This void is filled by RR No. 12-99 where it is stated that
failure of the FDDA to reflect the facts and law on which it is based will make the decision void. It, however, does not
extend to the nullification of the entire assessment."

Authorized Signatories of NIC, PAN, FLD/FAN, and FDDA

The NIC shall be issued and signed by the Revenue District Officer, or the Chief of Special Investigation Division (in
the case of Regional Offices) or Chief of Division (in case of the BIR National Office). (Revenue Regulations No. 7-
2018)

The PAN, FLD/FAN, and FDDA, on the other hand, shall be issued and signed by the Commissioner or his duly authorized
representative. The term "duly authorized representative" refers to (1) Revenue Regional Directors; (2) Assistant
Commissioner - Large Taxpayers Service; and (3) Assistant Commissioner Enforcement and Advocacy Services.
(Revenue Memorandum Circular No. 11 2014)

Mode of Service of PAN/FLD/FAN/FDDA

The notice (PAN/FLD/FAN/FDDA) to the taxpayer may be served by the Commissioner or his duly authorized
representative through (1) Personal Service; (2) Substituted Service; or (3) Service by Mail.
Personal Service

Personal service is done by delivering personally a copy of the notice to the party at his registered or known address
or wherever he may be found. A "known address" shall mean a place other than the registered address where business
activities of the party are conducted or his place of residence.

In case personal service is not practicable, the notice shall be served by substituted service or by mail. Thus, the BIR
officer must first resort to personal service in delivering the notices. It is only when personal service is not practicable
that resort to substituted service or service by mail may be availed.

Substituted Service

Substituted service can be resorted to when the party is not present at the registered or known address under the
following circumstances:

a. The notice may be left at the party's registered address, with his clerk or with a person having charge
thereof.

b. If the known address is a place where business activities of the party are conducted, the notice may be left
with his clerk or with a person having charge thereof.

C. If the known address is the place of residence, substituted service can be made by leaving the copy with
a person of legal age residing therein.

d. If no person is found in the party's registered or known address, the revenue officers concerned shall bring
a barangay official and two (2) disinterested witnesses to the address so that they may personally observe
and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be
contained in the bottom portion of the notice, as well as the names, official position and signatures of the
witnesses.

Should the party be found at his registered or known address or any other place but refuse to receive the notice, the
revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses in the presence of the
party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said
barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official
position, and signatures of the witnesses.

"Disinterested witnesses" refers to persons of legal age other than employees of the BIR.

Service by Mail

Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the
party with instruction to the postmaster to return the mail to the sender after ten (10) days, if undelivered. A copy of
the notice may also be sent through reputable professional courier service. If no registry or reputable professional
courier service is available in the locality of the addressee, service may be done by ordinary mail.

The server shall accomplish the bottom portion of the notice. He shall also make a written report under oath before a
Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the
manner, place and date of service, the name of the person/barangay official/professional courier service company who
received the same and such other

relevant information. The registry receipt issued by the post office or the official receipt issued by the professional
courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing
and shall be attached to the case docket.

Service to the tax agent/practitioner, who is appointed by the taxpayer under circumstances prescribed in the pertinent
regulations on accreditation of tax agents, shall be deemed service to the taxpayer. (Revenue Regulations No. 18-
2013)

Service to Improper Address

When the taxpayer had informed the BIR of its new address and despite this fact, the BIR still served the notice of
assessment in the old address, there is a failure to properly serve a notice of assessment. As a result, the period to
assess is not tolled and the right of the government to assess had prescribed. (Commissioner of Internal Revenue v.
Bank of the Philippine Islands, as liquidator of Paramount Acceptance Corporation, G.R. No. 135446, September 23,
2003)

COLLECTION

The second tax remedy of the government is collection of taxes. In general, the modes of collection of taxes depends
on whether the tax is a delinquent tax or a deficiency tax.

A delinquent tax is (1) a self-assessed tax by the taxpayer but is not paid at all or only partially paid, or (2) a deficiency
tax assessed by the BIR that becomes final and demandable.

A deficiency tax, on the other hand, is (1) the amount by which the tax imposed by Tax Code as determined by the
Commissioner or his duly authorized representative exceeds the amount shown as tax by the taxpayer upon his return,
or (2) if no amount is shown as tax by the taxpayer upon his return is made by the taxpayer, then the amount by
which the tax exceeds the amounts previously assessed or collected without assessment as deficiency.

Delinquent taxes may be collected by the BIR through the administrative action or judicial action. Administrative action
includes issuance of warrant of distraint and/or levy of properties. Judicial action is through the filing of civil or criminal
action. These remedies may be pursued simultaneously by the BIR. However, the remedies of distraint and levy shall
not be availed of where the amount of tax involved is not more than P100.00. (Section 205, NIRC)

The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject
of the criminal case as finally decided by the Commissioner. As explained in Joel Mendez v. People of the Philippine
(CTA EB Crim. No. 014, December 12, 2012), the CTA En Banc affirmed the decision of the CTA Second Division and
held that while an assessment is not required in the prosecution of the criminal case, the final determination of the
Commissioner as to the tax liability is necessary in order for the court to rule on the civil liability. However, in this case,
the prosecution presented no assessment, or any computation made by the Commissioner which can be a proper basis
of the grant of civil liabilities sought by the prosecution. Instead, what the prosecution presented are estimates made
only by an Revenue Officer. Without an assessment or any computation of an amount finally determined by the
Commissioner, there can be no basis for ruling on the civil liability of the accused.

For deficiency tax, the BIR can also resort to administrative action or judicial action which includes issuance of warrant
of distraint and/or levy of properties and the filing of civil or criminal action. However, unlike in delinquency tax, the
collection of deficiency tax must go through the process of assessment with the taxpayer given the opportunity to
protest the same.

Prescriptive Period of Collection

The prescriptive period of collection and its reckoning point depend on how the assessment was made, viz:

a. Collection Under Ordinary Circumstance - Under Section 203 of the Tax Code, an assessment may be made
within three (3) years from the deadline of filing or the date of actual filing of the return, whichever is later.
Section 203 expressly provides that no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period. Thus, under the Section 203, collection may be made even
without an assessment for a period of three (3) years or during the period the government is allowed to make
an assessment. After the expiration of the three (3)-year period, judicial collection is not allowed if there is
no made. Noticeably, Section 203 of the Tax Code does not provide for the prescriptive period of collection
unlike in Section 222 where a five (5)-year period is stated. Tax authorities and literature are in conflict as to
the period to collect under the ordinary circumstances. Is it three (3) years, five (5) years, or another period?

Jurisprudence, however, provides that the period to collect under Section 203 is three (3) years from the date
the assessment is made. In Bank of the Philippine Islands v. Commissioner of Internal Revenue (G.R. No.
139736, October 17, 2005), the Supreme Court ruled that the BIR has three years, counted from the date of
actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes
later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without
 an assessment. When the BIR validly issues an assessment, within the three (3)-year period, then the BIR
has another three (3) years after the assessment within which to collect the national internal revenue tax due
thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-
year period for collection of the assessed tax begins to run on the date the assessment notice had been
released, mailed or sent by the BIR to the taxpayer.

In Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc. (G.R. No. 197515, July 2,
2014), the Supreme Court held that the statute of limitations on assessment and collection of national internal
revenue taxes was shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg. 700.
Thus, petitioner has three (3) years from the date of actual filing of the tax return to assess a national internal
revenue tax or to commence court proceedings for the collection thereof without an assessment. However,
when it validly issues an assessment within the three (3)-year period, it has. another three (3) years within
which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made
and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed, or sent to the taxpayer.

In the later case of Commissioner of Internal Revenue v. Standard Chartered Bank (G.R. No. 192173, July 29,
2015), it was held that the period for Commissioner to assess and collect an internal revenue tax is limited
only to three (3) years by Section 203 of the NIRC of 1997, as amended.

b. Collection Under Extraordinary Circumstance In case of a false or fraudulent return with intent to evade tax
or of failure to file a return, Section 222(c) of the Tax Code provides that any internal revenue tax which has
been assessed may be collected by distraint or levy or by a proceeding in court within five (5) years after the
assessment is made. When the BIR chooses to proceed with the collection in court without an assessment,
the prescriptive period shall be ten (10) years after the discovery of the falsity, fraud, or omission.

c. Collection Under the Extended Period of Assessment - Section 222(b) of the Tax Code allows the
Commissioner and the taxpayer to agree in writing to extend the period of assessment. Any internal revenue
tax, which has been assessed within the period agreed upon may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the 5-year period. The
period so agreed upon may be extended by subsequent written agreements made before the expiration of
the period previously agreed upon.

Suspension of Running of Period to Collect

The running of the statute of limitations provided in Sections 203 and 222 on the making of assessment and the
beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for
the period during which:

a. the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding
in court and for sixty (60) days thereafter;

b. when the taxpayer requests for a reinvestigation which is granted by Commissioner;

C. when the taxpayer cannot be located in the address given by him in the return file upon which a tax is
being assessed or collected. If the taxpayer informs the Commissioner of any change in address, the running
of the Statute of Limitations will not be suspended;

d. when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located; and

e. when the taxpayer is out of the Philippines. (Section 223, NIRC)

Government Remedies to Enforce Tax Collection

The Tax Code provides two types of remedies to enforce the collection of unpaid taxes, to wit: (a) summary
administrative remedies, such as the distraint and/or levy of taxpayer's property; and/or (b) judicial remedies, such as
the filing of a criminal or civil action against the erring taxpayer.
Unlike summary administrative remedies, the government's power to enforce the collection through judicial action is
not conditioned upon a previous valid assessment. Section 203 and Section 222 of the Tax Code expressly allow the
institution of court proceedings for collection of taxes without assessment within 3 years from the filing of the tax
return and 10 years from the discovery of falsity, fraud, or omission, respectively. (Commissioner of Internal Revenue
v. Pilipinas Shell Petroleum Corporation, G.R. No. 197945, July 9, 2018)

Distraint of Personal Properties

Distraint means the seizure or taking of one's property in order to obtain payment of unpaid taxes. Distraint of personal
properties may either be (1) actual distraint; (2) constructive distraint; or (3) distraint of intangible properties or
garnishment.

a. Actual Distraint. The actual or physical taking of the personal property of the taxpayer by the distraining
officer to satisfy the tax liability. It is only applicable to tangible personal properties because they are the one
capable of physical taking.

b. Constructive Distraint In constructive distraint, there is no physical taking of personal property. Instead,
the taxpayer or any person having possession or control of the personal property shall be required to sign a
receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and
not to dispose of the same in any manner whatever, without the express authority of the Commissioner.

In case the taxpayer or the person having the possession and control of the property sought to be placed
under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting
the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2)
witnesses, leave a copy thereof in the premises where the property distrained is located, after which the said
property shall be deemed to have been placed under constructive distraint.

To safeguard the interest of the Government, the Commissioner may place under constructive distraint the
property of a delinquent taxpayer or any taxpayer who, in his opinion:

1. is retiring from any business subject to tax, or

2. is intending to leave the Philippines, or
3. to remove his property therefrom, or
4. to hide or conceal his property, or
5. to perform any act tending to obstruct the proceedings for collecting the tax due or which may be
due from him. (Section 206, NIRC)

c. Distraint of Intangible Properties or Garnishment. Intangible personal properties which can be subject of
garnishment are stocks and other securities, debts and credits, and bank accounts.

Procedure for Distraint and Garnishment

The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects
or other personal property distrained, a copy of which, signed by himself, shall be left

either with the owner or person from whose possession such goods, chattels, or effects or other personal property
were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to
which list shall be added a statement of the sum demanded and note of the time and place of sale.

Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon
the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued
the said stocks or securities.

Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under
his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient
authority to the person owning the debts or having in his possession or under his control any credits belonging to the
taxpayer to pay to the Commissioner the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank shall
turn over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the
Government. (Section 208, NIRC)

Sale of Personal Property Distrained

a. Notice

The personal property distrained shall be sold in a public auction. To effect this, notice of public sale shall be posted in
not less than two (2) public places in the municipality or city where the distraint is made. The notice shall specify the
time and place of sale and the articles distrained. The time of sale shall not be less than twenty (20) days after notice
to the owner or possessor of the property and the publication or posting of such notice. One place for the posting of
such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained. (Section
209, NIRC)

b. Right of Pre-Emption

Prior to the sale, the owner of the personal property may exercise his right of pre-emption. This means the owner of
the property shall

pay all the proper charges prior to the consummation of the sale. In this case, the goods or effects distrained shall be
restored to the owner. (Section 210, NIRC)

C. Public Auction

During the public auction, the following instances may happen:

a. There is a bidder and the bid is sufficient to cover the taxes and other charges;
b. There is a bidder, but the bid is not sufficient to cover the taxes and other charges; or
c. There is no bidder.

In the first case, the property shall be sold to the highest bidder. The proceeds of the sale shall be applied first to the
taxes and the charges of the sale. Any residue over and above what is required to pay the entire claim, including
expenses, shall be returned to the owner of the property sold. (Section 209, NIRC)

Within two (2) days after the sale, the officer making the same shall make a report of his proceedings in writing to the
Commissioner and shall himself preserve a copy of such report as an official record. (Section 211, NIRC)

d. Purchase of the Government

In the second and third instances, when the amount bid for the property under distraint is not equal to the amount of
the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy
may purchase the same in behalf of the national Government for the amount of taxes, penalties and costs due thereon.

Property so purchased may be resold by the Commissioner or his deputy and the net proceeds therefrom shall be
remitted to the National Treasury and accounted for as internal revenue. (Section 212, NIRC)

Levy of Real Properties

Levy means the legal seizure of real property in order to satisfy the tax liability or the unpaid tax. Unlike personal
properties, there is no risk of physical disposition, destruction, removal, or hiding of the real property.

After the expiration of the time required to pay the delinquent tax or delinquent revenue, real property may be levied
upon, before simultaneously or after the distraint of personal property belonging to the delinquent. (Section 207(B),
NIRC)

Procedure of Levying a Real Property

Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the
same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the province or city
where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent
or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the
property in question.

In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on
personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the
Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint, proceed
with the levy on the taxpayer's real property.

Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the
Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the Revenue
Regional Director may be required. by the Commissioner as often as necessary: Provided, further, That the
Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the Secretary of
Finance, upon. recommendation of the Commissioner, shall have the authority to lift warrants of levy issued in
accordance with the provisions hereof. (Section 207(B), NIRC)

Advertisement and Sale of Levied Real Property

a. Notice and Advertisement

Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a
usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a
period of a least thirty (30) days. It shall be effectuated by posting a notice at the main

entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which
the real estate lies and by publication once a week for three (3) weeks in a newspaper of general circulation in the
municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes
and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a
short description of the property to be sold. (Section 213, NIRC)

b. Right of Pre-Emption

Like in distraint of personal property, a taxpayer has also the right of pre-emption in levy of real properties. This means
at any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes,
penalties, and interest. In this case, the property shall be restored to the taxpayer.

If the taxpayer does not exercise his right of pre-emption, the sale shall proceed and shall be held either at the main
entrance of the municipal building or city hall, or in the premises to be sold, as the officer conducting the proceedings
shall determine and as the notice of sale shall specify. (Section 213, NIRC)

c. Public Auction

During the public auction, the following instances may happen:

a. There is a bidder and the bid is enough to cover the taxes and other charges;
b. There is a bidder, but the bid is not enough to cover the taxes and other charges; or
C. There is no bidder.

In the first case, the property shall be sold to the highest bidder. The proceeds of the sale shall be applied first to the
taxes and the charges of the sale. In case the proceeds of the sale exceed the claim and cost of sale, the excess shall
be turned over to the owner of the property.

Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered
upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director.
(Section 213, NIRC)

d. Forfeiture of the Government

In the second and third instance, in case there is no bidder for real property exposed for sale or if the highest bid is
for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall
declare the property forfeited to the Government in satisfaction of the claim in question and within two (2) days
thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his
office. It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such declaration
of forfeiture, to transfer the title of the property forfeited to the Government without the necessity of an order from a
competent court. (Section 215, NIRC)

e. Resale of Real Estate

The Commissioner shall have charge of any real estate obtained. by the Government of the Philippines in payment or
satisfaction of taxes, penalties or costs arising under this Code or in compromise or adjustment of any claim therefore;
and said Commissioner may, upon the giving of not less than twenty (20) days notice, sell and dispose of the same of
public auction or with prior approval of the Secretary of Finance, dispose of the same at private sale. In either case,
the proceeds of the sale shall be deposited with the National Treasury, and an accounting of the same shall be rendered
to the Chairman of the Commission on Audit. (Section 216, NIRC)

Redemption of Property Sold

Unlike in distraint of personal property, there is a right of redemption after the sale of real property or forfeiture by the
government.

Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying
to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of
delinquency to the date of sale, together with interest on said purchase price at the rate of fifteen percent (15%) per
annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the
delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has
thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by
which such property has thus

been redeemed, and said property thereafter shall be free from the lien of such taxes and penalties. (Section 214,
NIRC)

Further within one (1) year from the date of forfeiture of the government, the taxpayer, or any one for him, may
redeem said property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the
taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed,
the forfeiture shall become absolute. (Section 215, NIRC)

Further Distraint and Levy

The remedy by distraint of personal property and levy on realty may be repeated if necessary, until the full amount
due, including all expenses, is collected. (Section 217, NIRC)

Tax Lien
If a taxpayer liable to pay an internal revenue tax neglects or refuses to pay the same after demand, the amount due
shall constitute as a lien upon all property and rights to property belonging to the taxpayer in favor of the Government
of the Philippines from the time when the assessment was made by the Commissioner until paid, with interests,
penalties, and costs that may accrue.

The lien however shall not be valid against any mortgagee, purchaser or judgment creditor until notice of such lien
shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of
the taxpayer is situated or located. (Sec. 219, NIRC) This means if the lien is not registered or filed with the Registry
of Deeds, the claim of a regular mortgagee, purchaser, or judgment creditor is superior or preferred over the claim of
the government.

Judicial Action
Collection of taxes may also be through judicial action either through civil action or criminal action. Civil and criminal
actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced
by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be
conducted by legal officers of the Bureau of Internal Revenue. However, no civil or criminal action for the recovery of
taxes or the enforcement of any fine, penalty, or forfeiture under this Code shall be filed in court without the approval
of the Commissioner. (Section 220, NIRC; Republic of the Philippines v. Salud Hizon, G.R. No. 130430, December 13,
1999)

Civil Action

In Alhambra Cigar & Cigarette Mfg. Co. v. Collector (G.R. No. L-12026, May 29, 1959), it was held that a judicial action
for the collection of a tax is begun by (1) the filing of a complaint with the proper court of first instance, or (2) where
the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review
wherein payment of the tax is prayed for. The civil action may be filed before the Regional Trial Court (RTC) or the
Municipal Trial Court (MTC) depending upon the amount involved.

Criminal Action

The criminal actions that may be filed under the Tax Code are as follows:

a. Section 254 - Attempt to Evade or Defeat Tax, and

b. Section 255 Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit
Tax and Refund Excess Taxes Withheld on Compensation.

Under Sections 254 and 255 of the NIRC, the government can file a criminal case for tax evasion against any taxpayer
who willfully attempts in any manner to evade or defeat any tax imposed in the tax code or the payment thereof. The
crime of tax evasion is committed by the mere fact that the taxpayer knowingly and willfully filed a fraudulent return
with intent to evade and defeat a part or all of the tax. It is therefore not required that a tax deficiency assessment
must first be issued for a criminal prosecution for tax evasion to prosper. (Macario Lim Gar, Jr. v. Commissioner of
Internal Revenue, G.R. No. 222837, July 23, 2018)

Tax Evasion

"Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes.
(Yutivo Sons Hardware Company v. Court of Tax Appeals, G.R. No. L-13203, January 28, 1961) Tax evasion is a scheme
used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil
or criminal liabilities. (Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence 44, 2nd Edition, 2000) Tax
evasion connotes the integration of three factors:

(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or
the non payment of tax when it is shown that a tax is due:

(2) an accompanying state of mind which is described as being "evil," in "bad faith," "willful," or "deliberate
and not accidental"; and

(3) a course of action or failure of action which is unlawful. (Commissioner of Internal Revenue v. The Estate
of Benigno Toda, Jr., G.R. No. 147188, September 14, 2004)

Assessment Not Necessary Before Filing of Criminal Complaint

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued,
there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit
position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an
assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an
assessment has been made against him or her.

In contrast, the criminal charge need not go through all these.

The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been
filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint
is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code. (Commissioner of
Internal Revenue v. Pascor Realty and Development Corporation, G.R. No. 128315, June 29, 1999)

The civil action filed to question the FDDA is not deemed instituted with the criminal case for tax evasion.

Rule 111, Section 1 (a) of the Rules of Court provides that what is deemed instituted with the criminal action is only
the action to recover civil liability arising from the crime. Civil liability arising from a different source of obligation, such
as when the obligation is created by law, such civil liability is not deemed instituted with the criminal action.

It is well-settled that the taxpayer's obligation to pay the tax is an obligation that is created by law and does not arise
from the offense of tax evasion, as such, the same is not deemed instituted in the criminal case..

In the case of Republic of the Philippines v. Patanao, the Supreme Court held that:

Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not
because of any criminal act committed by him. The criminal liability arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one
of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. x x x Considering
that the Government cannot seek satisfaction of the taxpayer's civil liability in a criminal proceeding under the
tax law or, otherwise stated, since the said civil liability is not deemed included in the criminal action, acquittal
of the taxpayer in the criminal proceeding does not necessarily entail exoneration from his liability to pay the
taxes. It is error to hold, as the lower court has held that the judgment in the criminal cases Nos. 2089 and
2090 bars the action in the present case. The acquittal in the said criminal cases cannot operate to discharge
defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is
imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. Said
obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil
liability arising from crime that could be wiped out by the judicial declaration of nonexistence of the criminal
acts charged. x x x.

Further, in the more recent case of Proton Pilipinas Corp. v. Republic of the Phils., the Supreme Court ruled that:

While it is true that according to the aforesaid Section 4, of Republic Act No. 8249, the institution of the criminal action
automatically carries with it the institution of the civil action for the recovery of civil liability, however, in the case at
bar, the civil case for the collection of unpaid customs duties and taxes cannot be simultaneously instituted and
determined in the same proceedings as the criminal cases before the Sandiganbayan, as it cannot be made the civil
aspect of the criminal cases filed before it. It should be borne in mind that the tax and the obligation to pay the same
are all created by statute; so are its collection and payment governed by statute. The payment of taxes is a duty which
the law requires to be paid. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding
nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of
the criminal acts charged. Hence, the payment and collection of customs duties and taxes in itself creates civil liability
on the part of the taxpayer. Such civil liability to pay taxes arises from the fact, for instance, that one has engaged
himself in business, and not because of any criminal act committed by him. (Macario. Lim Gar, Jr. v. Commissioner of
Internal Revenue, G.R. No. 222837, July 23, 2018)

TAXPAYER'S REMEDIES

Under the Tax Code, the taxpayer's remedies are (1) administrative remedy in challenging the tax assessment; (2)
judicial appeal of tax assessment; (3) recovery of tax erroneously or illegally collected; (4) compromise of tax liability;
and (5) abatement or cancellation of tax liability.

ADMINISTRATIVE REMEDIES TO CHALLENGE THE ASSESSMENT Challenging the Validity of the LOA

When a LOA is issued, the first thing that the taxpayer should do is to check whether or not the LOA has complied with
all the requisites under the BIR rules and regulations. In addition, the taxpayer can refuse to accept the LOA if the BIR
officer serving the notice is not the one authorized as stated in the LOA or has failed to present any proof of identity
that he is in fact a BIR authorized personnel. The taxpayer should immediately file a written request for cancellation of
the LOA before the appropriate BIR revenue district office should there be irregularities noted in the LOA and the
service thereof.
Responding to the NIC

After the conclusion of the audit, the BIR issues the NIC together with the result of audit. This is the first time that the
taxpayer is informed with the deficiency taxes found by the BIR audit.

The taxpayer must attend the informal conference on the date and time stated in the notice. When the taxpayer is not
amenable to the audit findings, the taxpayer can present its arguments with the BIR together with the supporting
documents during the informal conference. This is also an opportunity for the BIR to explain its findings to the taxpayer
and evaluate the arguments presented by the taxpayer.

Reply to PAN

The due process requirement of tax assessment gives the taxpayer fifteen (15) days from the date of receipt of the
PAN to respond by filing a reply. The written reply must contain the taxpayer's objections on every item contained in
the PAN and its basis such as law, rules, and jurisprudence. If the item in the PAN is a question of fact, the taxpayer
must be able to present relevant documents in support of its objections.

Again, the filing of a reply to PAN is merely optional on the part of the taxpayer. He may or may not file a reply. If he
chooses not to file a reply, he is considered in default and the FLD/FAN shall be immediately issued.

Protesting the FLD/FAN

Upon receipt of the FLD/FAN, the taxpayer has two (2) options available. First, the taxpayer may accept the assessment
and pay the deficiency taxes and penalties thereto. Once paid, the assessment may be deemed closed and terminated.

The taxpayer may also file an administrative protest against the FLD/FAN within thirty (30) days from the receipt
thereof. If the taxpayer fails to file a valid protest against the FLD/FAN within thirty (30) days from date of receipt
thereof, the assessment shall become final, executory, and demandable. No request for reconsideration or
reinvestigation shall be granted on tax assessments that have already become final, executory, and demandable.

Types of Protest

Protest against FLD/FAN may either be a (1) request for reconsideration or (2) a request for reinvestigation. The filing
of one precludes the filing of the other remedy. These remedies may be distinguished as follows:

a. Request for reconsideration is a plea of re-evaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a question of fact or of law or both.

Request for reinvestigation, on the other hand, refers to a plea of re-evaluation of an assessment on the
basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It
may also involve a question of fact or of law or both.

b. A request for reconsideration may be availed of even without the approval of the Commissioner. A request
for reinvestigation must first be granted by the Commissioner.

C. A request for reconsideration does not suspend the running of the period of prescription to by the BIR. A
request for reinvestigation granted by the Commissioner suspends the running of the period of prescription
to collect.

d. There is no additional evidence or documents submitted to the BIR if the request is only for reconsideration.
A request for reinvestigation, when granted, gives the taxpayer additional period of sixty (60) days from filing
of the protest to submit additional supporting documents.

Requisites of a Valid Protest

For a protest to be valid and therefore merit a review and consideration of the Commissioner or his duly authorized
representative, the following requisites must be complied with:

a. The protest must be in writing;

 b. The protest must be filed within thirty (30) days from receipt of the FLD/FAN. The 30-day period is
mandatory and inextendible; and

c. The protest shall state:

i. the nature of protest, whether reconsideration or reinvestigation, specifying newly

discovered or additional evidence he intends to present if it is a request for reinvestigation,
ii. date of the assessment notice, and
iii. the applicable law, rules and regulations, orb jurisprudence on which his protest is based.

Failure to state these vital information shall render the protest void and without force and effect.

If there are several issues involved in the FLD/FAN but the taxpayer only disputes or protests against the validity of
some of the issues raised, the assessment attributable to the undisputed issue or issues shall become final, executory,
and demandable; and the taxpayer shall be required to pay the deficiency tax or taxes attributable thereto, in which
case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax or taxes, inclusive
of the applicable surcharge and/or interest.

If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable
law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the
assessment is based, the same shall be considered undisputed issue or issues, in which case, the assessment
attributable thereto shall become final, executory, and demandable; and the taxpayer shall be required to pay the
deficiency tax or taxes attributable thereto and a collection letter shall be issued to the taxpayer calling for payment of
the said deficiency tax, inclusive of the applicable surcharge and/or interest. (Revenue Regulations No. 12-99; Revenue
Memorandum Order No. 26-16; Revenue Regulations No. 18-2013)

Submission of Additional Documents

When a request for reinvestigation is made, the taxpayer must wait for a notice from the Commissioner or his duly
authorized representative that his request is granted. Once the request for reinvestigation is granted, the taxpayer
shall submit all the relevant supporting documents in support of the protest within sixty (60) days from the date of the
filing of the taxpayer's letter of protest.

Failure to submit all relevant supporting documents shall render the assessment final.

The term "relevant supporting documents" refers to those documents necessary to support the legal and factual bases
in disputing a tax assessment as determined by the taxpayer. The 60 day period for the submission of all relevant
supporting documents shall not apply to requests for reconsideration. Furthermore, the term "the assessment shall
become final" shall mean the taxpayer is barred from disputing the correctness of the issued assessment by introduction
of newly discovered or additional evidence, and the protest shall consequently be denied. (Revenue Regulations No.
18 2013)

It must be emphasized that the 60-day period is counted from the filing of the protest and not from the date of receipt
of the notice granting the request for reinvestigation. Further the grant of request for reinvestigation simply means a
valid protest is filed and the taxpayer is allowed to submit relevant supporting documents in support thereto. It should
not be construed to mean as granting the protest per se and the cancellation of the assessment.

Action of the Commissioner or His Duly Authorized Representative

The Commissioner or his duly authorized representative has one hundred eighty (180) days to decide on the protest
filed by the taxpayer. The one hundred eighty (180)-day period is counted from the receipt of the request for
reconsideration or from the submission of all relevant supporting documents if a request for reinvestigation is filed and
is granted by the Commissioner.

It is important to determine who decided or did not act on the protest filed by the taxpayer whether the Commissioner
or his duly authorized representative because this determines the remedy available to the taxpayer.

Final Decision on a Disputed Assessment (FDDA)

The decision of the Commissioner or his duly authorized representative shall state the

(i) or facts, the applicable law, rules and regulations, jurisprudence on which such decision is based, otherwise, the
decision shall be void, and

(ii) that the same is his final decision. (Revenue Regulations No. 18-2013)

Remedies of the Taxpayer on the Action or Inaction of the Commissioner or His Duly Authorized
Representative

The following are the remedies of the taxpayer on the decision or inaction of the Commissioner or his duly authorized
representative:

a. Commissioner's Duly Authorized Representative

1. Decision/Denial in whole or in part

If the protest is denied, in whole or in part, by the Commissioner's duly authorized representative, the taxpayer
may either:

(i) appeal to the CTA within thirty (30) days from date of receipt of the said decision; or
(ii) elevate his protest through request for reconsideration to the Commissioner within thirty (30)
days from date of receipt of the said decision.

No request for reinvestigation shall be allowed in administrative appeal and only issues raised in the decision
of the Commissioner's duly authorized representative shall be entertained by the Commissioner.

2. Inaction

If the protest is not acted upon by the Commissioner's duly authorized representative within one hundred
eighty (180) days counted from the date of filing of the protest in case of a request reconsideration; or from
date of submission by the taxpayer of the required documents within sixty (60) days from the date of filing
of the protest in case of a request for reinvestigation, the taxpayer may either:

(i) appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180)-day period;
or

(ii) await the final decision of the Commissioner's duly authorized representative on the disputed assessment.

b. Commissioner

1. Decision/Denial in whole or in part

If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the Commissioner,
the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said decision. Otherwise,
the assessment shall become final, executory, and demandable.

A motion for reconsideration of the Commissioner's denial of the protest or administrative appeal, as the case
may be, shall not toll the thirty (30)-day period to appeal to the CTA.

2. Inaction

If the protest or administrative appeal is not acted upon by the Commissioner within one hundred eighty (180)
days counted from the date of filing of the protest, the taxpayer may either:

(i) appeal to the CTA within thirty (30) days from after the expiration of the one hundred eighty (180)-day.
period;
 (ii) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to
the CTA within thirty (30) days after the receipt of a copy of such decision.

It must be emphasized, however, that in case of inaction on protested assessment within the 180-day period,
the option of the taxpayer to either: (1) file a petition for review with the CTA within 30 days after the
expiration of the 180-day period; or (2) await the final decision of the Commissioner or his duly authorized
representative on the disputed assessment and appeal such final decision to the CTA within 30 days after the
receipt of a copy of such decision, are mutually exclusive and the resort to one bars the application of the
other. (Revenue Regulations No. 18-2013)

The above rules are an embodiment of the previous ruling of the Supreme Court in Lascona Land Co., Inc. v.
Commissioner of Internal Revenue (G.R. No. 171251, March 5, 2012), where the

Supreme Court citing Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue (G.R. No. 168498,
April 24, 2007) held that in case the Commissioner failed to act on the disputed assessment within the 180-day period
from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals
within thirty (30) days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner
on the disputed assessments and appeal such final decision to the CTA within thirty (30) days after receipt of a copy
of such decision.

Further, in the recent case of Commissioner of Internal Revenue v. V.Y. Domingo Jewellers, Inc. (G.R. No. 221780,
March 25, 2019), the Supreme Court reiterated the three (3) options of the taxpayer to dispute an assessment, to wit:

a. If the protest is wholly or partially denied by the Commissioner or his authorized representative, then the
taxpayer may appeal to the CTA within thirty (30) days from receipt of the whole or partial denial of the
protest;

b. If the protest is wholly or partially denied by the Commissioner's authorized representative, then the
taxpayer may appeal to the Commissioner within thirty (30) days from receipt of the whole or partial denial
of the protest; and

c. If the Commissioner or his authorized representative failed to act upon the protest within one hundred
eighty (180) days from submission of the required supporting documents, then the taxpayer may appeal to
the CTA within thirty (30) days from the lapse of the 180-day period.

As can be noted, the same rule now applies to the Commissioner's duly authorized representative.

A motion for reconsideration of the denial of administrative protest does not toll the 30-day period to
appeal to the CTA.

If the FDDA denying the protest is issued by the Commissioner himself, the taxpayer should file an appeal to the Court
of Tax Appeals within thirty (30) days from date of receipt of the said decision. Filing a motion for reconsideration
before the Commissioner is not an appropriate remedy because a motion for reconsideration

of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. (Fishwealth Canning
Corporation v Commissioner of Internal Revenue, G.R. No. 179343, January 21. 2010)

Filing of Appeal to CTA Without First Contesting the FLD/FAN; Exception to the Rule

Under the doctrine of exhaustion of administrative remedies, before a party is allowed to seek the intervention of the
court, he or she should have availed himself or herself of all the means of administrative processes afforded him or
her.

Section 228 of the Tax Code requires taxpayers to exhaust administrative remedies by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment. Exhaustion of administrative
remedies is required prior to resort to the CTA precisely to give the Commissioner the opportunity to "re examine its
findings and conclusions" and to decide the issues raised within her competence.
As an exception, when language used and the tenor of the FLD/ FAN indicates that it is the final decision of the
Commissioner, the taxpayer cannot be blamed for filing an appeal to the CTA instead of protesting the FLD/FAN to the
Commissioner. In Allied Banking Corporation v. Commissioner of Internal Revenue (G.R. No. 175097, February 5,
2010), a demand letter sent by the CIR was worded as follows:

"It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident
to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision
within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and
demandable."

The ruling of the Supreme Court in the said case was grounded on the language used and the tenor of the demand
letter, which indicate that it was the final decision of the CIR on the matter. The words used, specifically the words
"final decision" and "appeal," taken together led therein petitioner to believe that the Formal Letter of Demand with
Assessment Notices was, in fact, the final decision of the CIR on the letter-protest it filed and that the available remedy
was to appeal the same to the CTA.

On the contrary, the Supreme Court did not apply the same ruling in Allied Banking Corporation in the recent case of
V.Y. Domingo Jewellers, Inc. where the Preliminary Collection Letter (PCL) received by V.Y Domingo Jewellers states:

"If you want to know the details and/or settle this assessment, may we invite you to come to this office, within ten
(10) days from receipt of this notice. However, if payment had already been made, please send or bring us copies of
the receipts of payment together with this letter to be our basis for canceling/ closing your liability/ies.

We will highly appreciate if you can give this matter your preferential attention, otherwise we shall be constrained to
enforce the collection thereof thru Administrative Summary Remedies provided for by the law, without further notice"

Comparing the wordings of FLD/FAN in Allied Banking Corporation with that of the PCL in V.Y. Domingo Jewellers, Inc.,
it becomes readily apparent that terms and the language used in the FLD/FAN and the PCL are not the same or do not
give similar imports that would allow the application of the exception to V.Y. Domingo Jewellers.

Implied, Indirect, or Deemed Denial of Protest

The following instances are considered as implied, indirect, or deemed denial of protest by the Commissioner or his
duly authorized representative. The remedy of the taxpayer is to file an appeal with the CTA.

a. The Collector of Internal Revenue who did not reply to the request for reinvestigation and instead, referred the case
to the Solicitor General for collection of the tax was in interpreted to mean the Collector's request for reinvestigation is
denied. (Republic of the Philippines v. Lim Tian Teng Sons, G.R. No. L-21731, March 31, 1966)

b. The letter of the BIR which is a reiteration of the demand for the settlement of the assessment already made and
issued during the pendency of the request for reconsideration is tantamount to a denial of the reconsideration or
protest of the taxpayer on the assessment made by the Commissioner. (Commissioner of Internal Revenue v. Ayala
Securities Corp, G.R. No. L-29485, March 31, 1976)

C. The Commissioner, without ruling on the protest filed by the taxpayer, issued a warrant of distraint and levy enforcing
the collection of taxes. Such issuance connotes outright denial of the protest or any motion for reconsideration of an
assessment. (Commissioner of Internal Revenue v. Union Shipping, Inc., G.R. No. L-66160, May 21, 1990)

d. The filing of the Commissioner of a collection suit before the court is tantamount to a denial of the pending protest.
(Commissioner of Internal Revenue v. Union Shipping, Inc., G.R. No. L-66160, May 21, 1990)

When Does an Assessment Become Final, Executory, and Demandable

An assessment shall become final, executory and demandable due to, among others, the following grounds:

a. Failure of the taxpayer to file a valid protest within thirty (30) days from receipt of the Formal Letter of Demand and
Final Assessment Notice (FLD/FAN);
b. Failure of the taxpayer to submit all relevant documents in support of his protest by way of request for reinvestigation
within sixty (60) days from the date of filing thereof; Failure of the taxpayer to appeal to the Commissioner of

c. Internal Revenue or the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the FDDA issued
by the Commissioner's duly authorized representative; Failure of the taxpayer to appeal to the CTA within thirty d. (30)
days from date of receipt of the FDDA issued by the Commissioner;

e. Failure of the taxpayer to timely file a motion for reconsideration or new trial before the CTA Division or failure to
appeal to the CTA En Banc and Supreme Court based on existing Rules of Procedure; or

f. Failure of the taxpayer to receive any assessment notices because it was served in the address indicated in the BIR's
registration database and the taxpayer transferred to a new address or closed/ceased operations without updating and
transferring its BIR registration or canceling its BIR registration as the case may be. (Revenue Memorandum Order No.
26-16 dated June 13, 2016)

Non-filing of a Reply to the PAN does not make the assessment

final, executory, and demandable. The non-filing of a Reply will simply result to the immediate issuance of the FLD/FAN.
The filing of a Reply is optional.

JUDICIAL REMEDY OF CHALLENGING THE ASSESSMENT

Appeal to the CTA Division

After the taxpayer has exhausted all administrative remedies available to him, the taxpayer can now seek judicial relief
by filing an appeal to the CTA. As provided in Revenue Regulations No. 18 2013, an appeal may be filed to the CTA in
the following instances:

a. In case of denial of the protest, in whole or in part, by the Commissioner's duly authorized representative,
appeal to the CTA within thirty (30) days from date of receipt of the said decision;

b. In case the protest is not acted upon or in case of inaction by the Commissioner's duly authorized
representative within one hundred eighty (180) days, appeal to the CTA within thirty (30) days after the
expiration of the one hundred eighty (180)-day period;

c. If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the
Commissioner, the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said
decision; and

d. If the protest or administrative appeal is not acted or in case of inaction upon by the Commissioner within
one hundred eighty (180) days counted from the date of filing of the protest, the taxpayer may appeal to the
CTA within thirty (30) days from after the expiration of the 180-day period.

The appeal must be filed before the CTA Division. Corollarily, the Revised Rules of Court of Tax Appeals provides that
the CTA Division shall exercise exclusive original over or appellate jurisdiction to review by appeal the following:

a. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

b. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in
case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred
eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for
purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal
decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer
opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond
the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court
 under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of
taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the
expiration of the two year period under Section 229 of the National Internal Revenue Code; (Section 3, Rule
4, Revised Rules of Court of Tax Appeals)

Non-Injunction of Tax Collection

Under Section 218 of the Tax Code, no court shall have the authority to grant an injunction to restrain the collection
of any national internal revenue tax, fee, or charge imposed by the NIRC. This prohibition shall apply to the following:

a. all collection activities, including imposition and collection of taxes prescribed in tax laws;
b. issuance of warrants of distraint and garnishment, and/or levy on final decisions of the BIR on disputed
assessment;
c. cases filed before the Court of Tax Appeals; and
d. the sale of property distrained and garnished. (Revenue Memorandum Order No. 42-2010)

In Section 218 of the Tax Code, it is explicit that injunctions are not available to restrain collection of taxes. No court
shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or
charge imposed by said Code.

By way of exception, pursuant to Section 11 of Republic Act No. 1125 as amended, it is the CTA which has jurisdiction
to suspend the collection of taxes but only under certain conditions, i.e. when in its opinion, the collection by the BIR
may jeopardize the interest of the government and/or the taxpayer in which case the CTA may suspend the collection
of taxes and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than
double the amount being assessed.

Thus, temporary restraining orders or injunctions issued by courts other than the CTA against the BIR contrary to the
foregoing provision should be annulled and cancelled for lack of jurisdiction. (Revenue Memorandum Order No. 42-
2010 dated May 4, 2010 citing Zuño v. Judge Arnulfo G. Cabredo, A.M. No. RTJ-0-1779 dated April 30, 2003; Republic
of the Philippines v. Judge Ramon S. Caguioa, A.M. No. RTJ-07-2063, June 26, 2009; Commissioner of Customs v.
Judge Ramon S. Caguioa, A.M. No. RTJ-07-2064, June 26, 2009; Charles T. Burns, Jr. v. Judge Ramon S. Caguioa,
A.M. No. RTJ-07 2006, June 26, 2009)

Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282, embodies the rule that an appeal to the
CTA from the decision of the CIR will not suspend the payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability as provided by existing law. When, in the view of the CTA, the collection
may jeopardize the interest of the Government and/or the taxpayer, it may suspend the said collection and require the
taxpayer either to deposit the amount claimed or to file a surety bond.

The application of the exception to the rule is the crux of the subject controversy. Specifically, Section 11 provides:

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal.. Any party adversely affected by a decision, ruling or
inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and

Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may
file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of
the period fixed by law for action as referred to in Section 7(a)(2) herein.

No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs
or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade
and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law:

Provided, however, that when in the opinion of the Court the collection by the aforementioned government agencies
may jeopardize the interest of the Government and/or the taxpayer, the Court at any stage of the proceeding may
suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for
not more than double the amount with the Court. (Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao u. The Court
of Tax Appeals, G.R. No. 213394, April 6, 2016)
CTA Has Jurisdiction to Dispense with Deposit or Bond

The CTA has ample authority to issue injunctive writs to restrain the collection of tax and to even dispense with the
deposit of the amount claimed or the filing of the required bond, whenever the method employed by the CIR in the
collection of tax jeopardizes the interests of a taxpayer for being patently in violation of the law. Such authority
emanates from the jurisdiction conferred to it not only by Section 11 of Republic Act No. 1125, but also by Section 7
of the same law. (Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao v. The Court of Tax Appeals, G.R. No. 213394,
April 6, 2016)

Appeal to the CTA En Banc and to the Supreme Court

In case of adverse decision of the CTA Division, the aggrieved party may file an appeal to the CTA En Banc. A party
adversely affected by a decision or ruling of the CTA En Banc may appeal

therefrom by filing with the Supreme Court a verified petition for review on certiorari within fifteen (15) days from
receipt of a copy of the decision or resolution, as provided in Rule 45 of the Rules of Court.

RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED

A taxpayer may file a claim for refund of any national internal revenue tax alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority. The taxpayer is also mandated
to observe the doctrine of exhaustion of administrative remedies. This means before a suit or proceeding in court is
filed, the taxpayer must first file a claim for refund before the Commissioner.

As a rule, it is required that the taxpayer must first file a written claim for credit or refund within two (2) years after
the payment of the tax or penalty. However, a return filed showing an overpayment shall be considered as a written
claim for credit or refund. (Section 204(C), NIRC) As an exception, Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.

The reckoning period of the 2-year period shall be as follows:

a. In general, the 2-year period is counted from the date the tax has been paid.

b. For taxes paid under the withholding tax system, the 2-year period shall start at the end of the taxable
year.

c. For existing corporations, the payments of quarterly income tax are considered as mere installments of the
annual tax due. Consequently, the 2-year prescriptive period should be computed from the time of filing the
Final Adjustment Return or Annual Income Tax Return and final payment of income tax. (Commissioner of
Internal Revenue v. TMX Sales, Inc., G.R. No. 83736, January 15, 1992 citing Commission of Internal Revenue
vs. Carlos Palanca, G.R. No. L-16626, October 29, 1966)

d. For non-existing corporations, the 2-year period commences from the day the annual return is filed.

The 2-year period is absolute. Even if there is a supervening event which could prevent the filing of a written claim for
refund or credit, the claim should still be filed within the 2-year period. However, if the Commissioner has not acted
on the claim and the 2-year period is about to expire, the proper remedy of the taxpayer is to file an appeal with the
CTA Division. (Taxation Law Reviewer, Francis Sababan, 2008 Edition, p. 201)

The taxpayer can elevate his claim of refund to the CTA if the 2-year period stated above is about to end, and the
Commissioner has yet to render a decision on the claim. (Gibbs vs. Collector, G.R. No. L-13453, February 29, 1960)

The taxpayer-claimant should not wait for the expiration of the 2-year period before he files an appeal to the CTA. If
this happens, his right to seek judicial remedy has already prescribed and the CTA does not have jurisdiction anymore
on the claim. In the event the Commissioner issues a decision denying the claim for refund, the taxpayer has a 30-day
period to file an appeal to the CTA, but such 30-day period must also be within the 2-year period.

In fine, the administrative claim as well as the judicial claim for refund must both be filed within the 2-year period.
Appeal to the CTA En Banc and to the Supreme Court

In case of adverse decision of the CTA Division, the aggrieved party may file an appeal to the CTA En Banc. A party
adversely affected by a decision or ruling of the CTA En Banc may appeal therefrom by filing with the Supreme Court
a verified petition for review on certiorari within fifteen days from receipt of a copy of the decision or resolution, as
provided in Rule 45 of the Rules of Court.

COMPROMISE OF TAX LIABILITY

Under the New Civil Code, a compromise is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced. (Article 2028, New Civil Code) Compromise of tax cases is allowed
considering that it is not one of those prohibited to be compromised under Articles 2034 and 2035 of the New Civil
Code.

Section 204(A) of the Tax Code gives an authority to the Commissioner to compromise the payment of internal revenue
tax liabilities of certain taxpayers with outstanding receivable accounts and disputed assessments with the BIR and the
courts.

Cases Which May Be Compromised

The following cases may, upon taxpayer's compliance with the requirements be the subject matter of compromise
settlement, viz:

1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are
still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS),
Collection Service, Enforcement Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court or those involving criminal tax fraud. (Section 2,
Revenue Regulations No. 30-2002)

Cases Which May Not Be Compromised

The following cases may not be compromised:

1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the
taxpayer's obligation to withhold;
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized
representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in
the original assessment and the taxpayer is agreeable to such decision by signing the required agreement
form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation
Board (REB) or the National Evaluation Board (NEB) on a case to case basis;
6. Cases which become final and executory after final judgment of a court, where compromise is requested
on the ground of doubtful validity of the assessment; and
7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.
(Section 2, Revenue Regulations No. 30-2002)

Basis for Acceptance of Compromise Settlement

The Commissioner may compromise the payment of any internal revenue tax on the following grounds:

1. Doubtful validity of the assessment. The offer to compromise a delinquent account or disputed assessment on the
ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that:
 (a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment (For this
purpose, "jeopardy assessment" shall refer to a tax assessment which was assessed without the benefit of
complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment
and collection of a deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply with
the audit and investigation requirements to present his books of accounts and/ or pertinent records, or to
substantiate all or any of the deductions, exemptions, or credits claimed in his return); or

(b) The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is
reason to believe that it is lacking in legal and/or factual basis; or

(c) The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of
assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis; or

(d) The taxpayer failed to file a request for reinvestigation/reconsideration within 30 days from receipt of final
assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis;
or

(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner,
or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to
believe that the assessment is lacking in legal and/or factual basis; or

(f) The assessments were issued on or after January 1, 1998, where the demand notice allegedly failed to
comply with the formalities prescribed under Sec. 228 of the National Internal Revenue Code of 1997; or

(g) Assessments made based on the "Best Evidence Obtainable Rule" and there is reason to believe that the
same can be disputed by sufficient and competent evidence; or

(h) The assessment was issued within the prescriptive period for assessment as extended by the taxpayer's
execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or
at issue and there is strong reason to believe and evidence to prove that it is not authentic; or

(i) The assessment is based on an issue where a court of competent jurisdiction made an adverse decision
against the BIR, but for which the Supreme Court has not decided upon with finality.

2. Financial incapacity. The offer to compromise based on financial incapacity may be accepted upon showing that:

(a) The corporation ceased operations or is already dissolved. Provided, that tax liabilities corresponding to
the Subscription Receivable or Assets distributed/ distributable to the stockholders representing return of
capital at the time of cessation of operations or dissolution of business shall not be considered for compromise;
or

(b) The taxpayer, as reflected in its latest Balance Sheet supposed to be filed with the Bureau of Internal
Revenue, is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least
50%, provided that amounts payable or due to stockholders other than business related transactions which
are properly includible in the regular "accounts payable" are by fiction of law considered as part of capital and
not liability, and provided further that the taxpayer has no sufficient liquid assets to satisfy the tax liability; or

(c) The taxpayer is suffering from a net worth deficit (total liabilities exceed total assets) computed by
deducting total liabilities (net of deferred credits and amounts payable to stockholders/owners reflected as
liabilities, except business related transactions) from total assets (net of prepaid expenses, deferred charges,
pre-operating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial
statements, provided that in the case of an individual taxpayer, he has no other leviable properties under the
law other than his family home; or

(d) The taxpayer is a compensation income earner with no other source of income and the family's gross
monthly compensation income does not exceed the levels of compensation income provided for under Sec.
4.1.1 of these Regulations, and it appears that the taxpayer possesses no other leviable or distrainable assets,
other than his family home; or
 (e) The taxpayer has been declared by any competent tribunal/authority/body/government agency as
bankrupt or insolvent.

The Commissioner shall not consider any offer for compromise settlement on the ground of financial incapacity of a
taxpayer with Tax Credit Certificate (TCC), issued under the National Internal Revenue Code of 1997 or Executive
Order No. 226, on hand or in transit, or with pending claim for tax refund or tax credit with the Bureau of Internal
Revenue, Department of Finance One-Stop Shop Tax Credit and Duty Drawback Center (Tax Revenue Group or
Investment Incentive Group) and/or the courts, or with existing finalized agreement or prospect of future agreement
with any party that resulted or could result to an increase in the equity of the taxpayer at the time of the offer for
compromise or at a definite future time.

Moreover, no offer of compromise shall be entertained unless and until the taxpayer waives in writing his privilege of
the secrecy of bank deposits under Republic Act No. 1405 or under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

Presence of circumstances that would place the taxpayer applicant's inability to pay in serious doubt can be a ground
to deny the application for compromise based on financial incapacity of the taxpayer to pay the tax. (Section 3, Revenue
Regulations No. 30 2002, as amended by Revenue Regulations No. 8-2004)

Prescribed Minimum Percentages of Compromise Settlement

The compromise settlement of the internal revenue tax liabilities of taxpayers, reckoned on a per tax type assessment
basis, shall be subject to the following minimum rates based on the basic assessed tax:

1. For cases of "financial incapacity".

1.1. If taxpayer is an individual whose only source of income is from employment and whose -10%
monthly salary, if single, is P10,500 or less, or if married, whose salary together with his
spouse is P21,000 per month, or less, and it appears that the taxpayer possesses no other
leviable/ distrainable assets, other than his family home
1.2. If taxpayer is an individual without any source of income -10%
1.3. Where the taxpayer is under any of the conditions: -10%
1.3.1. Zero net worth computed in accordance with Sec. 3.2(c) hereof -10%
1.3.2. Negative net worth computed in accordance with Sec. 3.2(c) hereof -20%
1.3.3. Dissolved corporations 1.3.4. Already non-operating companies for a period of: -10%
(a) three (3) years or more as of the date of application for compromise. settlement -20%
(b) Less than 3 years
1.3.5. Surplus or earnings deficit resulting to impairment in the original capital by at least -40%
50%
1.3.6. Declared insolvent or bankrupt, unless taxpayer falls squarely under any situation as -20%
discussed above, thus resulting to the application of the appropriate rate.

2. For cases of "doubtful validity"- A minimum compromise rate equivalent to forty percent (40%) of the basic assessed
tax.

The taxpayer may, nevertheless, request for a compromise rate lower than forty percent (40%). However, he shall be
required to submit his request in writing stating therein the reasons, legal and/or factual, why he should be entitled to
such lower rate: Further, for applications of compromise settlement based on doubtful validity of the assessment
involving an offer lower than the minimum forty percent (40%) compromise rate, the same shall be subject to the prior
approval by the NEB..

The herein prescribed minimum percentages shall likewise apply in compromise settlement of assessments consisting
solely of increments, i.e., surcharge, interest, etc., based on the total amount assessed. (Section 4, Revenue
Regulations No. 30-2002)

Approval of Offer of Compromise

Except for offers of compromise where the approval is delegated to the REB pursuant to the succeeding paragraph, all
compromise settlements within the jurisdiction of the National Office (NO) shall be approved by a majority of all the
members of the NEB composed of the Commissioner and the four (4) Deputy Commissioners. All decisions of the NEB,
granting the request of the taxpayer or favorable to the taxpayer, shall have the concurrence of the Commissioner.

Offers of compromise of assessments issued by the Regional Offices involving basic deficiency taxes of Five Hundred
Thousand Pesos (P500,000) or less and for minor criminal violations discovered by the Regional and District Offices,
shall be subject to the approval by the Regional Evaluation Board (REB).

If the offer of compromise is less than the prescribed rates set forth, the same shall always be subject to the approval
of the NEB.

The compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement. No
application for compromise settlement shall be processed without the full settlement of the offered amount. In case of
disapproval of the application for compromise settlement, the amount paid upon filing of the aforesaid application shall
be deducted from the total outstanding tax liabilities. (Section 6, Revenue Regulations No. 30 2002, as amended by
Revenue Regulations No. 9-2013)

ABATEMENT OR CANCELLATION OF TAX LIABILITY

Section 204(B) of the Tax Code grants the Commissioner the authority to abate or cancel internal revenue tax liabilities
off certain taxpayers based on any of the following grounds:

a. The tax or any portion thereof appears to be unjustly or excessively assessed; or

b. The administration and collection costs involved do not justify the collection of the amount due.

This rule does not apply to disputed assessments pursuant to the provisions of Section 228 of the Tax Code and
assessments which are void from the beginning. (Section 1, Revenue Regulations No. 13-2001)

Abatement or Cancellation due to Unjust and Excessive Imposition

The following are the instances when the penalties and/or interest may be abated or cancelled on the ground that the
imposition is unjust or excessive:
1. When the filing of the return/payment of the tax is made. at the wrong venue;
2. When taxpayer's mistake in payment of his tax is due to erroneous written official advice of a revenue
officer;
3. When taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged
labor dispute, force majeure, legitimate business reverses such as the following instances, provided however
that the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed
under Section 249 of the Code:

a. Labor strike for more than six (6) months which has caused the temporary shutdown of business;
b. Public turmoil;
c. Natural calamity such as lightning, earthquake, storm, flood and the like;
d. Armed conflicts such as war or insurgency;
e. Substantial losses sustained due to fire, robbery, theft, embezzlement; Continuous heavy losses
incurred by the taxpayer f. for the last two (2) years;
g. Liquidity problems of the taxpayer for the three (3) years; or
h. Such other instances which the Commissioner may deem analogous to the enumeration above.

4. When the assessment is brought about or the result of taxpayer's non-compliance with the law due to a
difficult interpretation of said law;

5. When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his
control, provided, however, that abatement shall cover only the surcharge and the compromise penalty and
not the interest;

6. Late payment of the tax under meritorious circumstances as such as those provided hereunder:

a. Use of wrong tax form but correct amount of tax was remitted;
 b. Filing an amended return under meritorious circumstances, provided, however, that abatement
shall cover only the penalties and not the interest;
c. Surcharge erroneously imposed;
d. Late filing of return due to unresolved issue on classification/valuation of real property (for capital
gains tax cases, etc.);
e. Offsetting of taxes of the same kind, i.e., overpayment in one quarter/month is offset against
underpayment in another quarter/month;
f. Automatic offsetting of overpayment of one kind of withholding tax against the underpayment of
another kind;
g. Late remittance of withholding tax on compensation of expatriates for services rendered in the
Philippines pending the issuance by the Securities and Exchange Commission of the license to the
Philippines branch office or subsidiary, provided however, that the abatement shall only cover the
surcharge and the compromise penalty and not the interest;
h. Wrong use of Tax Credit Certificate (TCC) where Tax Debit Memo (TDM) was not properly applied
for; and
i. Such other instances which the Commissioner may deem analogous to the enumeration above.

7. Other cases similar or synonymous above. (Section 2, Revenue Regulations No. 13-2001, as amended by
Revenue Regulations No. 4-2012)

Abatement or Cancellation Due to Administration Cost More Than the Amount Sought to be Collected

When the administrative and collection costs, including cost of litigation, are much more than the amount that may be
collected from the taxpayer, the assessment may be reduced through abatement, or entirely cancelled pursuant to
Section 204(B) of the Tax Code. The instances that may fall under this category are the following:

1. Abatement of penalties on assessment confirmed by lower court but appealed by the taxpayer to a higher
court;

2. Abatement of penalties on withholding tax assessment

3.under meritorious circumstances; Abatement of penalties on delayed installment payment.

4.under meritorious circumstances; Abatement of penalties on assessment reduced after reinvestigation but
taxpayer is still contesting the reduced assessment; and

5. Such other instances which the Commissioner may deem analogous to the enumeration above. (Section 3,
Revenue Regulations No. 13-2001)

For items 1 and 4 above, the abatement of the surcharge and compromise penalty shall be allowed only upon written
application by the taxpayer signifying his willingness to pay the basic tax and interest or basic tax only, whichever is
applicable under the prevailing circumstances.
 CHAPTER V
BUREAU OF INTERNAL REVENUE AND COURT OF TAX APPEALS

The Bureau of Internal Revenue and Its Powers and Duties

The BIR is the lead government agency tasked with the enforcement of revenue laws and the collection of taxes
specifically those under the NIRC, as amended. The BIR is under the supervision and control of the DOF.

In general, the BIR has the following powers and duties:

a. Assessment and collection of all national internal revenue taxes, fees, and charges;
b. Enforcement of all forfeitures, penalties, and fines. connected with the national internal revenue taxes,
fees, and charges;
c. Execution of judgments in all cases decided in its favor by. CTA and the ordinary courts; and
d. Give effect to and administer the supervisory and police powers conferred to it by the NIRC or other laws.
(Section 2, NIRC)

Chief Officials of the BIR

The BIR is headed by the Commissioner of Internal Revenue with four (4) assistant chiefs known as Deputy
Commissioners. (Section 3, NIRC) The Deputy Commissioners are each in charge of (1) Operations, (2) Legal, (3)
Information Systems, and (4) Resource Management of the BIR.

Under the Operations Group are the Client Support Services, Assessment Services, Collection Services, Revenue
Regional Offices, and the Revenue District Offices all over the Philippines. The Legal Group includes Legal Service,
Internal Affairs Service and

Enforcement and Advocacy Service. On the other hand, Information Systems Group supervises Information Systems
Development and Operations Services, Information Systems Project Management Service, and Revenue Data
Centers. Lastly, under the Resource Management Group are Human Resource Development Service, Finance Service,
and Administration Service.

Powers of the Commissioner

Title I of the Tax Code enumerates several powers of the Commissioner in the enforcement of revenue laws and the
collection of internal revenue taxes, including interest, penalties, and surcharges. However, these are not the only
powers of the Commissioner because scattered in many provisions of the Tax Code are the other powers granted to
the Commissioner for the effective and efficient enforcement of tax laws and the collection of taxes. Some of these
powers are discussed hereunder.

Power to Interpret Tax Laws and to Decide Tax Cases

Section 4 of the Tax Code confers upon the Commissioner the following specific powers, namely:

a. The power to interpret the provisions of the NIRC and other tax laws; and

b. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under the NIRC or other laws or portions
thereof administered by the BIR.

Under Section 4 of the NIRC, the power to interpret tax laws is an exercise of quasi-legislative function, while the
power to decide tax cases is an exercise of quasi-judicial function of the Commissioner. It also delineates the
jurisdictional authority to review the validity of the Commissioner's exercise of the said powers. (Commissioner of
Internal Revenue v. Petron Corporation, G.R. No. 207843, July 15, 2015)

With respect to the first power, the power to interpret the provisions of the NIRC and other tax laws is under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. However, the
administrative power to issue needful rules and regulations for the effective enforcement of the provisions of the NIRC
is with the Secretary of Finance, upon recommendation of the Commissioner. These rules and regulations promulgated
by the Secretary of Finance are the so-called Revenue Regulations which are the implementing rules and regulations
of the NIRC.

In general, the following are BIR revenue issuances:

a. Revenue Regulations (RRS) issuances signed by the Secretary of Finance, upon recommendation of the
Commissioner, that specify, prescribe, or define rules and regulations for the effective enforcement of the
provisions of the NIRC and related statutes.

b. Revenue Memorandum Orders (RMOs) issuances that provide directives or instructions; prescribe
guidelines; and outline processes, operations, activities, workflows, methods, and procedures necessary in
the implementation of stated policies, goals, objectives, plans, and programs of the BIR in all areas of
operations, except auditing.

c. Revenue Memorandum Circulars (RMCs) issuances that publish pertinent and applicable portions, as well
as amplifications, of laws, rules, regulations, and precedents issued by the BIR and other agencies/offices.

d. Revenue Administrative Orders (RAOS) - issuances that cover subject matters dealing strictly with the
permanent administrative set-up of the Bureau, more specifically, the organizational structure, statements of
functions and/or responsibilities of BIR offices, definitions and delegations of authority, staffing and personnel
requirements, and standards of performance.

e. Revenue Delegation of Authority Orders (RDAOS) - refer to functions delegated by the Commissioner to
revenue officials in accordance with law.

The RMO, RMC, RAO, and RDAO are issued by the Commissioner himself without the need of prior approval by the
Secretary of Finance. These issuances, including the Revenue Regulations, are pursuant to the exercise of the
Commissioner of its quasi-legislative power. (Egis Projects S.A. v. The Secretary of Finance and Commissioner of
Internal Revenue, CTA EB No. 1023, September 16, 2014)

With respect to the second power under Section 4 of the Tax Code, the Commissioner is also vested with the power
to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the NIRC or other laws or portions thereof administered by the BIR.
The decision of the Commissioner is subject to the exclusive appellate jurisdiction of the CTA. (Section 4, NIRC) The
exercise of the second power is pursuant to the quasi judicial power of the BIR. (Commissioner of Internal Revenue
v. Avon Products Manufacturing, Inc., G.R. No. 2013398-99; G.R. No. 201418-19, October 3, 2018)

Tax rulings are official positions of the BIR on inquiries of taxpayers, who request clarification on certain provisions of
the NIRC, other tax laws, or their implementing regulations, usually for the purpose of seeking tax exemptions.
Rulings are based on particular facts and circumstances presented and are interpretations of the law at a specific
point in time. (Section 1, Revenue Memorandum Order No. 9-2014)

BIR rulings are official positions of the BIR to queries raised by taxpayers and other stakeholders relative to
clarification and interpretation of tax laws. It may be classified into: (1) rulings of first impression or (2) rulings with
established precedents. (Revenue Administrative Order No. 1-2003)

The ruling of the Commissioner in the exercise of his quasi legislative power is appealable to the Secretary of Finance
whose decision is also appealable to the regular courts.

Any party adversely affected by the issuance of the Commissioner in the exercise of its quasi-legislative power may
file an appeal before the Secretary of Finance. This is pursuant to Department Order No. 23-01 issued by the
Secretary of Finance which provides for the guidelines in implementing the first paragraph of Section 4 of the 1997
NIRC, as amended. The said Department Order specifically enumerates the procedure for filing with the Secretary of
Finance an appeal of an adverse ruling issued by the Commissioner. The pertinent portion of Department Order No.
23-01 states:

"Section 3. Rulings Adverse to the Taxpayer. A taxpayer who receives an adverse ruling from the Commissioner of
Internal Revenue may, within thirty (30) days from the date of receipt of such ruling, seek its review by the Secretary
of Finance, either by himself/itself or through his/its duly accredited agent or representative. xxx"
A party adversely affected by the decision of the Secretary of Finance may file an appeal to the CTA. (Banco de Oro,
et al. . Republic of the Philippine, et al., G.R. No. 198756, August 16, 2016)

On the other hand, the party adversely affected by the ruling

or decision of the Commissioner in the exercise of its quasi-judicial power may file an appeal to the CTA pursuant to
the second paragraph of Section 4 of the NIRC.

Power of the Commissioner to Obtain Information and to Summon, Examine, and Take Testimony of
Persons

The Commissioner is authorized to perform any and all of the following powers in order to (1) ascertain the
correctness of any return, (2) make a return when none has been made, (3) determine the liability of any person for
any internal revenue tax, (4) collect any such liability, or (5) evaluate tax compliance:

(a) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;

(b) To obtain on a regular basis from any person other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or officer of the national and local governments,
government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-
owned or -controlled corporations, any information such as, but not limited to, costs and volume of
production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies, insurance companies, regional operating headquarters
of multinational companies, joint accounts, associations, joint ventures of consortia and registered
partnerships, and their members;

(c) To summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other accounting
records containing entries relating to the business of the person liable for tax, or any other person, to
appear before the Commissioner or his duly authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other data, and to give testimony;

(d) To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; and

(e) To cause revenue officers and employees to make a canvass from time to time of any revenue district or
region and inquire after and concerning all persons therein who may be liable to pay any internal revenue
tax, and all persons owning or having the care, management or possession of any object with respect to
which a tax is imposed. (Section 5, NIRC)

Item (b) was amended by TRAIN Law to include a mandate to the Cooperative Development Authority to submit to
the BIR a tax incentive report which shall include information on the income tax, value-added tax, and other tax
incentives availed by cooperatives registered and enjoying incentives under Republic Act No. 6938. The same tax
incentive report shall also be submitted to the Department of Finance and shall be included in the database created
under Republic Act No. 10708, otherwise known as "The Tax Incentives Management and Transparency Act"
(TIMTA). (Section 3, TRAIN Law)

Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement

a. Examination of Return and Determination of Tax Due

After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax:
Provided, however, that failure to file a return shall not prevent the Commissioner from authorizing the examination
of any taxpayer.
The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his
duly authorized representative.

Any return, statement, or declaration filed in any office authorized to receive the same shall not be withdrawn:
Provided, that within three (3) years from the date of such filing, the same may be modified, changed, or amended:
Provided, further, that no notice for audit or investigation of such return, statement or declaration has, in the
meantime, been actually served upon the taxpayer. (Section 6(A), NIRC)

TRAIN Law expanded the authority of the Commissioner to conduct an examination of any taxpayer and assess the
correct amount of tax. The Commissioner can conduct an examination notwithstanding any law requiring the prior
authorization of any government agency or instrumentality for that examination (Section 3, TRAIN Law)

b. Failure to Submit Required Returns, Statements, Reports, and Other Documents

When a report required by law as a basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such
report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence
obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be
prima facie correct and sufficient for all legal purposes. (Section 6(B), NIRC)

c. Authority to Conduct Inventory-taking, Surveillance, and to Prescribe Presumptive Gross Sales and Receipts

The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer as a
basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural
or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct
income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for assessing the
taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed
prima facie correct.

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections
113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this
Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other persons
engaged

in similar businesses under similar situations or circumstances or after considering other relevant information, may
prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be
prima facie correct for purposes of determining the internal revenue tax liabilities of such person. (Section 6(C),
NIRC)

d. Authority to Terminate Taxable Period When it shall come to the knowledge of the Commissioner that

a taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the
collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless
such proceedings are begun immediately, the Commissioner shall declare the tax period of such taxpayer terminated
at any time and shall send the taxpayer a notice of such decision, together with a request for the immediate payment
of the tax for the period so declared terminated and the tax for the preceding year or quarter, or such portion
thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject to all the
penalties hereafter prescribed, unless paid within the time fixed in the demand made by the Commissioner. (Section
6(D), NIRC)

e. Authority of the Commissioner to Prescribe Real Property Values

The Commissioner is hereby authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers both from the private and public sectors, determine the fair market value of
real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the
property shall be, whichever is the higher of:

(a) The fair market value as determined by the Commissioner; or

(b) The fair market value as shown in the schedule of values of the Provincial and City Assessors. (Section 6
(E), NIRC)

TRAIN Law added the following requirements in the exercise of the Commissioner's power to prescribe real property
values:
(a) There must be mandatory consultation with competent appraisers both from the private and public
sectors in determining fair market value of real properties;

(b) There must be prior notice to affected taxpayers on the adjustment of fair market value of the real
properties:

(c) Fair market value of real properties is subject to automatic adjustment once every three (3) years
through rules and regulations issued by the Secretary of Finance;

(d) Adjustment of zonal valuation must be published in a newspaper of general circulation in the province,
city or municipality concerned, or in the absence thereof, posting in the provincial capitol, city or municipal
hall and in two (2) other conspicuous public places therein, before adjustment in zonal valuation can be
valid; and

(e) The basis of any valuation, including the records of consultations done, shall be public records open to
the inquiry of any taxpayer. (Section 4, TRAIN Law)

f. Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related Information Held by
Financial Institutions

Notwithstanding any contrary provision of Republic Act No. 1405 (Bank Secrecy Law), Republic Act No. 6426 (Foreign
Currency Deposit Act), and other general or special laws, the Commissioner is hereby authorized to inquire into the
bank deposits and other related information held by financial institutions of:

(a) A decedent to determine his gross estate; and

(b) Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2) of
the Tax Code by reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and
until he waives in writing his privilege under Republic Act No. 1405, Republic Act No. 6426, or under other general or
special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of
the taxpayer.

Upon the enactment of Republic Act No. 10021 or the Exchange of Information on Tax Matters Act of 2009, the
Commissioner is now authorized to inquire into the bank deposit and other related information held by financial
institutions of a specific taxpayer or

taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an
international convention or agreement on tax matters to which the Philippines is a signatory or a party of. The
information obtained from the banks and other financial institutions may be used by the BIR for tax assessment,
verification, audit, and enforcement purposes.

In case of a request from a foreign tax authority for tax information held by banks and financial institutions, the
exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
The Commissioner shall provide the tax information obtained from banks and financial institutions pursuant to a
convention or agreement upon request of the foreign tax authority when. such requesting foreign tax authority has
provided the following information to demonstrate the foreseeable relevance of the information to the request:

(a) The identity of the person under examination or investigation;

(b) A statement of the information being sought, including its nature and the form in which the said foreign
tax. authority prefers to receive the information from the Commissioner;

(c) The tax purpose for which the information is being sought; (d) Grounds for believing that the
information requested is held in the Philippines or is in the possession or control of a person within the
jurisdiction of the Philippines;

(e) To the extent known, the name and address of any person believed to be in possession of the requested
information;

(f) A statement that the request is in conformity with the law and administrative practices of the said foreign
tax authority, such that if the requested information was within the jurisdiction of the said foreign tax
authority then it would be able to obtain the information under its laws or in the normal course of
administrative practice and that it is in conformity with a convention or international agreement; and

(g) A statement that the requesting foreign tax authority has exhausted all means available in its own
territory to obtain the information, except those that would give rise to disproportionate difficulties.

The Commissioner shall forward the information as promptly as possible to the requesting foreign tax authority. To
ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to the requesting tax authority
and shall notify the latter of deficiencies in the request, if any, within sixty (60) days from receipt of the request.

If the Commissioner is unable to obtain and provide the information within ninety (90) days from receipt of the request,
due to obstacles encountered in furnishing the information or when the bank or financial institution refuses to furnish
the information, he shall immediately inform the requesting tax authority of the same, explaining the nature of the
obstacles encountered or the reasons for refusal.

The term "foreign tax authority" as used herein, shall refer to the tax authority or tax administration of the requesting
State under the tax treaty or convention to which the Philippines is a signatory or a party of. (Section 3, Republic Act
No. 10021)

g. Authority to Accredit and Register Tax Agents

The Commissioner shall accredit and register, based on their professional competence, integrity and moral fitness,
individuals and general professional partnerships and their representatives who prepare and file tax returns,
statements, reports, protests, and other papers with or who appear before, the Bureau for taxpayers. Within one
hundred twenty (120) days from January 1, 1998, the Commissioner shall create national and regional accreditation
boards, the members of which shall serve for three (3) years, and shall designate from among the senior officials of
the Bureau, one (1) chairman and two (2) members for each board, subject to such rules and regulations as the
Secretary of Finance shall promulgate upon the recommendation of the Commissioner.

Individuals and general professional partnerships and their representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of
Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the

Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the
application for accreditation of the appellant. (Section 6(G), NIRC)

h. Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements

The Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in
connection with the submission or preparation of financial statements accompanying
the tax returns. (Section 6(H), NIRC)

Power to Delegate Authority

As a general rule, the Commissioner may delegate the powers vested under the NIRC to any or such subordinate
officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be
imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.

As an exception, the Commissioner shall not be delegated the following powers:

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;

(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided,
however, that assessments issued by the regional offices involving basic deficiency taxes of Five hundred
thousand pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and
regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner,
discovered by regional and district officials, may be compromised by a regional evaluation board which shall
be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer,
as members; and

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept. (Section 7, NIRC)

Rulings of first impression, as defined in Revenue Administrative Order No. 2-2001, dated October 22, 2001, refer to
the rulings, opinions, and interpretations of the Commissioner with respect to the provisions of the Tax Code and
other tax laws without established precedent, and which are issued in response to a specific request for ruling filed
by a taxpayer with the BIR. Rulings of first impression also include reversal, modifications, or revocation of any
existing ruling.

Duty of the Commissioner to Ensure the Provision and Distribution of Forms, Receipts, Certificates, and
Appliances, and the Acknowledgment of Payment of Taxes

a. Provision and Distribution to Proper Officials

It shall be the duty of the Commissioner, among other things, to prescribe, provide, and distribute to the
proper officials the requisite licenses internal revenue stamps, labels and other forms, certificates, bonds,
records, invoices, books, receipts, instruments, appliances, and apparatuses used in administering the laws
falling within the jurisdiction of the Bureau. For this purpose, internal revenue stamps, strip stamps, and
labels shall be caused by the Commissioner to be printed with adequate security features.

Internal revenue stamps, whether of a bar code or fuson design, shall be firmly and conspicuously affixed
on each pack of cigars and cigarettes subject to excise tax in the manner and form as prescribed by the
Commissioner, upon approval of the Secretary of Finance. (Section 8(A), NIRC)

b. Receipts for Payment Made

It shall be the duty of the Commissioner or his duly authorized representative or an authorized agent bank
to whom any payment of any tax is made under the provision of this Code to acknowledge the payment of
such tax, expressing the amount paid and the particular account for which such payment was made in a
form and manner prescribed therefor by the Commissioner. (Section 8(B), NIRC)

Other Powers and Authorities of the Commissioner

a. Authority of Officers to Administer Oaths and Take Testimony

The Commissioner, Deputy Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue Regional Directors,
Assistant Revenue Regional Directors, Chiefs and Assistant Chiefs of Divisions, Revenue District Officers, special
deputies of the Commissioner, internal revenue officers and any other employee of the Bureau thereunto especially
deputized by the Commissioner shall have the power to administer oaths and to take testimony in any official matter
or investigation conducted by them regarding matters within the jurisdiction of the Bureau. (Section 14, NIRC)

b. Authority of Internal Revenue Officers to Make Arrests and Seizures

The Commissioner, the Deputy Commissioners, the Revenue Regional Directors, the Revenue District Officers and
other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law,
rule or regulation administered by the Bureau of Internal Revenue. Any person so arrested shall be forthwith brought
before a court, there to be dealt with according to law. (Section 15, NIRC)

c. Assignment of Internal Revenue Officers Involved in Excise Tax Functions to Establishments Where Articles Subject
to Excise Tax are Produced or Kept

The Commissioner shall employ, assign, or reassign internal revenue officers involved in excise tax functions, as
often as the exigencies of the revenue service may require, to establishments or places where articles subject to
excise tax are produced or kept: Provided, that an internal revenue officer assigned to any such establishment shall
in no case stay in his assignment for more than two (2) years, subject to rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation of the Commissioner. (Section 16, NIRC)

d. Assignment of Internal Revenue Officers and Other Employees to Other Duties

The Commissioner may, subject to the provisions of Section 16 and the laws on civil service, as well as the rules and
regulations to be prescribed by the Secretary of Finance upon the recommendation of the Commissioner, assign or
reassign internal revenue officers

and employees of the Bureau of Internal Revenue, without change in their official rank and salary, to other or special
duties connected with the enforcement or administration of the revenue laws as the exigencies of the service may
require: Provided, that internal revenue officers assigned to perform assessment or collection function shall not
remain in the same assignment for more than three (3) years; Provided, further, that assignment of internal revenue
officers and employees of the Bureau to special duties shall not exceed one (1) year. (Section 17, NIRC)

Revenue Regions and Revenue District Offices

The Commissioner, with the approval of the Secretary of Finance, is authorized to divide the Philippines into several
Revenue Regions. Revenue Regions have the functions to administer and enforce internal revenue laws including the
assessment and collection of all internal revenue taxes, charges, and fees from taxpayers within the region's
jurisdiction, as well as ensures proper and effective implementation of National Office's policies and programs within
the Regional Office. At present, the Philippines is divided into twenty-two (22) Revenue Regions.

Every Revenue Region is headed by a Revenue Regional Director with the following duties and responsibilities within
the region and district offices under his jurisdiction:

a. Implement laws, policies, plans, programs, rules and regulations of the department or agencies in the
regional area;
b. Administer and enforce internal revenue laws, and rules and regulations, including the assessment and
collection of all internal revenue taxes, charges and fees;
c. Issue Letters of Authority for the examination of taxpayers within the region;
d. Provide economical, efficient and effective service to the people in the area;
e. Coordinate with regional offices or other departments, bureaus and agencies in the area;
f. Coordinate with local government units in the area;
g. Exercise control and supervision over the officers and employees within the region; and
h. Perform such other functions as may be provided by law and as may be delegated by the Commissioner.
(Section 10, NIRC)
Within the Revenue Region are the Revenue District Offices under the supervision of a Revenue District Officer. The
Commissioner, with the approval of the Secretary of Finance, shall divide the Philippines into such number of revenue
districts as may from time to time be required for administrative purposes. (Section 9, NIRC) At present, there are
one hundred twenty-four (124) Revenue District Offices all over the Philippines.

A Revenue District Office has the following functions:

a. To provide frontline assistance and service to taxpayers,

b. To pre-process and encode key information from returns/ payment forms,
c. To conduct field audit investigation of tax cases,
d. To undertake collection of taxes through summary remedies, and
e. To manage forfeited properties/acquired assets within their jurisdiction.

The Revenue District Officers and other Internal Revenue Officers shall have duty to ensure that all laws, and rules
and regulations affecting national internal revenue are faithfully executed and complied with, and to aid in the
prevention, detection and punishment of frauds of delinquencies in connection therewith.

In addition, the Revenue District Officer has the duty to examine the efficiency of all officers and employees of the
BIR under his supervision, and to report in writing to the Commissioner, through the Regional Director, any neglect
of duty, incompetency, delinquency, or malfeasance in office of any internal revenue officer of which he may obtain
knowledge, with a statement of all the facts and any evidence sustaining each case. (Section 11, NIRC)

COURT OF TAX APPEALS

The Court of Tax Appeals was created on June 16, 1954, through the enactment of Republic Act No. 1125. Under this
law, the CTA had very limited jurisdiction and had only three (3) Judges. The members of CTA at that time were
referred to as judges.

Upon the enactment of Republic Act No. 9282 on April 23, 2004, the CTA became an appellate court with the same
and equal rank as the Court of Appeals. Republic Act No. 9282 also expanded the jurisdiction of the CTA. The
composition of the CTA was also increased to six (6) Justices with one (1) Presiding Justice and five (5) Associate
Justices. At that time, CTA sat En Banc, or in two (2) Divisions with three (3) Justices each. A decision of a division of
the CTA may be appealed to the CTA En Banc, and whose decision is appealable to the Supreme Court.

On June 12, 2008, Republic Act No. 9503 was enacted which further broadened the organizational structure of the
CTA. It further increased the number of justices to nine (9) composed of one (1) Presiding Justice and eight (8)
Associate Justices. A new division was created making the CTA sit in three (3) divisions with each division consisting
of three (3) Justices, and En Banc. The decision of the division of the CTA is appealable to the CTA En Banc, whose
decision is reviewable by the Supreme Court.

The CTA is a court of special jurisdiction and as such, it can only take cognizance of such matters as are clearly
within its jurisdiction. As jurisdiction is conferred by law, the CTA can only take cognizance of cases and matters
specifically enumerated in Republic Act No. 1125, as amended by Republic Act No. 9282 and other special laws.

Exercise of CTA's Power and Functions

The CTA exercises its adjudicative powers, functions and duties either by sitting En Banc or in Division. However, the
CTA shall sit En Banc in the exercise of its administrative, ceremonial and non-adjudicative functions. (Section 2, Rule
2 of the Revised Rules of Court of Tax Appeals)

Cases within the Jurisdiction of the CTA in Divisions

The CTA in Divisions shall exercise:

a. Exclusive original over or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;
 (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in
case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the 180-day period
under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing
the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await
the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the 180-day
period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8
of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally
collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year
period under Section 229 of the National Internal Revenue Code;

(3) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them
in the exercise of their original jurisdiction;

(4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of
Customs;

(5) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs adverse to the Government under Section 2315 of the Tariff and
Customs Code; and

(6) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or
article, and the Secretary of Agriculture, in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Sections 301 and 302, respectively, of the Tariff and Customs Code,
and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose
or not to impose said duties;

b. Exclusive jurisdiction over cases involving criminal offenses, to wit:

(1) Original jurisdiction over all criminal offense arising from violations of the National Internal Revenue Code
or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of
Customs, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is
P1,000,000.00 or more; and

(2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial Courts
in their original jurisdiction in criminal offenses arising from violations of the National Internal Revenue Code
or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of
Customs, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less
than P1,000,000.00 or where there is no specified amount claimed;

c. Exclusive jurisdiction over tax collection cases, to wit:

(1) Original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees,
charges and penalties, where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is P1,000,000.00 or more; and

(2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of the Regional Trial Courts
in tax collection cases originally decided by them within their respective territorial jurisdiction. (Section 3, Rule
4, Revised Rules of Court of Tax Appeals)

Cases within the Jurisdiction of the CTA En Banc

The CTA En Banc exercises exclusive appellate jurisdiction to review by appeal the following:
a. Decisions or resolutions on motions for reconsideration or new trial of the CTA in Divisions in the exercise of its
exclusive appellate jurisdiction over:

(1) Cases arising from administrative agencies Bureau of Internal Revenue, Bureau of Customs, Department
of Finance, Department of Trade and Industry, Department of Agriculture;

(2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction; and

(3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction
involving final and executory assessments for taxes, fees, Revised Rules of the Court of Tax Appeals charges
and penalties, where the principal amount of taxes and penalties claimed is less than P1,000,000.00;

b. Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the
exercise of their appellate jurisdiction;

c. Decisions, resolutions or orders of the Regional Trial Courts in tax collection cases decided or resolved by them in
the exercise of their appellate jurisdiction;

d. Decisions, resolutions or orders on motions for reconsideration or new trial of the CTA in Division in the exercise of
its exclusive original jurisdiction over tax collection cases;

e. Decisions of the Central Board of Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;

f. Decisions, resolutions or orders on motions for reconsideration or new trial of the CTA in Division in the exercise of
its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal
Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or
Bureau of Customs;

g. Decisions, resolutions or orders on motions for reconsideration or new trial of the CTA in Division in the exercise of
its exclusive appellate Revised Rules of the Court of Tax Appeals jurisdiction over criminal offenses mentioned in the
preceding subparagraph; and

h. Decisions, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over
criminal offenses mentioned in subparagraph (f). (Section 2, Rule 4, Revised Rules of Court of Tax Appeals)

Decisions of the Commissioner of Internal Revenue

The CTA in Division exercises exclusive original jurisdiction over decisions of the Commissioner in the following cases:

a. Cases involving disputed assessments

Pursuant to Section 228 of the Tax Code, a final decision on a disputed assessment by the Commissioner or his duly
authorized representative is appealable to the CTA in Division within thirty (30) days from receipt thereof.

The word "decisions" in the Republic Act No. 9282 has been interpreted to mean the decisions of the CIR on the protest
of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself. Where a taxpayer
questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes
he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and the
taxpayer can appeal to the CTA only upon receipt of the decision of the Collector on the disputed assessment.
(Commissioner of Internal Revenue v. V.Y. Domingo Jewellers, Inc., G.R. No. 221780, March 25, 2019)

What is appealable to the CTA in Division is the decision of the Commissioner, not the assessment he issued.

b. Cases involving refunds of internal revenue taxes, fees or other charges, penalties in relation thereto
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (G.R. No. 184823, October 6, 2010), the
Supreme Court held that Section 112 of the Tax Code provides that in case of denial of the taxpayer's claim for tax
credit or refund, the taxpayer may, within thirty (30) days from the receipt of the notice of denial, appeal the decision
with the CTA in Division.

Further, the denial of claim for refund of tax erroneously or illegally collected under Section 229 of the Tax Code is
also appealable to the CTA in Division.

c. Cases involving other matters arising under the Tax Code or other laws administered by the BIR are appealable to
the CTA in Division

In Philippine Journalists, Inc. v. Commissioner of Internal Revenue (G.R. No. 162852, December 16, 2004), it was
held that the appellate jurisdiction of the CTA is not limited to cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or refunds. The second part of the provision of Section 7(1) of
Republic Act No. 1125 covers other cases that arise out of the NIRC or related laws administered by the BIR. The
wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint
and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitation was validly effected because this
is a matter arising under the Tax Code.

In Commissioner of Internal Revenue v. Petron Corporation (G.R. No. 207843, July 15, 2015), the Supreme Court
ruled that the phrase "other matters arising under the Tax Code," as stated in the second paragraph of Section 4 of
the NIRC, should be understood as pertaining to those matters directly related to the preceding phrase "disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto" and
must therefore not be taken in isolation to invoke the jurisdiction of the CTA.

In other words, the subject phrase should be used only in reference to cases that are, to begin with, subject to the
exclusive appellate jurisdiction of the CTA, i.e., those controversies over which the CIR had exercised her quasi-
judicial functions or her power to decide disputed assessments, refunds or internal revenue taxes, fees, or other
charges, penalties imposed in relation thereto, not to those that involved the CIR's exercise of quasi-legislative
powers.

In The Aristocrat Franchise Corporation v. Commissioner of Internal Revenue (CTA Case No. 8731, July 28, 2016),
the CTA ruled that it has jurisdiction over the Commissioner's denial of offer of compromise of its tax assessment
being a matter arising from the NIRC and other laws being administered by the BIR. Being so, it is appealable to the
CTA, pursuant to Section 7 (a)(1) of Republic Act No. 1125, as amended by Republic Act Nos. 9282 and 9503 and
Section 3(a)(1) of Rule 4 of the Revised Rules of the Court of Tax Appeals.

In Egis Projects S.A. v. The Secretary of Finance and Commissioner of Internal Revenue (CTA EB No. 1023,
September 16, 2014), the CTA held that the decisions of the Commissioner on "other matters" that the CTA is
authorized to review, on appeal, provided in Section 7(a)(1) of Republic Act No. 1125, as amended by Republic Act
No. 9282, were interpreted to include the (1) determination if the warrant of distraint and levy issued by the BIR is
valid; (2) determination if the Waiver of Statute of Limitations was validly effected; and (3) determination of whether
or not the BIR's right to collect taxes had already prescribed.

The decisions or resolutions on motions for reconsideration or new trial of the CTA in Divisions in the above cases are
appealable to the CTA En Banc.

Decisions, Resolutions, or Orders of the Regional Trial Courts in Local Tax Cases

Local tax cases refer to cases under Section 195 (Protest of an Assessment) and Section 196 (Claim for Refund of
Tax Credit) under the Local Government Code (LGC). In the event of denial or inaction by the local treasurer in
protest or claim for refund, the taxpayer may file an appeal before the Metropolitan Trial Court (MeTC), Municipal
Trial Court (MTC) or Municipal Circuit Trial Court (MCTC), or Regional Trial Court (RTC) depending on the amount. In
fine, the RTC has jurisdiction over the decision or denial-by inaction of the local treasurer when the tax, fee, or
charge assessed exceeds P400,000.00 if in Metro Manila or exceeding P300,000.00 if outside Metro Manila.
Otherwise, the jurisdiction is with the MeTC, MTC, or MCTC.

Decisions, resolutions or orders of the RTC in the exercise of its original jurisdiction is appealable to the CTA in
Division, whose decision or resolution is also appealable to the CTA En Banc. On the other hand, decisions,
resolutions, or orders of the RTC in exercise of its appellate jurisdiction is appealable to the CTA En Banc. This means
the local tax case originated from the MeTC, MTC, or MCTC which exercises the original jurisdiction.

The decision or resolution of the CTA En Banc is reviewable by the Supreme Court through a petition for review on
certiorari.

CTA Has No Jurisdiction Over Cases Not Involving Local Tax

If the case is not a local tax case because it does not involve a local tax, CTA cannot take cognizance of the case. In
Smart Communications, Inc. v. Municipality of Malvar, Batangas (G.R. No. 204429, February 18, 2014), the Supreme
Court held that considering the challenged ordinance imposes a fee which is not in the nature of local tax, the CTA
correctly dismissed the petition for lack of jurisdiction because the case does not involve a local tax.

Criminal Cases

Criminal cases involving taxes may be filed before the CTA, MTC, or RTC depending upon the amount involved.

The CTA in Division exercises exclusive original jurisdiction over all criminal offenses arising from violations of the
NIRC or Tariff and Customs Code and other laws administered by the BIR or the BOC where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is P1,000,000.00 or more. The judgment, resolution, or
order of the CTA in Division is appealable to the CTA En Banc.

Criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the
BIR or the BOC where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than
P1,000,000.00 or where there is no specified amount claimed shall be tried by the regular courts, MeTC, MTC or
MCTC, or RTC, depending upon the imposable penalty involved in the criminal offense.

The judgment, resolution, or order of the RTC in the exercise of its original jurisdiction is appealable to the CTA in
Division whose decision or resolution is also appealable to the CTA En Banc. The judgment, resolution, or order of
the MTC, MeTC, or MCTC in the exercise of its original jurisdiction is appealable to the RTC whose decision or
resolution may be reviewed by the CTA En Banc.

The decision or resolution of the CTA En Banc is reviewable by the Supreme Court through a petition for review on
certiorari.

Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding
civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with,
and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately
from the criminal action will be recognized.

Tax Collection Cases

Tax collection cases involving final and executory assessments for taxes, fees, charges, and penalties may be filed
before the CTA, MTC, or RTC depending upon the amount involved.

The CTA in Division exercises original jurisdiction in tax collection cases involving final and executory assessments for
taxes, fees, charges, and penalties, where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is P1,000,000.00 or more. The judgment, resolution, or order of the CTA in Division is appealable to the CTA
En Banc.

Collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less
than P1,000,000.00 shall be tried by the proper MTC, MeTC, or MCTC, or RTC depending upon the amount involved.

The judgment, resolution, or order of the RTC in the exercise of its original jurisdiction is appealable to the CTA in
Division whose decision or resolution is also appealable to the CTA En Banc. The judgment, resolution, or order of
the MTC, MeTC, or MCTC in the exercise of its original jurisdiction is appealable to the RTC whose decision or
resolution may be reviewed by the CTA En Banc.
The decision or resolution of the CTA En Banc is reviewable by the Supreme Court through a petition for review on
certiorari.

CTA's Jurisdiction on Cases Involving Constitutionality or Validity of a Tax Law, Regulation, or

Administrative Issuance

There are conflicting rulings as to which court has jurisdiction on cases involving constitutionality or validity of a tax
law, regulation, or administrative issuance. This issue was finally resolved in Banco de Oro, et al. v. Republic of the
Philippine, et al. (G.R. No. 198756, August 16, 2016) where the Supreme Court made the following pronouncements:

"In Commissioner of Internal Revenue v. Leal, the Commissioner issued Revenue Memorandum Order (RMO)
No. 15-91 imposing 5% lending investors tax on pawnshops, and Revenue Memorandum Circular (RMC) No.
43-91 subjecting the pawn ticket to documentary stamp tax. Leal, a pawnshop owner and operator, asked for
reconsideration of the revenue orders, but it was denied by the Commissioner in BIR Ruling No. 221-91. Thus,
Leal filed before the Regional Trial Court a petition for prohibition seeking to prohibit the Commissioner from
implementing the revenue orders. This Court held that Leal should have filed her petition for
prohibition before the Court of Tax Appeals, not the Regional Trial Court, because "the
questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the
Commissioner implementing the Tax Code on the taxability of pawnshops." This Court held that
such rulings in connection with the implementation of internal revenue laws are appealable to the Court of
Tax Appeals under Republic Act No. 1125, as amended.

Likewise, in Asia International Auctioneers, Inc. v. Hon. Parayno, Jr., this Court upheld the jurisdiction
of the Court of Tax Appeals over the Regional Trial Courts, on the issue of the validity of revenue
memorandum circulars. It explained that "the assailed revenue regulations and revenue memorandum
circulars [were] actually rulings or opinions of the [Commissioner of Internal Revenue] on the tax treatment
of motor vehicles sold at public auction within the [Subic Special Economic Zone] to implement Section 12 of
[Republic Act] No. 7227." This Court further held that the taxpayers' invocation of this Court's intervention
was premature for its failure to first ask the Commissioner of Internal Revenue for reconsideration of the
assailed revenue regulations and revenue memorandum circulars.

However, a few months after the promulgation of Asia International Auctioneers, British American Tobacco v. Camacho
pointed out that although Section 7 of Republic Act No. 1125, as amended, confers on the Court of Tax Appeals
jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is
challenged. Thus:

The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act
No. 9282. Section 7 thereof states, in pertinent part:

While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of a law or rule is challenged. Where what is
assailed is the validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts
have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the
regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation
in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the
authority of the courts to determine in an appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of
the Government.

In Drilon v. Lim, it was held:

We stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187,
this authority being embraced in the general definition of the judicial power to determine what are the valid
and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in
 the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of
pecuniary estimation, even as the accused in a criminal action has the right to question in his defense the
constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly
as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme
Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the
constitutionality or validity of any treaty, international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in question.

The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section
145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC
limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The
determination of whether the assailed law and its implementing rules and regulations contravene the
Constitution is within the jurisdiction of regular courts. The Constitution vests the power of judicial review or
the power to declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the regional trial courts. Petitioner, therefore,
properly filed the subject case before the RTC. (Citations omitted)

British American Tobacco involved the validity of: (1) Section 145 of Republic Act No. 8424; (2) Republic Act No. 9334,
which further amended Section 145 of the National Internal Revenue Code on January 1, 2005; (3) Revenue
Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) RMO No. 6- 2003.

A similar ruling was made in Commissioner of Customs v. Hypermix Feeds Corporation. Central to the case was Customs
Memorandum Order (CMO) No. 27-2003 issued by the Commissioner of Customs. This issuance provided for the
classification of wheat for tariff purposes. In anticipation of the implementation of the CMO, Hypermix filed a Petition
for Declaratory Relief before the Regional Trial Court. Hypermix claimed that said CMO was issued without observing
the provisions of the Revised Administrative Code; was confiscatory; and violated the equal protection clause of the
1987 Constitution. The Commissioner of Customs moved to dismiss on the ground of lack of jurisdiction. On the issue
regarding declaratory relief, this Court ruled that the petition filed by Hypermix had complied with all the requisites for
an action of declaratory relief to prosper.

XXX XXX XXX

Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over all matters involving assessments that
were previously cognizable by the Regional Trial Courts (then courts of first instance).

In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of Tax Appeals and elevated its
rank to the level of a collegiate court with special jurisdiction. Section 1 specifically provides that the Court of Tax
Appeals is of the same level as the Court of Appeals and possesses "all the inherent powers of a Court of Justice."

Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to resolve all tax-related issues:

Section 7. Jurisdiction - The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code

or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a
specific period of action, in which case the inaction shall be deemed a denial;

3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them
in the exercise of their original or appellate jurisdiction;
4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or
other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving
the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals;

6) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of
the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs
Code;

7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and
the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and
countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.

The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a
tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment
or claiming a refund. It is only in the lawful exercise of its power to pass upon all matters brought before
it, as sanctioned by Section 7 of Republic Act No. 1125, as amended.

This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of cases
directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance
(revenue orders, revenue memorandum circulars, rulings).

Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes, appeals from the decisions of
quasi-judicial agencies (Commissioner of Internal Revenue, Commissioner of Customs, Secretary of Finance, Central
Board of Assessment Appeals, Secretary of Trade and Industry) on tax-related problems must be brought exclusively
to the Court of Tax Appeals.

In other words, within the judicial system, the law intends the Court of Tax Appeals to have exclusive jurisdiction to
resolve all tax problems. Petitions for writs of certiorari against the acts and omissions of the said quasi-judicial agencies
should, thus, be filed before the Court of Tax Appeals.

Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 12968 provides an exception to the original
jurisdiction of the Regional Trial Courts over actions questioning the constitutionality or validity of tax laws or
regulations. Except for local tax cases, actions directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance may be filed directly before the Court of Tax Appeals.

Furthermore, with respect to administrative issuances (revenue orders, revenue memorandum circulars, or rulings),
these are issued by the Commissioner under its power to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws. Tax rulings, on the other hand, are official positions of the
Bureau on inquiries of taxpayers who request clarification on certain provisions of the National Internal Revenue Code,
other tax laws, or their implementing regulations. Hence, the determination of the validity of these issuances clearly
falls within the exclusive appellate jurisdiction of the Court of Tax Appeals under Section 7(1) of Republic Act No. 1125,
as amended, subject to prior review by the Secretary of Finance, as required under Republic Act No. 8424."

CTA's Jurisdiction Over a Special Civil Action for Certiorari Assailing an Interlocutory Order

In City of Manila v. Hon. Caridad H. Grecia-Cuerdo (G.R. No. 175723, February 4, 2014), the issue resolved by the
Supreme Court was whether or not the CTA has jurisdiction over a special civil action for certiorari assailing an
interlocutory order issued by the RTC in a local tax case. In affirmatively ruling in favor of the jurisdiction of the CTA,
the Supreme Court explained:

"... while it is clearly stated that the CTA has exclusive appellate jurisdiction over decisions, orders or
resolutions of the RTCs in local tax cases originally decided or resolved by them in the exercise of their original
or appellate jurisdiction, there is no categorical statement under RA 1125 as well as the amendatory RA 9282,
 which provides that the CTA has jurisdiction over petitions for certiorari assailing interlocutory orders issued
by the RTC in local tax cases filed before it.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original
jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied from the
mere existence of appellate jurisdiction. Thus, in the cases of Pimentel v. COMELEC, Garcia v. De Jesus,
Veloria v. COMELEC, Department of Agrarian Reform Adjudication Board v. Lubrica, and Garcia v.
Sandiganbayan, this Court has ruled against the jurisdiction of courts or tribunals over petitions for certiorari
on the ground that there is no law which expressly gives these tribunals such power. It must be observed,
however, that with the exception of Garcia v. Sandiganbayan, these rulings pertain not to regular courts but
to tribunals exercising quasi-judicial powers. With respect to the Sandiganbayan, Republic Act No. 8249 now
provides that the special criminal court has exclusive original jurisdiction over petitions for the issuance of the
writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and processes
in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court,
in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect
to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in
the exercise of its original jurisdiction, the power to issue, among others, a writ of certiorari, whether or not
in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the
exercise of their original jurisdiction, is provided under Section 21 of BP 129.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA, Section
1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one
Supreme Court and in such lower courts as may be established by law and that judicial power includes the
duty of the courts of justice to settle actual controversies involving rights which are legally demandable and
enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or instrumentality of the Government.

On the strength of the above constitutional provisions. it can be fairly interpreted that the power of the CTA
includes that of determining whether or not there has been grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is
vested with jurisdiction to issue writs of certiorari in these cases,

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction. over appealed tax
cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason
why the transfer should only be considered as partial, not total."

Annulment of Judgment of the CTA in Division

Annulment of judgment, as provided for in Rule 47 of the Rules of Court, is based only on the grounds of extrinsic
fraud and lack of jurisdiction. It is a recourse that presupposes the filing of a separate and original action for the
purpose of annulling or avoiding a decision in another case. Annulment is a remedy in law independent of the case
where the judgment sought to be annulled is rendered. It is unlike a motion for reconsideration, appeal, or even a
petition for relief from judgment, because annulment is not a continuation or progression of the same case, as in fact
the case it seeks to annul is already final and executory. Rather, it is an extraordinary remedy that is equitable in
character and is permitted only in exceptional cases.

Annulment of judgment involves the exercise of original jurisdiction, as expressly conferred on the Court of Appeals by
Batas Pambansa Bilang (BP Blg.) 129, Section 9(2). It also implies power by a superior court over a subordinate one,
as provided for in Rule 47 of the Rules of Court, wherein the appellate court may annul a decision of the Regional Trial
Court, or the latter court may annul a decision of the Municipal or Metropolitan Trial Court.

But the law and the rules are silent when it comes to a situation similar to the case at bar, in which a court, in this
case the Court of Tax Appeals, is called upon to annul its own judgment. More specifically, in the case at bar, the CTA
sitting en banc is being asked to annul a decision of one of its divisions. However, the laws creating the CTA and
expanding its jurisdiction (RA Nos. 1125 and 9282) and the court's own rules of procedure (the Revised Rules of the
CTA) do not provide for such a scenario.

It is the same situation among other collegial courts. To illustrate, the Supreme Court or the Court of Appeals may sit
and adjudicate cases in divisions consisting of only a number of members, and such adjudication is already regarded
as the decision of the Court itself. It is provided for in the Constitution, Article VIII, Section 4(1) and BP Blg. 129,
Section 4, respectively. The divisions. are not considered separate and distinct courts but are divisions of one and the
same court; there is no hierarchy of courts within the Supreme Court and the Court of Appeals, for they each remain
as one court notwithstanding that they also work in divisions. The Supreme Court sitting en banc is not an appellate
court vis-a-vis its divisions, and it exercises no appellate jurisdiction over the latter. As for the Court of Appeals en
banc, it sits as such only for the purpose of exercising administrative, ceremonial, or other non-adjudicatory functions.

Thus, it appears contrary to these features that a collegial court, sitting en banc, may be called upon to annul a decision
of one of its divisions which had become final and executory, for it is tantamount to allowing a court to annul its own
judgment and acknowledging that a hierarchy exists within such court. In the process, it also betrays the principle that
judgments must, at some point, attain finality. A court that can revisit its own final judgments leaves the door open to
possible endless reversals or modifications which is anathema to a stable legal system.

Thus, the Revised Rules of the CTA and even the Rules of Court which apply suppletorily thereto provide for no instance
in which the en banc may reverse, annul or void a final decision of a division. Verily, the Revised Rules of the CTA
provide for no instance of an annulment of judgment at all. On the other hand, the Rules of Court, through Rule 47,
provides, with certain conditions, for annulment of judgment done by a superior court, like the Court of Appeals, against
the final judgment, decision or ruling of an inferior court, which is the Regional Trial Court, based on the grounds of
extrinsic fraud and lack of jurisdiction. The Regional Trial Court, in turn, also is empowered to, upon a similar action,
annul a judgment or ruling of the Metropolitan or Municipal Trial Courts within its territorial jurisdiction. But, again, the
said Rules are silent as to whether a collegial court sitting en banc may annul a final judgment of its own division.

As earlier explained, the silence of the Rules may be attributed to the need to preserve the principles that there can
be no hierarchy within a collegial court between its divisions and the en banc, and that a court's judgment, once final,
is immutable.

A direct petition for annulment of a judgment of the CTA to the Supreme Court, meanwhile, is likewise unavailing, for
the same reason that there is no identical remedy with the High Court to annul a final and executory judgment of the
Court of Appeals. RA No. 9282, Section I puts the CTA on the same level as the Court of Appeals, so that if the latter's
final judgments may not be annulled before the Supreme Court, then the CTA's own decisions similarly may not be so
annulled. And more importantly, it has been previously discussed that annulment of judgment is an original action, yet,
it is not among the cases enumerated in the Constitution's Article VIII, Section 5 over which the Supreme Court
exercises original jurisdiction. Annulment of judgment also often requires an adjudication of facts, a task that the
Supreme Court loathes to perform, as it is not a trier of facts.

Nevertheless, there will be extraordinary cases, when the interest of justice highly demands it, where final judgments
of the Court of Appeals, the CTA, or any other inferior court may still be vacated or subjected to the Supreme Court's
modification, reversal, annulment, or declaration as void. But it will be accomplished not through the same
species of original action or petition for annulment as that found in Rule 47 of the Rules of Court but
through any of the actions over which the Supreme Court has original jurisdiction as specified in the
Constitution, like 65 of the Rules of Court.

Hence, the next query is: Did the CTA En Banc correctly deny the petition for annulment of judgment filed by petitioner?

As earlier discussed, the petition designated as one for annulment of judgment (following Rule 47) was legally and
procedurally infirm and, thus, was soundly dismissed by the CTA En Banc on such ground. Also, the CTA could not
have treated the petition as an appeal or a continuation of the case before the CTA First Division because the latter's
decision had become final and executory and, thus, no longer subject to an appeal.

Instead, what remained as a remedy for the petitioner was to file a petition for certiorari under Rule 65, which could
have been filed as an original action before this Court and not before the CTA En Banc. Certiorari is available when
there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, such as in the case
at bar. Since the petition below invoked the gross and palpable negligence of petitioner's counsel which is allegedly
tantamount to its being deprived of due process and its day in court as party-litigant and, as it also invokes lack of
jurisdiction of the CTA First Division to entertain the petition filed by private respondent since the same allegedly fails
to comply with the reglementary periods for judicial remedies involving administrative claims for refund of excess
unutilized input VAT under the National Internal Revenue Code (NIRC), which periods it claims to be jurisdictional, then
the proper remedy that petitioner should have availed of was indeed a petition for certiorari under Rule 65, an original
or independent action premised on the public respondent having acted without or in excess of jurisdiction or with grave
abuse of discretion amounting to lack or excess of jurisdiction. However, since a certiorari petition is not a continuation
of the appellate process borne out of the original case but is a separate action focused on actions that are in excess or
wanting of jurisdiction, then it cannot be filed in the same tribunal whose actions are being assailed but is instead
cognizable by a higher tribunal which, in the case of the CTA, is this Court. In the case involving petitioner, the petition
could have been filed directly with this Court, even without any need file a motion for reconsideration with the CTA
division or En Banc, as the case appears to fall under one of the recognized exceptions to the rule requiring such a
motion as a prerequisite to filing such petition. (Commissioner of Internal Revenue v. Kepco Ilijan Corporation, G.R.
No. 199422, June 21, 2016)

Who May Appeal; Period to File Petition

A party adversely affected by a decision, ruling, or the inaction of the Commissioner of Internal Revenue on disputed
assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs,
the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court
in the exercise of its original jurisdiction may appeal to the CTA by petition for review filed within thirty (30) days after
receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal
Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims
for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within
the 2-year period prescribed by law from payment or collection of the taxes.

A party adversely affected by a decision or resolution of the CTA Division on a motion for reconsideration or new trial
may appeal to the CTA En Banc by filing before it a petition for review with in fifteen (15) days from receipt of a copy
of the questioned decision or resolution. Upon proper motion and the payment of the full amount of the docket and
other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed, the CTA En Banc
may grant an additional period not exceeding fifteen (15) days from the expiration of the original period within which
to file the petition for review.

A party adversely affected by a decision or ruling of the Central Board of Assessment Appeals and the Regional Trial
Court in the exercise of their appellate jurisdiction may appeal to the CTA En Banc by filing before it a petition for
review within thirty (30) days from receipt of a copy of the questioned decision or ruling. (Section 3, Rule 8, Revised
Rules of the Court of Tax Appeals)

Where to Appeal; Mode of Appeal

An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments
or claim for refund of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Commissioner
of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, and the
Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the CTA by filing before it a petition
for review as provided in Rule 42 of the Rules of Court. The CTA in Division shall act on the appeal.

An appeal from a decision or resolution of the CTA in Division on a motion for reconsideration or new trial shall be
taken to the CTA En Banc by petition for review as provided in Rule 43 of the Rules of Court.

An appeal from a decision or ruling of the Central Board of Assessment Appeals or the Regional Trial Court in the
exercise of their appellate jurisdiction shall be taken to the CTA by filing before it a petition for review as provided in
Rule 43 of the Rules of Court. The Court En Banc shall act on the appeal. (Section 4, Rule 8, Revised Rules of the Court
of Tax Appeals)

APPEAL TO THE SUPREME COURT

A party adversely affected by a decision or ruling of the CTA En Banc may appeal therefrom by filing with the Supreme
Court a verified petition for review on certiorari within fifteen (15) days from receipt of a copy of the decision or
resolution, as provided in Rule 45 of the Rules of Court.
If such party has filed a motion for reconsideration or for new trial, the period herein fixed shall run from the party's
receipt of a copy of the resolution denying the motion for reconsideration or for new trial. (Section 1, Rule 16 of the
Revised Rules of Court of Tax Appeals)

The motion for reconsideration or for new trial filed before the CTA shall be deemed abandoned if, during its pendency,
the movant shall appeal to the Supreme Court. (Section 2, Rule 16 of the Revised Rules of Court of Tax Appeals)
 CHAPTER VI
LOCAL TAXATION

Preliminary

In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has
become a tool to realize social justice and the equitable distribution of wealth, economic progress, and the protection
of local industries, as well as public welfare and similar objectives. Taxation assumes even greater significance with
the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress;
local legislative bodies are now given direct authority to levy taxes, fees, and other charges pursuant to Article X,
Section 5 of the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, 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."

This paradigm shift results from the realization that genuine development can be achieved only by strengthening local
autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government
structure has bred a culture of dependence among local government leaders on the national leadership. It has also
"dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders." The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services and confer them sufficient powers to generate their own sources for the purpose. (National
Power Corporation v. City of Cabanatuan, G.R. No. 149110, April 9, 2003)

Under regime of the 1935 Constitution, no similar delegation of tax powers was provided, and local government units
instead derived their tax powers under a limited statutory authority. Whereas, then, the delegation of tax powers
granted at that time by statute to local governments was confined and defined (outside of which the power was deemed
withheld), the present constitutional rule (starting with the 1973 Constitution), however, would broadly confer such
tax powers subject only to specific exceptions that the law might prescribe. (Manila Electric Company v. Province of
Laguna, G.R. No. 131359, May 5, 1999)

As it is now, the power to tax of local government units (LGUS) is no longer by virtue of a valid delegation of authority
by Congress but pursuant to a direct authority as conferred by Section 5, Article X of the 1987 Constitution. This power,
however, is still subject to guidelines and limitations which Congress may provide consistent with the basic policy of
local autonomy.

Implementing Statutes of Local Taxation

While the power to tax is now a direct grant of the Constitution, Congress is still constitutionally bound under Section
3, Article X of the 1987 Constitution to enact a local government code providing guidelines and limitations in the LGUs
power to create its own sources of revenue and in the imposition and levy of taxes, fees, and charges. It is through
this mandate that Republic Act No. 7160 or the Local Government Code of 1991 was enacted.

The LGC was approved on October 10, 1991 and took effect on January 1, 1992 after its complete publication in at
least one (1) newspaper of general circulation. (Section 536, LGC)

The LGC provides for the exercise by local government units of their power to tax, the scope thereof or its limitations,
and the exemption from taxation. (Mactan Cebu International Airport Authority v. Ferdinand J. Marcos, G.R. No.
120082, September 11, 1996)

Despite the enactment of Congress of the LGC, every LGU still needs to enact their respective ordinances, commonly
called revenue code, that must be consistent with the provisions of the LGC. The LGC is a general law which merely
provides guidelines in the exercise of the LGUs power to create its own sources of revenue and in the imposition and
levy of taxes, fees, and charges but it does not, by itself, impose a tax, fee, or charge. It is the local tax ordinance that
empowers a local government unit to impose taxes, fees, or charges. Thus, every LGU needs an ordinance or revenue
code to impose their respective tax, fee, or charge pursuant to Section 132 of the LGC, viz:
Section 132. Local Taxing Authority. The power to impose a tax, fee, or charge or to generate revenue under this Code
shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.

Every ordinance enacted by the respective sanggunian of the LGUS must conform with the guidelines set forth under
the LGC otherwise, its validity and legality are susceptible to challenge.

Fundamental Principles of Local Taxation

The fundamental principles of local taxation serve as the general limitations in the LGUs' exercise of the taxing and
other revenue-raising powers. These principles, under Section 130 of the LGC, are as follows:

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. not be contrary to law, public policy, national economic policy, or in the restraint of trade;

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
the 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.

As can be gleaned, the fundamental principles of local taxation are similar to the limitations in exercise of the State of
its taxing power. The principle of uniformity and equality also apply in local taxation.

Compared to national taxes, the collection of local taxes cannot be allowed or designated to any private person. The
payment of local taxes, fees, and charges should be made at the local treasurer, unlike national taxes which payment
can be made through an authorized agent bank, a private person.

As provided in Section 170 of the LGC, all local taxes, fees, and charges shall be collected by the provincial, city,
municipal, or barangay treasurer, or their duly authorized deputies. The provincial, city, or municipal treasurer may
designate the barangay treasurer as his deputy to collect local taxes, fees, or charges.

Local Taxing Authority

The local taxing power includes the (1) power to impose or levy tax, fee, or charge; (2) power to grant exemption; (3)
power to adjust local tax rates; and (4) power to prescribe penalties for tax violations..

The power to impose a tax, fee, or charge or to generate revenue under the LGC is exercised by the sanggunian of
the local government unit concerned through an appropriate ordinance. (Section 132, LGC) Every local government
unit has its own sanggunian; sangguniang panlalawigan for the province, sangguniang panlungsod for the city,
sangguniang pambayan for municipality, and sangguniang pambarangay for barangays. The sanggunian serves as the
legislative department of the LGUs tasked

to enact ordinance of local application. They are like the Congress of the national government. The power to tax also
includes the power to grant tax exemption. The grant of tax exemptions, incentives or reliefs under the LGC is also
through the enactment of an ordinance. (Section 192, LGC)

The LGU also has the authority to adjust the tax rates prescribed in the LGC. The adjustment is limited only to once
every five (5) years and in no case shall such adjustment exceed ten percent (10%) of the rates fixed under the LGC.
The adjustment of rates is also through an ordinance. (Section 191, LGC)
To ensure compliance with local tax ordinances, the sanggunian of a local government unit is authorized to prescribe
fines or other penalties for violation of tax ordinances. The penalty may be in the form of fine in an amount not less
than P1,000.00 nor more than P5,000.00, or imprisonment of not less than one (1) month nor more than six (6)
months. Such fine or other penalty, or both, shall be imposed at the discretion of the court.

With respect to the barangay, the sangguniang barangay may prescribe a fine of not less than P100.00 nor more than
P1,000,00, (Section 516, LGC) Note that barangay cannot enact an ordinance imposing a penalty of imprisonment for
its violation.

Rationale for the Enactment of an Ordinance

The LGC does not, by itself, impose or levy taxes, fees, and charges. To levy taxes, fees, and charges, every LGU must
enact an ordinance. Without the ordinance, LGU cannot impose and collect taxes, fees, and charges..

Considering that the LGC provides for guidelines and limitations on the taxing power of the LGU, it is apparent that it
merely provides for the maximum or the ceiling of the tax rates an LGU may impose. For example, tax on transfer of
real property ownership under Section 135 is a rate not more than fifty percent (50%) of one percent (1%) of the total
consideration involved, or in case of franchise tax under Section 137 which is rate not exceeding fifty percent (50%)
of one percent (1%) of the gross annual receipts. One might ask, what is this rate that is not more than fifty percent
(50%) of one percent (1%) or what is this rate that is not exceeding fifty percent (50%) of one percent (1%)? There
are so many rates that are more than or not exceeding fifty percent (50%) of one percent (1%), it is the ordinance
that will provide for a fixed rate of tax that is within the limits provided for in the LGC.

APPROVAL, EFFECTIVITY, AND CHALLENGE OF TAX ORDINANCE

Approval and Effectivity of Tax Ordinance

In general, the ordinance goes through the process of (1) enactment by the sanggunian, (2) approval by the local chief
executive, (3) review of the higher sanggunian, and (4) publication or posting, before it becomes effective.

Every ordinance enacted by the sangguniang panlalawigan, sangguniang panlungsod, or sangguniang bayan shall be
presented to the provincial governor or city or municipal mayor who may approve the same or exercise his power to
veto. If he approves the same, he shall affix his signature. For ordinance enacted by the sangguniang barangay, it
shall be signed by the punong barangay upon approval by the majority of all its members. The punong barangay does
not have the power to veto an ordinance. (Section 54, LGC)

For local tax ordinances and revenue measures, the LGC mandates that there must be a public hearing conducted for
the purpose prior to its enactment. (Section 187, LGC) Without such public hearing, local tax ordinances and revenue
measure are null and void. Hence, in order to impose a local tax, the two mandatory requirements are (1) ordinance
and (2) public hearing.

In Antonio Reyes v. Secretary of Justice Franklin Drilon (G.R. No. 118233, December 10, 1999) citing Belen C. Figuerres
v. Court of Appeals (G.R. No. 119172, March 25, 1999), the Supreme Court highlighted the importance of public hearing
prior to enactment of local tax ordinance. In this case, petitioners failed to present evidence of failure to conduct public
hearing by the LGU concerned. The High Court said that although the Sanggunian had the control of records or the
better means of proof regarding the facts alleged, petitioners were not relieved from the burden of proving their
averments. Proof that public hearings were not held falls on petitioners' shoulders. For failing to discharge that burden,
their petitions were properly dismissed.

Within ten (10) days after the approval, the local tax ordinance or revenue measure shall be published in full for three
(3) consecutive days in a newspaper of local circulation or posted in at least two (2) conspicuous and publicly accessible
places in case the provinces, cities and municipalities do not have newspapers of local circulation. (Section 188, LGC)
It is only after the complete publication that the local tax ordinance or revenue measure becomes effective.

Questions on Constitutionality and Legality of Tax Ordinance or Revenue Measure

After the tax ordinance or revenue measures becomes effective, any person who wants to assail or challenge the
constitutionality and legality of the tax ordinance or revenue measures may avail of the remedies provided in Section
187 of the LGC. These remedies are summarized as follows:
 a. Any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal before the Secretary of Justice;

b. The appeal must be made within thirty (30) days from the effectivity of the tax ordinance or revenue
measure;

c. The Secretary of Justice has sixty (60) days from the date of receipt of the appeal to render the decision;
and

d. In case of adverse decision of the Secretary of Justice or the lapse of the 60-day period without a decision
being rendered, the aggrieved party has thirty (30) days from receipt of the adverse decision, or from the
lapse of the 60-day period in case of inaction, to file an appeal to the court of competent jurisdiction.

Nature of the Authority of the Secretary of Justice

Section 187 of the LGC authorizes the Secretary of Justice to review only the constitutionality or legality of the tax
ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside
a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that
enacted the measure. (Franklin Drilon u. Alfredo Lim, G.R. No. 112497, August 4, 1994)

In Franklin Drilon, then Secretary of Justice Drilon did set aside the Manila Revenue Code, but he did not replace it
with his own version of what the Code should be. He did not pronounce the ordinance unwise or unreasonable as a
basis for its annulment. He did not say that in his judgment it was a bad law. What he found only was that it was
illegal. All he did in reviewing the said measure was to determine if the petitioners were performing their functions in
accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of
powers to the city government under the LGC. As ruled by the Supreme Court, that was an act not of control but of
mere supervision.

In the recent case of Leila De Lima v. City of Manila (G.R. No. 222886, October 17, 2018), the Supreme Court held
that the determination by the Secretary of Justice of the constitutionality or legality of the ordinance under Section 187
of the LGC involves an exercise of quasi-judicial power. In this case, which involves the legality and constitutionality of
a certain provision in Ordinance No. 8331 or the Revenue Code of Manila filed by retail business operators, it was held
that the evaluation of the appeal lodged by the retail business operators involves an exercise of quasi-judicial power
by the Secretary of Justice. In deciding the same, the Secretary of Justice must ascertain the existence of factual
circumstances specifically, whether Section 104 of Ordinance No. 8331 was passed in accordance with the procedure
and the limitations set forth by the LGC. And from there make a conclusion as to the validity and applicability of the
same to the retail business operators of Manila.

Effect of Filing an Appeal to the Secretary of Justice

The filing of an appeal to the Secretary of Justice does not suspend the effectivity of the ordinance and the accrual
and payment of the tax, fee, or charge levied therein. (Section 187, LGC)

This is because all laws, including ordinances, enjoy the presumption of constitutionality. (Alfredo Tano v. Hon. Gov.
Salvador Socrates, G.R. No. 110249, August 21, 1997) In accordance with the presumption of validity in favor of an
ordinance, their constitutionality or legality should be upheld in the absence of evidence showing that the procedure
prescribed by law was not observed in their enactment. (Belen C. Figuerres v. Court of Appeals, G.R. No. 119172,
March 25, 1999)

Doctrine of Exhaustion of Administrative Remedies

In the case of Crisanto M. Aala, et al. v. Hon. Rey T. Uy, (G.R. No. 202781, January 10, 2017), the Supreme Court
explained that parties are generally precluded from immediately seeking the intervention of courts when "the law
provides for remedies against the action of an administrative board, body, or officer." The practical purpose behind the
principle of exhaustion of administrative remedies is to provide an orderly procedure by giving the administrative agency
an "opportunity to decide the matter by itself correctly and to prevent unnecessary and premature resort to the courts."
Further in Crisanto M. Aala, under Section 187 of the LGC, aggrieved taxpayers who question the validity or legality of
a tax ordinance are required to file an appeal before the Secretary of Justice before they seek intervention from the
regular courts.

In Antonio Reyes v. Court of Appeals (G.R. No. 118233, December 10, 1999), the Supreme Court declared the
mandatory nature of Section 187 of the LGC.

The same principle was reiterated in Jardine Davies Insurance Brokers, Inc. v. Aliposa (G.R. No. 118900, February 27,
2003). In Jardine, the then Sangguniang Bayan of Makati enacted Municipal Ordinance No. 92-072, otherwise known
as the Makati Revenue Code, which provided for the schedule of "real estate, business, and franchise taxes at rates
higher than those in the Metro Manila Revenue Code." Under this ordinance, Jardine Davies Insurance

Brokers, Inc. (Jardine) was assessed of taxes, fees, and charges. Jardine believed that the ordinance was void. It filed
before the Regional Trial Court a case seeking refund for the alleged overpayment of taxes. The trial court dismissed
the complaint. Aggrieved, Jardine filed before the Supreme Court a petition for review raising pure questions of law.
Ruling on the petition, the Supreme Court observed that Jardine essentially questioned the validity of the tax ordinance
without filing an appeal before the Secretary of Justice, in violation of Section 187 of the LGC. In view of such violation,
the petition of Jardine was denied.

Exception to the Doctrine of Exhaustion of Administrative Remedies

The doctrine of exhaustion of administrative remedies, like the doctrine on hierarchy of courts, is not an iron-clad rule.
It admits of several well-defined exceptions. In Crisanto M. Aala, et al., the Supreme Court presented the following
exceptions:

a. In Province of Zamboanga del Norte v. Court of Appeals (G.R. No. 109853, October 11, 2000), the principle of
exhaustion of administrative remedies may be dispensed in the following instances: (1) When there is a violation of
due process; (2) when the issue involved is purely a legal question; (3) when the administrative action is patently
illegal and amounts to lack or excess of jurisdiction; (4) when there is estoppel on the part of the administrative agency
concerned; (5) when there is irreparable injury; (6) when the respondent is a department secretary whose acts, as an
alter ego of the President, bears the implied and assumed approval of the latter; (7) when to require exhaustion of
administrative remedies would be unreasonable; (8) when it would amount to a nullification of a claim; (9) when the
subject matter is a private land in land case proceedings; (10) when the rule does not provide a plain, speedy and
adequate remedy: (11) when there are circumstances indicating the urgency of judicial intervention; and unreasonable
delay would greatly prejudice the complainant; (12) when no administrative review is provided by law; (13) where the
rule of qualified political agency applies; and (14) when the issue of non exhaustion of administrative remedies has
been rendered moot.

b. In Alta Vista Golf and Country Club v. City of Cebu (G.R. No. 180235, January 20, 2016), the Supreme Court excluded
the case from the strict application of the principle on exhaustion of administrative remedies, particularly for non-
compliance with Section 187 of the LGC of 1991, on the ground that the issue raised in the petition was purely legal.

Secretary of Justice Can Only Review Appeals Pertaining to Local Taxes

Section 187 of the LGC, which outlines the administrative procedure for questioning the constitutionality or legality of
a tax ordinance or revenue measure, does not find application in cases where the imposition is in the nature of a
regulatory fee. The provision requires that an appeal of a tax ordinance or revenue measure should be made to the
Secretary of Justice within thirty (30) days from the effectivity of the ordinance, viz:

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public
Hearings. - The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment
thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures
may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render
a decision within sixty (60) days from the date of receipt of the appeal x x x.

It can be gleaned from the provision that review by the Secretary of Justice is mandatory only when what is being
questioned is a tax ordinance or revenue measure. Section 187 does not require the same from parties who assail
ordinances imposing regulatory fees. Stated otherwise, the procedure found in Section 187 must be followed when an
ordinance imposes a tax; the institution of an action in court without complying with the requirements of the provision
will lead to the dismissal of the case on the ground of non-exhaustion of administrative remedies. However, when an
ordinance imposes a fee, direct recourse to the courts may be had without prior protest before the Secretary of Justice.
Simply put, fees are not subject to the procedure outlined under Section 187. (City of Cagayan De Oro v. Cagayan
Electric Power & Light, Co., Inc. (CEPALCO), G.R. No. 224825, October 17, 2018)

Simply, ordinances that impose regulatory fees need not be challenged before the Secretary of Justice. Only ordinances
imposing taxes are required to be challenged first before the Secretary of Justice as provided under Section 187 of the
LGC.

Appeal to Court of Competent Jurisdiction

Noticeably, Section 187 of the LGC does not specify the method of judicial recourse the aggrieved party may resort to
in case of an adverse decision or inaction of the Secretary of Justice. Section 187 simply states that an appeal may be
made to a court of competent jurisdiction. The question now arises as to which court is competent to take cognizance
of an appeal from the decision or inaction of the Secretary of Justice.

Several authorities in local taxation law opine that the court of competent jurisdiction referred to in Section 187 of the
LGC is the Regional Trial Court being a court of general jurisdiction, and the action is in the nature of declaratory relief
under Rule 63 of the Rules of Court.

However, in the recent case of Leila De Lima v. City of Manila (G.R. No. 222886, October 17, 2018), the Supreme Court
held that the decision of the Secretary of Justice on the legality or constitutionality of tax ordinances and revenue
measures under Section 187 of the LGC is a proper subject of appeal through a petition for review under Rule 43 of
the Rules of Court.

In so ruling, the Supreme Court explained that appellate jurisdiction over the resolution of the Secretary of Justice is
determined by the nature of the power exercised by the latter under Section 187 of the LGC. The subject matter of
review is the decision of the Secretary of Justice evaluating the legality or constitutionality of a local revenue ordinance,
an act which is quasi-judicial in nature, and therefore may be the subject of an appeal through a petition for review
under Rule 43 of the Rules of Court.

Quasi-judicial or administrative adjudicatory power is that which vests upon the administrative agency the authority to
adjudicate the rights of persons before it. It involves the power to hear and determine questions of fact and decide in
accordance with the standards laid down by law issues which arise in the enforcement and administration thereof.
Likewise, the performance "in a judicial manner of an act that is essentially of an executive or administrative in nature,
where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive
or administrative duty entrusted" to the public officer or administrative agency.

In the performance of judicial or quasi-judicial acts, there must be a law that gives rise to some specific rights of
persons or property from which the adverse claims are rooted, and the controversy ensuing therefrom is brought before
a tribunal, board, or officer clothed with power and authority to determine the law and adjudicate the right of the
contending parties.

Contrary to the petitioner's submission, in the instant controversy, the evaluation of the appeal lodged by the retail
business operators involves an exercise of quasi-judicial power by the Secretary of Justice. In deciding the same, the
Secretary of Justice must ascertain the existence of factual circumstances specifically, whether Section 104 of Ordinance
No. 8331 was passed in accordance with the procedure and the limitations set forth by the LGC. And from there make
a conclusion as to the validity and applicability of the same to the retail business operators of Manila.

Considering that the subject matter of review is an exercise of quasi-judicial power by the Secretary of Justice, the
latter's decision on the legality or constitutionality of tax ordinances and revenue measures under Section 187 of the
LGC is a proper subject of appeal through a petition for review under Rule 43.

The Supreme Court went on further to state the same. decision, when tainted with grave abuse of discretion amounting
to lack or excess of jurisdiction, may be elevated to the courts through a special civil action for certiorari under Rule
65, to correct errors of jurisdiction. The availability of a special civil action for certiorari under Rule 65 as a remedy is
justified by the fact that the constitutionality of a governmental act, in the form of Ordinance No. 8331 by the City
Council of Manila, is questioned. As in that case, the questioned act or exercise of functions are automatically regarded
to have been committed with grave abuse of discretion for being acts undertaken outside the contemplation of the
Constitution.

The proper venue for the foregoing actions, however, is the CA and not the RTC in accordance with Section 4, Rule 65
of the Rules of Court. In the consolidated cases of Association of Medical Clinics for Overseas Workers, Inc. (AMCOW)
v. GCC Approved Medical Centers Association, Inc., et al. (G.R. No. 207132, December 6, 2016), the Court emphasized
that the "acts or omissions by quasi-judicial agencies regardless of whether the remedy involves a Rule 43 appeal or a
Rule 65 petition for certiorari, is cognizable by the Court of Appeals."

Simply, the CA is the court vested with exclusive original jurisdiction to entertain a petition for certiorari under Rule 65
of the Rules of Court questioning the acts of quasi-judicial agencies.

COMMON LIMITATIONS ON THE TAXING POWER OF LGU

As provided in Section 5, Article X of the 1987 Constitution, Congress may provide guidelines and limitations on the
LGUs' power to create sources of revenue and imposition of taxes, fees, and charges. Thus, when Congress enacted
the LGC, it enumerates in Section 133 the limitations on the taxing power of LGUS.

This means LGUs cannot exercise its taxing power in contravention of the limitations provided under the LGC. Being
common limitations, they apply to provinces, cities, municipalities, and barangays. Some of these limitations are
absolute, while others are relative because they admit of exception.

a. Income tax, except when levied on banks and other financial institutions

Section 133(a) prohibits LGUs from imposing income tax, a national internal revenue tax. This limitation is relative only
because this does not apply to banks and other financial institutions. This means LGUs can enact ordinance imposing
income tax on these taxpayers.

As used in the LGC, "banks and other financial institutions" include non-bank financial intermediaries, lending investors,
finance and investment companies, pawnshops, money shops, insurance companies, stock markets, stock brokers and
dealers in securities and foreign exchange, as defined under applicable laws, or rules and regulations thereunder.
(Section 131(e), LGC)

In allowing LGUs to impose income tax on banks and other financial institutions, double taxation still does not arise
despite these entities being levied and made to pay income tax to the BIR. This is because for double taxation to set
in, the tax must be imposed by the same taxing authority. In this case, there are two (2) different taxing authorities,
the national government and the local government; thus, no double taxation.

b. Documentary stamp tax

Documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific instruments. Examples of such
privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment
of documentary stamp taxes are leases of land, mortgages, pledges, and trusts, and conveyances of real property.
(Antam Pawnshop Corporation v. Commissioner of Internal Revenue, G.R. No. 167962, September 19, 2008)

Documentary stamp taxes are thus levied on the exercise of these privileges through the execution of specific
instruments, independently of the legal status of the transactions giving rise thereto. The documentary stamp taxes
must be paid upon the issuance of the said instruments, without regard to whether the contracts which gave rise to
them are rescissible, void, voidable, or unenforceable. (Philippine Home Assurance Corporation v. Commissioner of
Internal Revenue, G.R. No. 119446, January 21, 1999)

The prohibition on LGUs to impose documentary stamp tax is absolute.

c. Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa, except as otherwise
provided herein
Section 130(c) provides for the limitation of the taxing power of LGUs to impose transfer taxes, or the tax on the
gratuitous transfer of property. These taxes, estate tax and donor's tax, are imposed under the NIRC and collected by
the BIR.

Section 130(c) is not an absolute limitation because it states "except otherwise provided herein. "The exception is
found in Section 135 of the LGC which provides for tax on transfer of real property ownership. Provinces and cities can
impose this tax.

At present, there is no more inheritance tax. This tax was abolished when its provision was repealed by Presidential
Decree No. 69 dated November 24, 1972.

d. 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

This limitation is imposed on LGUS because it is the Bureau of Customs, under the Tariff and Customs Code, which is
authorized to collect these fees and charges. The limitation is, however, relative only because under Section 155 of the
LGC, LGUs may fix the rates for the imposition of toll fees or charges for the use of any public road, pier, or wharf,
waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned.

e. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing through,
the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for
bridges, or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or
merchandise

Under this limitation, an ordinance imposing fees on goods carried into or out of, or passing through the issuing LGU's
territory is null and void. As long as the subject matter of the imposition is goods, such imposition, tax, fee, or charge
is prohibited no matter what the nomenclature may be or how such tax, fee, or charge is denominated.

In Palma Development Corporation v. Municipality of Malangas, Zamboanga Del Sur (G.R. No. 152492, October 16,
2003), a municipal ordinance was enacted imposing service fee for the use of the municipal roads or streets leading to
the wharf and for police surveillance fee on all goods and all equipment harbored or sheltered in the premises of the
wharf and other fee within the jurisdiction of the municipality. Palma Development Corporation challenged the said
ordinance for being violative of Section 133(e) of the LGC.

In ruling in favor of Palma Development Corporation, the Supreme Court held that the service fee imposed on vehicles
using municipal roads leading to the wharf is valid. However, Section 133(e) of RA No. 7160 prohibits the imposition,
in the guise of wharfage, of fees-as well as all other taxes or charges in any form whatsoever-on goods or merchandise.
It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form
of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section
133(e).

f. Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen

"Marginal Farmer or Fisherman" refers to an individual engaged in subsistence farming or fishing which shall be limited
to the sale, barter or exchange of agricultural or marine products produced by himself and his immediate family.
(Section 131(p), LGC)

"Agricultural Product" includes the yield of the soil, such as corn, rice, wheat, rye, hay, coconuts, sugarcane, tobacco,
root crops, vegetables, fruits, flowers, and their by-products; ordinary salt; all kinds of fish; poultry; and livestock and
animal products, whether in their original form or not. (Section 131(a), LGC)

This prohibition is absolute with respect to marginal farmers or fisherman. This limitation however does not apply if
the entity involved is already engaged in the business of trading or selling of agricultural and aquatic products, they
being no longer marginal farmer or fisherman.
g. Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for
a period of six (6) and four (4) years, respectively from the date of registration Under the Executive
Order No. 226 or the Omnibus Investment

Code, "pioneer enterprise" shall mean a registered enterprise:

(1) engaged in the manufacture, processing or production, and not merely in the assembly or packaging of goods,
products, commodities or raw materials that have not been or are not being produced in the Philippines on a commercial
scale, or

(2) which uses a design, formula, scheme, method, process or system of production or transformation of any element,
substance or raw materials into another raw material or finished goods which is new and untried in the Philippines, or

(3) engaged in the pursuit of agricultural, forestry and mining activities and/or services including the industrial aspects
of food processing whenever appropriate, pre-determined by the Board, in consultation with the appropriate
Department, to be feasible and highly essential to the attainment of the national goal, in relation to a declared specific
national food and agricultural program for self sufficiency and other social benefits of the project, or

(4) which produces non-conventional fuels or manufactures equipment which utilize non-conventional sources of
energy or uses or converts to coal or other non conventional fuels or sources of energy in its production, manufacturing
or processing operations.

By residual definition, "non-pioneer enterprise" shall include all registered producer enterprises other than pioneer
enterprises.

The prohibition on the imposition of tax is limited only within the period of six (6) or four (4) years, as the case maybe.
Thus, after the expiration of the said periods of exemption, LGUs cannot now impose taxes on these enterprises.

h. Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and
taxes, fees, or charges on petroleum products

Section 133(h) contemplates two (2) kinds of taxes which cannot be imposed by LGUs, namely (1) excise taxes on
articles enumerated under the NIRC, as amended, and (2) taxes, fees, and charges on petroleum products. Incidentally,
petroleum products are also excisable articles under Chapter V of the NIRC.

Business taxes under the NIRC are VAT, percentage tax, and excise tax. In the first limitation, LGUs are prohibited
from imposing excise tax on articles enumerated under the NIRC but LGUs are not prohibited from imposing other
business taxes, like VAT and Percentage Tax, on these articles. In fact, Section 143(h) of the LGC allows an imposition
of business tax on any business subject to the excise, value-added, or percentage tax under NIRC provided that the
rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

On the contrary, the second limitation pertaining to petroleum products is broad enough to cover all kinds of impositions
because the Section 133(h) states "taxes, fees and charges," thus, an absolute prohibition.

In Petron Corporation v. Mayor Tobias Tiangco (G.R. No. 158881, April 16, 2008), the Supreme Court resolved the
issue as to whether a local government unit is empowered under the LGC to impose business taxes on persons or
entities engaged in the sale of petroleum products. In ruling in favor of Petron Corporation, the Supreme Court held:

"The language of Section 133(h) makes plain that the prohibition with respect to petroleum
products extends not only to excise taxes thereon, but all "taxes, fees and charges." The earlier
reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation: all articles
already covered by excise taxation under the NIRC. such as alcohol products, tobacco products, mineral
products, automobiles, and such non-essential goods as jewelry, goods made of precious metals, perfumes,
and yachts and other vessels intended for pleasure or sports. In contrast, the later reference to "taxes, fees
and charges" pertains only to one class of articles of the many subjects of excise taxes, specifically, "petroleum
products". While local government units are authorized to burden all such other class of goods with "taxes,
fees and charges," excepting excise taxes, a specific prohibition is imposed barring the levying of any other
type of taxes with respect to petroleum products."
Simply, Section 133(h) of the LGC prohibits the imposition of local business taxes on petroleum products. This is an
absolute prohibition.

i. Percentage or Value Added Tax (VAT) on sales, barters, or exchanges or similar transactions on goods
or services except as otherwise provided herein

This prohibition also admits of an exception. Section 143(h) of the LGC provides that municipalities are empowered to
impose business tax on any business subject to the excise, value-added or percentage tax under NIRC provided that
the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year.

j. 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

This is not the only prohibition with respect to imposition of local taxes to common carriers. A similar provision exists
in Section 117 of the NIRC which states that the gross receipts of common carriers derived from their incoming and
outgoing freight shall not be subjected to the local taxes imposed under the LGC.

A landmark case on this matter is First Philippine Industrial Corporation v. Court of Appeals (G.R. No. 125948, December
29, 1998), where the Supreme Court held that an oil pipeline operator,

like First Philippine Industrial Corporation, is a common carrier engaged in the business of transporting or carrying
goods, i.e., petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently,
that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The
fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. As such, the
prohibition under Section 1336) of the LGC applies to them.

k. Taxes on premiums paid by way or reinsurance or retrocession A contract of reinsurance is one by

which an insurer procures a

third person to insure him against loss or liability by reason of such original insurance. (Section 97, Republic Act No.
10607) This is an absolute prohibition on the taxing power of the LGUs.

l. Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all kinds of licenses
or permits for the driving thereof, except tricycles

Section 133(1) contemplates two (2) prohibitions, namely (1) taxes, fees or charges for the registration of motor
vehicles, and (2) the issuance of all kinds of licenses or permits for the driving thereof, except tricycles.

"Motor Vehicle" means any vehicle propelled by any power other than muscular power using the public roads, but
excluding road rollers, trolley cars, street-sweepers, sprinklers, lawn mowers, bulldozers, graders, fork-lifts, amphibian
trucks, and cranes if not used on public roads, vehicles which run only on rails or tracks, and tractors, trailers, and
traction engines of all kinds used exclusively for agricultural purposes. (Section 131(q), LGC)

Elaborating on this prohibition, the High Court in Land Transportation Office v. City of Butuan (G.R. No. 131512, January
20, 2000), resolved the issue of whether under the present set up the power of the Land Registration Office (LTO) to
register, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to local
government units.

The Supreme Court explained that the land transportation laws were implemented by then Department of
Transportation and Communication through the LTO and the Land Transportation Franchising and Regulatory Board
(LTFRB). The LTO deals primarily with the registration of all motor vehicles and the licensing of drivers. The LTFRB,
upon the other hand, is in charge of regulating the operation of public utilities or "for hire" vehicles and to grant
franchises or certificates of public convenience. Finely put, registration and licensing functions are vested in the LTO
while franchising and regulatory responsibilities are vested in the LTFRB.

Under the LGC, LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant
franchises for the operation thereof. This means the function of the LTFRB may now be delegated to the LGUs. The
same is not, however, true with respect to the function of LTO because the functions of the LTO relative to the
registration of motor vehicles and issuance of licenses for the driving thereof cannot be delegated to LGUS.

m. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided
herein

This prohibition admits of an exception. Section 143(c) of the LGC grants the municipality the power to impose tax on
exporters of essential commodities.

n. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under Republic Act No. 6810 and Republic Act No. 6938 otherwise known as the "Cooperative
Code of the Philippines," respectively

Section 133(n) forbids LGUs to impose taxes, fees, or charges on (1) enterprises registered under Republic Act No.
6810 and (2) cooperatives registered under Republic Act No. 6938.

Under the first category, the countryside and barangay business enterprises enjoy local tax exemption for a period of
five (5) years only from the date its registration as such. After this period, the exemption, as well as the prohibition
under Section 133(n), will no longer apply.

In the second category, cooperatives duly registered with the Cooperative Development Authority enjoy local tax
exemption. However, these cooperatives are still liable to pay regulatory fees such as mayor's permit.

o. Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities,
and local government units

Section 133(0) recognizes the basic principle that local governments cannot tax the national government, which
historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation
as one of the powers of local governments, local government may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."

When local governments invoke the power to tax on national government instrumentalities, such power is construed
strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the
law imposing the tax. Any doubt whether a person, article, or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is
construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig,
Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non-tax-liability of such agencies.

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy
requires such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential
public services to inhabitants of local governments. The only exception is when the legislature clearly intended
to tax government instrumentalities for the delivery of essential public services for sound and compelling
policy considerations. There must be express language in the law empowering local governments to tax national
government instrumentalities. Any doubt whether such power exists is resolved against local governments.

Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local
governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements
and Gaming Corporation:
 The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part
of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140,
emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. u. Sanchez,
340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot
be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (Manila
International Airport Authority v. City of Parañaque, G.R. No. 155650, July 20, 2006)

TAXING POWERS OF PROVINCES

Sections 135 to 141 enumerate the local taxes that the province may impose. This enumeration however is not exclusive
because every LGU has residual taxing power under Section 186 of the LGC.

Tax on Transfer of Real Property Ownership (Section 135, LGC)

a. Transaction Taxed

Section 135(a) grants the province the power to impose tax on the sale, donation, barter, or on any other mode of
transferring ownership or title of real property.

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254
US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of
them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. u. Sanchez,
340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot
be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (Manila
International Airport Authority v. City of Parañaque, G.R. No. 155650, July 20, 2006)

TAXING POWERS OF PROVINCES

Sections 135 to 141 enumerate the local taxes that the province may impose. This enumeration however is not exclusive
because every LGU has residual taxing power under Section 186 of the LGC.
Tax on Transfer of Real Property Ownership (Section 135, LGC)

a. Transaction Taxed

Section 135(a) grants the province the power to impose tax on the sale, donation, barter, or on any other
mode of transferring ownership or title of real property.

b. Rate of Tax

The tax is at a rate of not more than fifty percent (50%) of one percent (1%) of the total consideration
involved in the acquisition of the property or of the fair market value in case the monetary consideration
involved in the transfer is not substantial, whichever is higher.

c. Exemption

The sale, transfer, or other disposition of real property pursuant to Republic Act No. 6657 or the
Comprehensive Agrarian Reform Law of 1988 shall be exempt from this tax.

d. Administration

The seller, donor, transferor, executor, or administrator has the duty to pay the tax imposed within sixty (60)
days from the date of the execution of the deed or from the date of the decedent's death.

The Register of Deeds of the province concerned shall, before registering any deed, require the presentation
of the evidence of payment of this tax. The provincial assessor shall likewise make the same requirement
before cancelling an old tax declaration and issuing a new one in place thereof.

Notaries public shall furnish the provincial treasurer with a copy of any deed transferring ownership or title to
any real property within thirty (30) days from the date of notarization.

Tax on Business of Printing and Publication (Section 136, LGC)

a. Subject Matter

The tax is imposed on the business of persons engaged in the printing and/or publication of books, cards,
posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature. Newspapers and
magazines are included in the clause "others of similar nature." (Bureau of Local Government Finance Letter
dated February 19, 1996)

b. Rate of Tax

The rate of tax on printing and publication is a rate not exceeding fifty percent (50%) of one percent (1%) of
the gross annual receipts for the preceding calendar year.

For a newly started business, the tax shall not exceed one twentieth (1/20) of one percent (1%) of the capital
investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall
be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.

c. Exemption

The receipts from the printing and/or publishing of books or other reading materials prescribed by the
Department of Education, Culture and Sports (now Department of Education) as school texts or references
shall be exempt from the tax herein imposed.

Franchise Tax (Section 137, LGC)

a. Subject Matter
 The province may impose a tax on businesses enjoying a franchise. "Franchise" is a right or privilege, affected
with public interest which is conferred upon private persons or corporations, under such terms and conditions
as the government and its political subdivisions may impose in the interest of public welfare, security, and
safety. (Section 131(m), LGC)

b. Rate of Tax

The franchise tax that a province may impose is a rate not exceeding fifty percent (50%) of one percent (1%)
of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within
its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%)
of the capital investment. In the succeeding calendar year, regardless of when the business started to operate,
the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereon, as
provided herein.

C. Kinds of Franchise Tax

Under our laws, there are three (3) kinds of franchise tax:

1. Local Franchise Tax provided under Section 137 of the LGC;

2. Franchise Tax provided under the franchise itself or the statute granting the franchise usually "in lieu of all
taxes"; and
3. Franchise Tax under Section 119 of the National Internal Revenue Code.

Section 119 of the NIRC, as amended, only covers franchises on radio and/or television broadcasting and on gas and
water utilities.

The question is when can the LGU impose local franchise tax under Section 137 of the LGC? To answer, the discussion
on franchise tax provided under the franchise itself or the statute granting the franchise usually "in lieu of all taxes" is
imperative.

Legislative franchises, which contain provisions for the payment of franchise tax "in lieu of all taxes," are enacted or
granted either (1) prior to the effectivity or (2) after the effectivity of the LGC on January 1, 1992. The date of grant
of legislative franchise is important because the "in lieu of all taxes" clause contained in the legislative franchise is a
tax exemption or incentive that was deemed withdrawn upon the effectivity of the LGC as provided in Section 193:

"Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned
or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock
and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

As explained in City Government of San Pablo City v. Bienvenido Reyes (G.R. No. 127708, March 25, 1999):

"Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided
in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons whether natural or juridical,
including government owned or controlled corporations except 1) local water districts, 2) cooperatives duly registered
under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity
of this code, the obvious import is to limit the exemptions to the three enumerated entities. It

is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes
all others as expressed in the familiar maxim expressio unius est exlcusio alterius. In the absence of any provision of
the Code to the contrary, and we find no other provision of the Code to the contrary, and we find no other provision
in point, any existing tax exemption or incentive enjoyed by MERALCO under existing law was clearly intended to be
withdrawn.

Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC, the local government unit may
now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
year based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privileges enjoyed under existing law or charter is clearly manifested by the language used in Section 137 and 193
categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious
and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the
LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal
language could have been used.

It is true that the phrase in lieu of all taxes found in special franchises has been held in several cases to exempt the
franchise holder from payment of tax on its corporate franchise imposed by the Internal Revenue Code, as the charter
is in the nature of a private contract and the exemption is part of the inducement. for the acceptance of the franchise,
and that the imposition of another franchise tax by the local authority would constitute an impairment of contract
between the government and the corporation. But these magic words contained in the phrase shall be in lieu of all
taxes. Have to give way to the peremptory language of the LGC specifically providing for the withdrawal of such
exemption privileges.

Accordingly, in Mactan Cebu International Airport Authority us. Marcos, this Court held that Section 193 of the LGC
prescribes the general rule, viz., the tax exemptions or incentives granted to or presently enjoyed by natural
or juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities
expressly enumerated. In the same vein, We must hold that the express withdrawal upon effectivity of the LGC of
all exemptions only as provided therein, can no longer be invoked by Meralco to disclaim liability for the local tax."

This means when the tax exemption or incentive is withdrawn, the LGU can now impose its own local franchise tax
under Section 137 of the LGC.

With respect to legislative franchises, which contain provision for the payment of franchise tax "in lieu of all taxes,"
granted after the effectivity of the LGC, the tax exemption or incentive remains as it is not covered by the withdrawal
of exemption under Section 193 of the LGC. As held in Philippine Long Distance Telephone Company v. City of Davao
(G.R. No. 143867, August 22, 2001), the franchise containing exemption granted after the effectivity of the LGC are
not within the coverage of Section 193, and thus, the tax exemption or incentive remains. This means the LGU cannot
impose its own local franchise tax under Section 137 of the LGC.

From the foregoing, it can be deduced that if the legislative franchise providing exemptions or incentive in the form of
"in lieu of all taxes" clause was granted prior to the effectivity of LGC or before January 1, 1992, the tax exemption or
incentive is withdrawn or revoked by virtue of Section 193 of the LGC. In this case, local franchise tax under Section
137 of the LGC may be imposed.

If the legislative franchise providing exemptions or incentive in the form of "in lieu of all taxes" clause was granted
after the effectivity of LGC, the tax exemption or incentive remains. Hence, the LGU cannot impose local franchise tax.
In this case, however, grant of exemption under the "in lieu all taxes" clause must be expressly granted or clearly
established in the law without any doubt. If the grant of exemption is not clear or in case there is doubt, local franchise
tax may be imposed despite the fact that the legislative franchise was granted after the effectivity of the LGC.

Tax on Sand, Gravel, and Other Quarry Services (Section 138, LGC)

a. Subject Matter

Province may levy tax on ordinary stones, sand, gravel, earth, and other quarry resources extracted from
public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial
jurisdiction.

"Quarry resources" shall mean any common stone or other common mineral substances as the Director of the
Bureau of Mines and Geo-Sciences may declare to be quarry resources such as, but not restricted to, marl,
marble, granite, volcanic cinders, basalt, tuff

and rock phosphate: Provided, that they contain no metal or other valuable minerals in economically workable
quantities. (Section 151(B), NIRC)

The power of the province to impose this tax pertains only to quarry resources extracted from public lands.
As clarified in Province of Bulacan v. Court of Appeals (G.R. No. 126232, November 27, 1998), Section 151 of
the NIRC levies a tax on all quarry resources, regardless of origin, whether extracted from public or private
 land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth, and other quarry
resources, as the same are already taxed under the NIRC. The province can, however, impose a tax on stones,
sand, gravel, earth, and other quarry resources extracted from public land because it is expressly empowered
to do so under the LGC. As to stones, sand, gravel, earth, and other quarry resources extracted from private
land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to
Section 151 of the NIRC.

b. Rate of Tax

The tax rate is not more than ten percent (10%) of the fair market value in the locality per cubic
meter of ordinary stones, sand, gravel, earth, and other quarry resources.

c. Issuance of Permit

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.

d. Distribution of Proceeds of Tax

The proceeds of the tax on sand, gravel, and other quarry resources shall be distributed as follows:

1. Province thirty percent (30%);

2. Component City or Municipality where the sand, gravel, and other quarry resources are
extracted thirty percent (30%); and

3. Barangay where the sand, gravel, and other quarry resources are extracted forty percent
(40%).

Professional Tax (Section 139, LGC)

a. Subject Matter

The province may levy an annual professional tax on each person engaged in the exercise or practice
of his profession requiring government examination.

b. Rate of Tax

The province may impose such amount and reasonable classification as the sangguniang
panlalawigan may determine but shall in no case exceed P300.00.

C. Place of Payment

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

d. Time of Payment

Any individual or corporation employing a person subject to professional tax shall require payment
by that person of the tax on his profession before employment and annually thereafter.

The professional tax shall be payable annually, on or before the 31st day of January. Any person
first beginning to practice a profession after the month of January must, however, pay the full tax
before engaging therein.

e. Exemption
 Professionals exclusively employed in the government shall be exempt from the payment of this tax.
A line of profession does not become exempt even if conducted with some other profession for which
the tax has been paid.

Amusement Tax (Section 140, LGC)

a. Subject Matter

The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement.

"Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation,

pastime, or fun, (Section 131(b), LGC) while "amusement places" include theaters, cinemas, concert halls,
circuses, and other places of amusement where one seeks admission to entertain oneself by seeing or viewing
the show or performances. (Section 131(c), LGC)

In Philippine Basketball Association v. Court of Appeals (G.R. No. 119122, August 8, 2000), it was held that
professional basketball games are not within its scope of "other places of amusement." In determining the
meaning of the phrase "other places of amusement," one must refer to the prior enumeration of theaters,
cinematographs, concert halls and circuses with artistic expression as their common characteristic.
Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls,
and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports
and gaming. Hence, professional basketball games are not subject to amusement tax under Section 140 of
the LGC but to the amusement tax under Section 125 of the NIRC.

Resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or
class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they cannot be considered
as among the "other places of amusement" contemplated by Section 140 of the LGC and which may properly
be subject to amusement taxes. (Pelizloy Realty Corporation v. The Province of Benguet, G.R. No. 183137,
April 10, 2013)

b. Rate of Tax

The amusement tax is at a rate of not more than thirty percent (30%) of the gross receipts from
admission fees.

c. Exemption

The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, and literary and oratorical presentations shall be exempt from the payment of the tax.
Pop, rock, or similar concerts are subject to amusement tax.

Tax on Delivery Truck/Van (Section 141, LGC)

a. Transaction Taxed

The province may levy an annual fixed tax for 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 to sales outlets, or consumers, whether directly or
indirectly, within the province.

b. Rate of Tax

The rate that may be imposed is determined by the sangguniang panlalawigan in an amount not exceeding
P500.00.

c. Exemption
 The manufacturers, producers, wholesalers, dealers, and retailers referred above shall be exempt from the
tax on peddlers under the LGC. Tax on peddlers is provided in Section 143(g) which states municipality may
impose on peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding
P50.00 per peddler annually.

TAXING POWERS OF MUNICIPALITIES

Municipalities may levy taxes, fees, and charges not otherwise levied by provinces. (Section 142, LGC) Sections 143 to
149 provide that the following are the taxes, fees, and charges that the municipality may levy:

Tax on Business

The power of a municipality to impose business taxes is derived from Section 143 of the LGC that specifically
enumerates several types of businesses on which it may impose taxes, including manufacturers, wholesalers,
distributors, dealers of any article of commerce of whatever nature; those engaged in the export or commerce of
essential commodities; retailers; contractors and other independent contractors; banks and financial institutions; and
peddlers engaged in the sale of any merchandise or article of commerce. This obviously broad power is further
supplemented by paragraph (h) of Section 143 which authorizes the sanggunian to impose taxes on any other
businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.
(Petron Corporation v. Mayor Tobias Tiangco, G.R. No. 158881, April 16, 2008)

Prior to the LGC, all business taxes were imposed by the municipality. However, under the present code, provinces
may now levy business tax but limited only to the business of printing and publication under Section 136 of the LGC.

Rates of Business Tax

As to the rates of business tax, the LGC distinguishes a municipality within and outside Metropolitan Manila. For
municipalities outside Metropolitan Manila, they can levy business tax at a maximum rate stated in Section 143. For
the municipalities within the Metropolitan Manila Area, they may levy taxes at rates which shall not exceed by fifty
percent (50%) the maximum rates prescribed in Section 143. (Section 144, LGC) This means municipalities within
Metropolitan Manila can levy higher business taxes.

Tax on Retirement of Business

When a business that is subject to business tax retires or ceases its operations, it shall submit a sworn statement of
its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross
sales or receipts of the current year, the difference shall be paid before the business is considered officially retired.
(Section 145, LGC)

Rules on Payment of Business Taxes

The following rules apply regarding the payment of business taxes:

a. Business tax under Section 143 is payable for every separate or distinct establishment or place where
business subject to the tax is conducted.

b. One line of business does not become exempt by being conducted with some other business for which such
tax has been paid. The tax on a business must be paid by the person conducting the same.

c. In cases where a person conducts or operates two (2) or more of the businesses mentioned in Section 143
which are subject to the same rate of tax, the tax shall be computed on the combined total gross sales or
receipts of the said two (2) or more related businesses.

d. In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 which
are subject to different rates of tax, the gross sales or receipts of each business shall be separately reported
for the purpose of computing the tax due from each business. (Section 146, LGC)
In Iloilo Bottlers, Inc. v. City of Iloilo (G.R. No. L-52019, August 19, 1988), the issue resolved is the place of payment
of local business tax. Iloilo Bottles had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City and in
other parts of the province of Iloilo. It was assessed of business tax by Iloilo City. Iloilo Bottlers contended that it
cannot be assessed by Iloilo City because its business is located in Pavia which is outside the jurisdiction of Iloilo City.
In ruling in favor of Iloilo City, the Supreme Court held:

"In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went
directly to customers in the different places in Iloilo province. Sales transactions with customers were entered
into and sales were perfected and consummated by route salesmen. Truck sales were made independently of
transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks
previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling
stores". The delivery trucks were therefore much the same as the stores and warehouses under the second
marketing system. Iloilo Bottlers. Inc. thus falls under the second category above. That is, the
corporation was engaged in the separate business of selling or distributing soft-drinks,
independently of its business of bottling them.

The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing,
manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when
the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner
of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30,
1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing
softdrinks must be within city limits, before an entity engaged in any of the activities may be
taxed in Iloilo City."

Fees and Charges

The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as
reserved to the province in Section 139 of the LGC, on the practice of any profession or calling, commensurate with
the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or
practice such profession or calling. (Section 147, LGC)

Section 147 of the LGC also allows the municipality to impose professional tax on occupation not otherwise covered by
the taxing power of the province. Thus, the following distinction:

Taxing LGU Province/City Municipality

(Section 139 and Section 151) (Section 147)
Coverage Applicable to workers who must pass Applicable to persons who are
a government examination (e.g., working but are not required to take
engineers, physicians, etc.) government examinations
Rate/ Amount The sanggunian may impose a tax Section 147 does not provide for any
nott more than P300.00 amount. The only requirements is
that the amount be reasonable or
commensurate to cost of regulation

Fees for Sealing and Licensing of Weights and Measures

The municipality may levy fees for the sealing and licensing of weights and measures at such reasonable rates as shall
be prescribed by the sangguniang bayan.

The sangguniang bayan shall prescribe the necessary regulations for the use of such weights and measures, subject
to such guidelines as shall be prescribed by the Department of Science and Technology. The sanggunian concerned
shall, by appropriate ordinance, penalize fraudulent practices and unlawful possession or use of instruments of weights
and measures and prescribe the criminal penalty therefor in accordance with the provisions of the LGC.

The sanggunian concerned may authorize the municipal treasurer to settle an offense not involving the commission of
fraud before a case therefor is filed in court, upon payment of a compromise penalty of not less than P200.00. (Section
148, LGC)
Fishery Rentals, Fees, and Charges
Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters and impose rentals,
fees, or charges therefor.

The sangguniang bayan may:

a. Grant fishery privileges to erect fish corrals, oysters, mussels or other aquatic beds or bangus fry areas,
within a definite zone of the municipal waters. Duly registered organizations and cooperatives of marginal
fishermen shall have the preferential right to such fishery privileges.

The sangguniang bayan may require a public bidding in conformity with and pursuant to an ordinance for the
grant of such privileges. In the absence of such organizations and cooperatives or their failure to exercise
their preferential right, other parties may participate in the public bidding in conformity with the above cited
procedure.

b. Grant the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag 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 for which purpose the
sangguniang bayan shall promulgate rules and regulations regarding the issuances of such licenses to qualified
applicants under existing laws.

The sanggunian concerned shall, by appropriate ordinance, penalize the use of explosives, noxious or poisonous
substances, electricity, muro-ami, and other deleterious methods of fishing and prescribe a criminal penalty therefor in
accordance with the provisions of the LGC. The sanggunian concerned shall have the authority to prosecute any
violation of the provisions of applicable fishery laws. (Section 149, LGC)

Situs of the Tax

For purposes of collection of business taxes under Section 143 of the LGC, the following rules must be observed:

a. With Branch or Sales Outlet

Business entities under Section 143 maintaining or operating a branch or sales outlet shall record the sale in
the branch or sales outlet making the sale or transaction. The tax on these sales shall accrue and shall be
paid to the municipality where such branch or sales outlet is located.

b. Principal Office Only, No Branch or Sales Outlet

In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction
is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid
to such city or municipality. (Section 150(a), LGC)

Rules on Sales Allocation

If the taxpayer has factories, project offices, plants, and plantations in the pursuit of its business, the following rules
on sales allocation of sales recorded in the principal office shall apply:

a. Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality
where the principal office is located; and

b. Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality
where the factory, project office, plant, or plantation is located.

In case of a plantation located at a place other than the place where the factory is located, the seventy percent (70%)
in item (b) above shall be divided as follows:

a. Sixty percent (60%) to the city or municipality where the factory is located; and
 b. Forty percent (40%) to the city or municipality where the plantation is located.

In cases where a manufacturer, assembler, producer, exporter, or contractor has two (2) or more factories, project
offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned above
shall be prorated among the localities where the factories, project offices, plants, and plantations are located in
proportion to their respective volumes of production during the period for which the tax is due.

The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the
factory, project office, plant, or plantation is located. (Section 150(b), LGC)

Illustration: Company A, a manufacturer of handcrafted bags, maintains its principal office in Lipa City, Batangas. It
has branches/sales offices in Tanauan and Sto. Tomas, Batangas. Its factory is located in Malvar, Batangas where most
of its workers live. Its principal office in Lipa City is also a sales office. Sales of finished products for calendar year 2010
in the amount of P10 million were made at the following locations: Tanauan Branch - 25%; Sto. Tomas Branch 15%;
and Lipa City Branch - 60%.

Applying the situs of taxation under Section 150 of the LGC, twenty-five percent (25%) of the sales of P2.5 million shall
be taxed in Tanauan, and fifteen percent (15%) of the total sales of P1.5 million shall be taxed in Sto. Tomas. For the
remaining sixty percent (60%) or P6 million recorded in Lipa City, its principal office, the amount shall be allocated to
thirty percent (30%) in the principal office and seventy percent (70%) in the locality where the factory is located. Thus,
of the P6 million, P1.8 million is taxable in Lipa City and P4.2 million is taxable in Malvar.

TAXING POWERS OF CITIES

If the power to tax is the sole basis, the city appears to be the most powerful LGU based on two (2) reasons. First, the
city may levy the taxes, fees, and charges which the province or municipality may impose. And second, 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%). However, the city cannot increase the rates of professional and amusement tax. (Section 151,
LGC)

Thus, for the taxes that the city may levy, refer to the discussion on the taxing power of the province and municipality.

TAXING POWERS OF BARANGAYS

The barangay has a very limited taxing power and sources of revenue. As provided under Section 152 of the LGC, the
following are the taxes, fees, and charges that the barangay may levy:

Taxes

The barangay can impose business tax on stores or retailers with fixed business establishments with gross sales or
receipts of the preceding calendar year of P50,000.00 or less, in the case of cities, and P30,000.00 or less, in the case
of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts. (Section 152(a), LGC)

If the gross sales or receipts exceed P50,000 or P30,000, it would be the city or municipality which has the power to
impose business tax pursuant to Section 143(d) of the LGC.

Service Fees or Charges

Barangays may collect reasonable fees or charges for services rendered in connection with the regulations or the use
of barangay owned properties or service facilities such as palay, copra, or tobacco dryers. (Section 152(b), LGC)

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. (Section 152(c), LGC)

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. (Section 152(d), LGC)

COMMON REVENUE RAISING POWERS AND RESIDUAL TAXING POWER OF LGU

While there are limitations on the taxing powers common to all LGUS under Section 133 of the LGC, there are also
revenue raising powers common to all of them. This means in addition to the taxes, fees, and charges specifically
enumerated in the LGC, all LGUs can levy and impose these taxes, fees, and charges as follows:

a. Service Fees and Charges - Local government units may impose and collect such reasonable fees and
charges for services rendered. (Section 153, LGC)

b. Public Utility Charges Local government units may fix the rates for the operation of public utilities owned,
operated and maintained by them within their jurisdiction. (Section 154, LGC)

C. Toll Fees or Charges The sanggunian concerned may prescribe the terms and conditions and fix the rates
for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry
or telecommunication system funded and constructed by the local government unit concerned.

No such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines
and members of the Philippine National Police on mission, post office personnel delivering mail, 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. (Section 155, LGC)

In addition, the LGC confers LGUs the residual power to levy taxes, fees, or charges on any base or subject not
otherwise specifically enumerated under the LGC or taxed under the provisions of the NIRC, or other applicable laws.
It is however required that these taxes, fees, and charges shall not be unjust, excessive, oppressive, confiscatory, or
contrary to declared national policy. (Section 186, LGC)

COMMUNITY TAX

The community tax, which replaced residence tax, is essentially a poll or capitalization tax. It is of fixed amount imposed
upon certain inhabitants of the country without regard to the property/occupation in which they may be engaged. Only
a city or municipality may levy a community tax. (Section 156, LGC) The city or municipal treasurer shall deputize the
barangay treasurer to collect the community tax in their respective jurisdictions. (Section 164(b), LGC) Both individuals
and corporations are subject to this tax.

Individuals Liable to Community Tax

Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or
salary basis for at least thirty (30) consecutive working days during any calendar year, or who is engaged in business
or occupation, or who owns real property with an aggregate assessed value of P1,000.00 or more, or who is required
by law to file an income tax return is liable to community tax.

The rate is a basic community tax of P5.00 and an additional community tax of P1.00 for every P1,000.00 of income
regardless of whether from business, exercise of profession, or from property. In no case shall the additional community
tax exceed P5,000.00. Thus, the maximum community tax an individual may be held liable is P5,005.00

In the case of husband and wife, each shall be liable to pay basic tax of P5.00 and additional tax of P1.00 for every
P1,000.00 of income from real property owned and/or the total gross receipts or earnings derived by them. It must be
emphasized that each spouse is liable to pay basic community tax and only one spouse shall declare and pay the
additional community tax. (Section 157, LGC)

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 an annual community tax of P500.00 and an annual additional tax, which, in no
case, shall exceed P10,000.00 in accordance with the following schedule:

a. P2.00 for every P5,000.00 worth of real property in the Philippines owned by it during the preceding year
based on the valuation used for the payment of real property tax under existing laws; and

b. P2.00 for every P5,000.00 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 shall, for the purpose of the additional tax, be
considered as part of the gross receipts or earnings of said corporation. From the foregoing, the maximum amount of
community tax a corporation may be liable is P10,500.00. (Section 158, LGC)

For the purpose of imposing community tax, the LGC defines corporation similar to that of the NIRC, as amended, to
wit:

"Corporation" includes partnerships, no matter how created or organized, joint-stock companies, joint
accounts (cuentas en participacion), associations or insurance 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. General professional
partnership are partnerships formed by persons for the sole purpose of exercising their common profession,
no part of the income of which is derived from engaging in any trade or business.

The term "resident foreign" when applied to a corporation means a foreign corporation not otherwise organized under
the laws of the Philippines but engaged in trade or business within the Philippines." (Section 131(i), LGC)

Exemptions to Community Tax

Diplomatic and consular representatives and transient visitors when their stay in the Philippines does not exceed three
(3) months are exempt from community tax. (Section 160, LGC)

Place and Time of Payment

The community tax is paid in the place of residence of the individual, or in the place where the principal office of the
juridical entity is located. (Section 160, LGC)

The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the
last day of February of each year. 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.

Persons 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 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.

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. (Section 161, LGC)

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 P1.00. (Section 162, LGC)

COLLECTION OF TAXES

The tax period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be
paid in quarterly installments. (Section 165, LGC) All local taxes, fees, and charges shall accrue on the first (1st) day
of January of each year. However, new taxes, fees or charges, or changes in the rates thereof, shall accrue on the first
(1st) day of the quarter next following

the effectivity of the ordinance imposing such new levies or rates. (Section 166, LGC)

All local taxes, fees, and charges shall be paid within the first twenty (20) days of January or of each subsequent
quarter, as the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time for
payment of such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six (6)
months. (Section 167, LGC)

The sanggunian may impose a surcharge not exceeding twenty five (25%) of the amount of taxes, fees or charges not
paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges
including surcharges, until such amount is fully paid but in no case shall the total thirty-six (36%) months. (Section
168, LGC)

Where the amount of any other revenue due a local government unit, except voluntary contributions or donations, is
not paid on the date fixed in the ordinance, or in the contract, expressed or implied, or upon the occurrence of the
event which has given rise to its collection, there shall be collected as part of that amount an interest thereon at the
rate not exceeding two percent (2%) per month from the date it is due until it is paid, but in no case shall the total
interest on the unpaid amount or a portion thereof exceed thirty-six (36) months. (Section 169, LGC)

ASSESMENT OF LOCAL TAXES AND TAXPAYER'S REMEDIES

The local treasurer is duly authorized under the LGC to examine the books, accounts, and other pertinent records of
any person subject to local taxes, fees, and charges in order to ascertain, assess, and collect the correct amount of the
tax, fee or charge. Such examination of books of accounts and pertinent records may be done by the treasurer himself
or by his deputies duly authorized in writing.

In case the examination is made by a duly authorized deputy of the local treasurer, the written authority of the deputy
concerned shall specifically state the following:

a. Name, address, and business of the taxpayer whose books, accounts, and pertinent records are to be
examined;

b. The date and place of such examination; and

c. The procedure to be followed in conducting the same.

The examination shall be made during regular business hours, only once for every tax period, and shall be certified to
by the examining official. Such certificate shall be made of record in the books of accounts of the taxpayer examined.
(Section 171, LGC)

Tax Period of Examination

As provided in Section 171 of the LGC, the examination shall be done once every year. However, Article 259 of the
Implementing Rules and Regulations of the LGC provides that "the examination shall be not oftener than once a year
for every tax period, which shall be the year immediately preceding the examination."

On the basis of Section 171 of the LGC, the tax period that may be examined by the local treasurer or his representative
is limited to the year immediately preceding the examination. Thus, if the examination is to be conducted in 1995, the
tax period to be examined shall be the calendar year 1994 only and cannot extend to 1993 and backwards. (Bureau of
Local Government Finance 1 Indorsement 7-24-95 to the City Treasurer of Zamboanga City)

Periods of Assessment and Collection

The local treasurer or his duly representative has a period of five (5) years to examine the books of accounts of the
taxpayer and to issue a notice of assessment. The five (5) year period is reckoned from the date the taxes, fees, or
charges became due. Just like assessment under the NIRC, if no assessment is made within five years, the right of the
LGU to assess shall be prescribed. As a result, no action for the collection of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted after the expiration of such period. (Section 194(a), LGC)

In case of fraud or intent to evade the payment of taxes, fees, or charges, the local treasurer may issue the assessment
within ten (10) years from discovery of the fraud or intent to evade payment. (Section 194(b), LGC)

After an assessment is made, the local treasurer has a period of five (5) years to collect the deficiency taxes, fees, or
charges whether by administrative or judicial action. After the expiration of the five year period, no action for collection
shall be instituted. (Section 194c), LGC)

Suspension of the Running of Period to Assess and Collect

The running of the periods of prescription to assess and collect the deficiency tax, fee, or charge is suspended for the
time during which:

a. The treasurer is legally prevented from making the assessment of collection;

b. The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period
within which to assess or collect; and

c. The taxpayer is out of the country or otherwise cannot be located.

The situations previously enumerated merely suspend, but not interrupt, the running of the period of prescription.
Suspension of period of prescription is different from interruption of period of prescription. When the period is
interrupted, the cessation of the event that interrupts the running period would result to the full period of prescription
to run anew. In suspension of period, the cessation of the event that suspends the running of the period would result
to the remaining balance of the prescriptive period to run again. (Jaime Ledesma v. Court of Appeals, G.R. No. 106646,
June 30, 1993 citing Florendo v. Organo, G.R. No. L-4037, November 29, 1951)

Protest of Assessment
Section 195 of the LGC outlines the remedies available to the taxpayer in the event an assessment is issued by the
local treasurer or his duly authorized representative of deficiency tax, fee, or charge. These remedies are summarized
as follows:

a. The local treasurer or his duly authorized representative shall issue the notice of assessment after the examination
and upon finding of deficiency taxes, fees, or charges. The notice of assessment shall state the

(i) nature of the tax, fee, or charge,

(ii) the amount of deficiency, and
(iii) the surcharges, interest, and penalties.

b. The taxpayer may file a written protest with the local treasurer contesting the assessment within sixty (60) days
from the receipt of the notice of assessment. Failure to file a written protest within this period shall make the
assessment final and executory.

c. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer
finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment.
However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or
partly with notice to the taxpayer.
d. In case of denial of the protest or the lapse of the sixty (60)-day without the local treasurer deciding on the protest,
the taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60)-
day period to file an appeal with the court of competent jurisdiction. Failure to resort to judicial remedy within this
period shall make the assessment conclusive and unappealable.

Mandatory Issuance of Notice of Assessment by the Local Treasurer

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

Thus, suffice it to say that the issuance of a notice of assessment is mandatory before the local treasurer may collect
deficiency taxes from the taxpayer. The notice of assessment is not only a requirement of due process; it also stands
as the first instance the taxpayer is officially made aware of the pending tax liability. The local treasurer cannot simply
collect deficiency taxes for a different taxing period by raising it as a defense in an action for refund of erroneously or
illegally collected taxes. (City Treasurer of Manila v. Philippine Beverage Partners, Inc., G.R. No. 233556, September
11, 2019)

Payment of Assessed Tax Not a Requirement to Protest

When a taxpayer is assessed a deficiency local tax, fee, or charge, he may protest it under Section 195 even without
making payment of such assessed tax, fee, or charge. This is because the law on local government taxation, save in
the case of real property tax, does not expressly require "payment under protest" as a procedure prior to instituting
the appropriate proceeding in court. This implies that the success of a judicial action questioning the validity or
correctness of the assessment is not necessarily hinged on the previous payment of the tax under protest.

Needless to say, there is nothing to prevent the taxpayer from paying the tax under protest or simultaneous to a
protest. There are compelling reasons why a taxpayer would prefer to pay while maintaining a protest against the
assessment. For instance, a taxpayer who is engaged in business would be hard-pressed to secure a business permit
unless he pays an assessment for business tax and/or regulatory fees. Also, a taxpayer may pay the assessment in
order to avoid further penalties or save his properties from levy and distraint proceedings.

The foregoing clearly shows that a taxpayer facing an assessment may protest it and alternatively: (1) appeal the
assessment in court, or (2) pay the tax and thereafter seek a refund. (City Treasurer of Manila v. Philippine Beverage
Partners, Inc., G.R. No. 233556, September 11, 2019)

What Constitutes Valid Protest

The LGC does not prescribe any formal requirement to constitute a valid protest. However, it is sufficient if the protest
filed contains the spontaneous declaration made to acquire or keep some right or to prevent an impending damage.
(Wee Poco & Co., Inc. v. Posadas, G.R. No. L-43142, August 26, 1937) Accordingly. a protest is valid so long as it
states the taxpayer's objection to the assessment, the reasons therefor, and the relevant documents to support the
objection. The protest must contain the law, rules and regulations, and jurisprudence as bases of the objections.

Appeal to Court of Competent Jurisdiction

In case of denial or denial-by-inaction of the local treasurer, the taxpayer has thirty (30) days to file an appeal to the
court of competent jurisdiction. The question now is which court has competent jurisdiction to take cognizance of the
appeal from the denial or denial-by-inaction of the local treasurer.

In Yamane v. BA Lepanto Condominium Corporation (G.R. No. 154993, October 25, 2005), the Supreme Court first
tackled the jurisdictional issue as to whether the RTC has jurisdiction over decisions or denial-by-inaction of the local
treasurer. The Supreme Court explained:

"First, we dispose of the procedural issue, which essentially boils down to whether the RTC, in deciding an
appeal taken from a denial of a protest by a local treasurer under Section 195 of the Local Government Code,
exercises "original jurisdiction" or "appellate jurisdiction." The question assumes a measure of importance to
this petition, for the adoption of the position of the City Treasurer that the mode of review of the decision
taken by the RTC is governed by Rule 41 of the Rules of Civil Procedure means that the decision of the RTC
would have long become final and executory by reason of the failure of the Corporation to file a notice of
appeal.
 There are discernible conflicting views on the issue. The first, as expressed by the Court of Appeals, holds
that the RTC, in reviewing denials of protests by local treasurers, exercises appellate jurisdiction. This position
is anchored on the language of Section 195 of the Local Government Code which states that the remedy of
the taxpayer whose protest is denied by the local treasurer is "to appeal with the court of competent
jurisdiction." Apparently though, the Local Government Code does not elaborate on how such "appeal" should
be undertaken.

The other view, as maintained by the City Treasurer, is that the jurisdiction exercised by the RTC is original
in character. This is the first time that the position has been presented to the court for adjudication. Still, this
argument does find jurisprudential mooring in our ruling in Garcia v. De Jesus, where the Court proffered the
following distinction between original jurisdiction and appellate jurisdiction: "Original jurisdiction is the power
of the Court to take judicial cognizance of a case instituted for judicial action for the first time under conditions
provided by law. Appellate jurisdiction is the authority of a Court higher in rank to re-examine the final order
or judgment of a lower Court which tried the case now elevated for judicial review."

The quoted definitions were taken from the commentaries of the esteemed Justice Florenz Regalado. With
the definitions as beacon, the review taken by the RTC over the denial of the protest by the local treasurer
would fall within that court's original jurisdiction. In the review is the initial judicial cognizance of the matter.
Moreover, labelling the said review as an exercise of appellate jurisdiction is inappropriate, since the denial of
the protest is not the judgment or order of a lower court, but of a local government official.

The stringent concept of original jurisdiction may seemingly be neutered by Rule 43 of the 1997 Rules of Civil
Procedure, Section 1 of which lists a slew of administrative agencies and quasi-judicial tribunals or their officers
whose decisions may be reviewed by the Court of Appeals in the exercise of its appellate jurisdiction. However,
the basic law of jurisdiction, Batas Pambansa Blg. 129 (B.P. 129), ineluctably confers appellate jurisdiction on
the Court of Appeals over final rulings of quasi judicial agencies, instrumentalities, boards or commission, by
explicitly using the phrase "appellate jurisdiction." The power to create or characterize jurisdiction of courts
belongs to the legislature. While the traditional notion of appellate jurisdiction connotes judicial review over
lower court decisions, it has to yield to statutory redefinitions that clearly expand its breadth to encompass
even review of decisions of officers in the executive branches of government.

Yet significantly, the Local Government Code, or any other statute for that matter, does not expressly confer
appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer.
On the other hand, Section 22 of B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial
Courts, confining as it does say appellate jurisdiction to cases decided by Metropolitan, Municipal, and
Municipal Circuit Trial Courts. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate
jurisdiction on Regional Trial Courts over rulings made by non-judicial entities."

Although the Supreme Court in Yamane recognized that the RTC exercised its original jurisdiction over cases decided
by a local treasurer, it was quick to point out that with the advent of Republic Act No. 9282, the jurisdiction of the RTC
over such cases is no longer simply original and exclusive.

Republic Act No. 9282 is the law which expands the jurisdiction of the CTA. Section 7(a)(3) of Republic Act No. 9282
provides that the CTA exercises exclusive appellate jurisdiction to review by appeal "decisions, orders or resolutions of
the Regional Trial Courts in local

tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction." Based on this
provision, the decision of the Regional Trial Court in local tax cases is appealable to the CTA. This decision of the RTC
may be issued in the exercise of its original jurisdiction or its appellate jurisdiction.

In China Banking Corporation v. City Treasurer of Manila (G.R. No. 204117, July 1, 2015), the Supreme Court finally
settled which court has jurisdiction over the decision or denial-by-inaction of the local treasurer is explained, to state:

"Clearly, with the passage of R.A. No. 9282, the authority to exercise either original or appellate
jurisdiction over local tax cases depended on the amount of the claim. In cases where the RTC
exercises appellate jurisdiction, it necessarily follows that there must be a court capable of exercising original
jurisdiction otherwise there would be no appeal over which the RTC would exercise appellate jurisdiction. The
Court cannot consider the City Treasurer as the entity that exercises original jurisdiction not only because it
 is not a "court" within the context of Batas Pambansa (B.P.) Blg. 129, but also because, as explained above,
"B.P. 129 expressly delineates the appellate jurisdiction of the Regional Trial Courts, confining as it does say
appellate jurisdiction to cases decided by Metropolitan, Municipal, and Municipal Circuit Trial Courts." Verily,
unlike in the case of the CA, B.P. 129 does not confer appellate jurisdiction on the RTC over rulings made by
non-judicial entities. The RTC exercises appellate jurisdiction only from cases decided by the Metropolitan,
Municipal, and Municipal Circuit Trial Courts in the proper cases. The nature of the jurisdiction exercised by
these courts is original, considering it will be the first time that a court will take judicial cognizance of a case
instituted for judicial action. Indeed, in cases where the amount sought to be refunded is below the
jurisdictional amount of the RTC, the Metropolitan, Municipal, and Municipal Circuit Trial Courts are clothed
with ample authority to rule on such claims."

In fine, the RTC has jurisdiction over the decision or denial-by inaction of the local treasurer when the tax, fee, or
charges assessed exceeds P400,000.00 if in Metro Manila or exceeding P300,000.00 if outside Metro Manila. Otherwise,
the jurisdiction is with the MeTC, MTC, or MCTC.

In case of adverse decision of the MeTC, MTC, or MCTC in the exercise of its original jurisdiction, an appeal may be
made to the RTC whose decision is reviewable by the CTA En Banc. The decision of the CTA En Banc is appealable to
the Supreme Court.

In case the adverse decision of the CTA in the exercise of its original jurisdiction, an appeal may be made to the CTA
in Division. The decision of the CTA in Division is appealable to the CTA En Banc. The decision of the CTA En Banc is
reviewable by the Supreme Court.

Claim of Refund of Tax Credit

A taxpayer may file a claim for refund to recover any tax, fee, or charge erroneously or illegally collected by the local
treasurer. The claim for refund must be in writing and filed within two (2) years from the date of payment of such tax,
fee, or charge, or from the date the taxpayer is entitled to a refund or tax credit. No case or proceeding shall be
entertained in any court after the expiration of said two (2) year period. (Section 196, LGC)

In the event that the local treasurer denies the claim for refund, the taxpayer may file an appeal to the court of
competent jurisdiction within thirty (30) days from the receipt of the decision but before the lapse of the two (2)-year
period. In the event that the local treasurer has no decision yet and the two (2)-year period is about to expire, the
taxpayer should already file an appeal to the court of competent jurisdiction. Otherwise, his right to seek judicial relief
is already barred by prescription. This simply means that the written claim for refund before the local treasurer and
the judicial claim must happen within the period of two (2) years regardless of any supervening events.

As to which court has jurisdiction on the decision or inaction of the local treasurer, the rules on protest of assessment
similarly apply.

Taxpayer's Options When an Assessment Is Issued

Where an assessment is to be protested or disputed, the taxpayer may proceed (a) without payment, or (b) with
payment of the assessed tax, fee, or charge. Whether there is payment of the assessed tax or not, it is clear that the
protest in writing must be made within sixty (60) days from receipt of the notice of assessment; otherwise, the
assessment shall become final and conclusive. Additionally, the subsequent court action must be initiated within thirty
(30) days from denial or inaction by the local treasurer; otherwise, the assessment becomes conclusive and
unappealable.

(a) Where no payment is made, the taxpayer's procedural remedy is governed strictly by Section 195. That is, in
case of whole or partial denial of the protest, or inaction by the local treasurer, the taxpayer's only recourse is to appeal
the assessment with the court of competent jurisdiction. The appeal before the court does not seek a refund but only
questions the validity or correctness of the assessment.

(b) Where payment is made, the taxpayer may thereafter maintain an action in court questioning the validity and
correctness of the assessment (Section 195, LGC) and at the same time seeking a refund of the taxes. In truth, it
would be illogical for the taxpayer to only seek a reversal of the assessment without praying for the refund of taxes.
Once the assessment is set aside by the court, it follows as a matter of course that all taxes paid under the erroneous
or invalid assessment are refunded to the taxpayer.
The same implication should ensue even if the taxpayer were to style his suit in court as an action for refund or recovery
of erroneously paid or illegally collected tax as pursued under Section 196 of the LGC. In such a suit for refund, the
taxpayer cannot successfully prosecute his theory of erroneous payment or illegal collection of taxes without necessarily
assailing the validity or correctness of the assessment he had administratively protested.

It must be understood, however, that in such latter case, the suit for refund is conditioned on the prior filing of a
written claim for refund or credit with the local treasurer. In this instance, what may be considered as the administrative
claim for refund is the letter-protest submitted to the treasurer. Where the taxpayer had paid the assessment, it can
be expected that in the same letter protest, he would also pray that the taxes paid should be refunded to him. As
previously mentioned, there is really no particular form or style necessary for the protest of an assessment or claim of
refund of taxes. What is material is the substance of the letter submitted to the local treasurer.

Equally important is the institution of the judicial action for refund within thirty (30) days from the denial of
or inaction on the letter-protest or claim, not any time later, even if within two (2) years from the date of
payment (as expressly stated in Section 196). Notice that the filing of such judicial claim for refund after
questioning the assessment is within the two (2)-year prescriptive period specified in Section 196. Note, too,
that the filing date of such judicial action necessarily falls on the beginning portion of the two (2)-year period
from the date of payment. Even though the suit is seemingly grounded on Section 196, the taxpayer could
not avail of the full extent of the two-year period within which to initiate the action in court.

The reason is obvious. This is because an assessment was made, and if not appealed in court within thirty
(30) days from decision or inaction on the protest, it becomes conclusive and unappealable. Even if the action
in court is one of claim for refund, the taxpayer cannot escape assailing the assessment, invalidity or
incorrectness, the very foundation of his theory that the taxes were paid erroneously or otherwise collected
from him illegally. Perforce, the subsequent judicial action, after the local treasurer's decision or inaction, must
be initiated within thirty (30) days later. It cannot be anytime thereafter because the lapse of thirty (30) days
from decision or inaction results in the assessment becoming conclusive and unappealable. In short, the
scenario wherein the administrative claim for refund falls on the early stage. of the two (2)-year period but
the judicial claim on the last day or late stage of such two (2)-year period does not apply in this specific
instance where an assessment is issued.

To stress, where an assessment is issued, the taxpayer cannot choose to pay the assessment and thereafter seek a
refund at any time within the full period of two (2) years from the date of payment as Section 196 may suggest. If
refund is pursued, the taxpayer must administratively question the validity or correctness of the assessment in the
"letter-claim for refund" within sixty (60) days from receipt of the notice of assessment, and thereafter bring suit in
court within thirty (30) days from either decision or inaction by the local treasurer.

Simply put, there are two conditions that must be satisfied in order to successfully prosecute an action for refund in
case the taxpayer had received an assessment. One, pay the tax and administratively assail within sixty (60) days the
assessment before the local treasurer, whether in a letter-protest or in a claim for refund. Two, bring an action in court
within thirty (30) days from decision or inaction by the local treasurer, whether such action is denominated as an
appeal from assessment and/or claim for refund of erroneously or illegally collected tax. (City Treasurer of Manila v.
Philippine Beverage Partners, Inc., G.R. No. 233556, September 11, 2019)

Section 195 Compared with Section 196

The taxpayers' remedies of protesting an assessment and refund of taxes are stated in Sections 195 and 196 of the
LGC, to wit:

Section 195. Protest of Assessment. When the local treasurer or his duly authorized representative finds that
correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature
of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60)
days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local
treasurer contesting the assessment; otherwise, the shall become final and executory. The local treasurer
shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest
to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment.
However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest
wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the
 denial of the protest or from the lapse of the sixty (60)-day period prescribed herein within which to appeal
with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.

Section 196. Claim for Refund of Tax Credit. No case or proceeding shall be maintained in any court for the
recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit
has been filed with the local treasurer. No case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from the date the
taxpayer is entitled to a refund or credit.

The first provides the procedure for contesting an assessment illegally issued by the local treasurer; whereas, the
second provides the procedure for the recovery of an erroneously paid or collected tax, fee, or charge. Both Sections
195 and 196 mention an administrative remedy that the taxpayer should first exhaust before bringing the appropriate
action in court. In Section 195, it is the written protest with the local treasurer that constitutes the administrative
remedy; while in Section 196, it is the written claim for refund or credit with the same office. As to form, the law does
not particularly provide any for a protest or refund claim to be considered valid. It suffices that the written protest or
refund is addressed to the local treasurer expressing in substance its desired relief. The title or denomination used in
describing the letter would not ordinarily put control over the content of the letter.

Obviously, the application of Section 195 is triggered by an assessment made by the local treasurer or his duly
authorized representative for non-payment of the correct taxes, fees, or charges. Should the taxpayer find the
assessment to be erroneous or excessive, he may contest it by filing a written protest before the local treasurer within
the reglementary period of sixty (60) days from receipt of the notice; otherwise, the assessment shall become
conclusive. The local treasurer has sixty (60) days to decide said protest. In case of denial of the protest or inaction by
the local treasurer, the taxpayer may appeal with the court of competent jurisdiction; otherwise, the assessment
becomes conclusive and unappealable.

On the other hand, Section 196 may be invoked by a taxpayer who claims to have erroneously paid a tax, fee, or
charge, or that such tax, fee, or charge had been illegally collected from him. The provision requires the taxpayer to
first file a written claim for refund before bringing a suit in court which must be initiated within two (2) years from the
date of payment. By necessary implication, the administrative remedy of claim for refund with the local treasurer must
be initiated also within such two (2)-year prescriptive period but before the judicial action.

Unlike Section 195, however, Section 196 does not expressly provide a specific period within which the local treasurer
must decide the written claim for refund or credit. It is, therefore, possible for a taxpayer to submit an administrative
claim for refund very early in the two (2)-year period and initiate the judicial claim already near the end of such two
(2)-year period due to an extended inaction by the local treasurer. In this instance, the taxpayer cannot be required
to await the decision of the local treasurer any longer, otherwise, his judicial action shall be barred by prescription.

Additionally, Section 196 does not expressly mention an assessment made by the local treasurer. This simply means
that its applicability does not depend upon the existence of an assessment notice. By consequence, a taxpayer may
proceed to the remedy of refund of taxes even without a prior protest against an assessment that was not issued in
the first place. This is not to say that an application for refund can never be precipitated by a previously issued
assessment, for it is entirely possible that the taxpayer, who had received a notice of assessment, paid the assessed
tax, fee, or charge believing it to be erroneous or illegal. Thus, under such circumstance, the taxpayer may subsequently
direct his claim pursuant to Section 196 of the LGC. (City Treasurer of Manila v. Philippine Beverage Partners, Inc.,
G.R. No. 233556, September 11, 2019)

CIVIL REMEDIES FOR COLLECTION OF REVENUES

If the taxpayer has available remedies to challenge the assessment of the local treasurer or refund the tax erroneously
paid, the LGUs have remedies as well for the collection of any delinquent local tax, fee, charge, or other revenue.
These remedies are summarized as follows:

1. Local Government's Lien

2. Administrative Remedies
a. Distraint of Personal Property
b. Levy of Real Property

3. Judicial Remedies
a. Civil Action
 b. Criminal Action

Tax Lien

A lien is a "legal claim or charge on property, either real or personal, as a collateral or security for the payment of some
debt or obligation." A lien, until discharged, follows the property. (Development Bank of the Philippines v. Clarges
Realty Corporation, G.R. No. 170060, August 17, 2016)

Under Section 173 of the LGC, local taxes, fees, charges, and other revenues constitute a lien on the following:

a. Upon any property of the taxpayer;

b. Upon the property rights of the taxpayer; and
c. Upon property used in business, occupation, practice of profession or calling, or exercise of privilege with
respect to which the lien is imposed..

This lien is superior to all liens, charges, or encumbrances in favor of any person, enforceable by appropriate
administrative or judicial action, and may only be extinguished upon full payment of the delinquent local taxes, fees,
and charges, including related surcharges and interest.

Administrative Remedies
Collection of delinquent taxes, fees, or charges, and related surcharges and interest may be done through
distraint of personal properties or levy of real properties.

Distraint of Personal Property

The remedy by distraint shall proceed as follows:

a. Seizure - Upon failure of the person owing any local tax, fee, or charge to pay the same at the time
required, the local treasurer or his deputy may, upon written notice, seize or confiscate any personal property
belonging to that person or any personal property subject to the lien in sufficient quantity to satisfy the tax,
fee, or charge in question, together with any increment thereto incident to delinquency and the expenses of
seizure.

In such case, the local treasurer or his deputy shall issue a duly authenticated certificate based upon the
records of his office showing the fact of delinquency and the amounts of the tax, fee, or charge and penalty
due. Such certificate shall serve as sufficient warrant for the distraint of personal property aforementioned,
subject to the taxpayer's right to claim exemption under the provisions of existing laws. Distrained personal
property shall be sold at public auction in the manner hereon provided for. (Section 175(a), LGC)

b. Accounting of distrained goods. - The officer executing the distraint shall make or cause to be made
an account of the goods, chattels or effects distrained, a copy of which signed by himself shall be left either
with the owner or person from whose possession the goods, chattels or effects are taken, or at the dwelling
or place or business of that person and with someone of suitable age and discretion, to which list shall be
added a statement of the sum demanded and a note of the time and place of sale. (Section 175(b), LGC)

c. Publication - The officer shall forthwith cause a notification to be exhibited in not less than three (3)
public and conspicuous places in the territory of the local government unit where the distraint is made,
specifying the time and place of sale, and the articles distrained. The time of sale shall not be less than twenty
(20) days after the notice to the owner or possessor of the property as above specified and the publication or
posting of the notice. One place for the posting of the notice shall be at the office of the chief executive of
the local government unit in which the property is distrained. (Section 175(c), LGC)

Right of Pre-Emption
If at any time prior to the consummation of the sale, all the proper charges are paid to the officer conducting the sale,
the goods. or effects distrained shall be restored to the owner. (Section 175(d), LGC)

Procedure of Sale
At the time and place fixed in the notice, the officer conducting the sale shall sell the goods or effects so distrained at
public auction to the highest bidder for cash. Within five (5) days after the sale, the local treasurer shall make a report
of the proceedings in writing to the local chief executive concerned.

Should the property distrained be not disposed of within one hundred and twenty (120) days from the date of distraint,
the same shall be considered as sold to the local government unit concerned for the amount of the assessment made
thereon by the Committee on Appraisal and to the extent of the same amount, the tax delinquencies shall be cancelled.

Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman, with a representative
of the Commission on Audit and the city or municipal assessor as members. (Section 175(e), LGC)

Disposition of Proceeds

The proceeds of the sale shall be applied to satisfy the tax, including the surcharges, interest, and other penalties
incident to delinquency, and the expenses of the distraint and sale. The balance over and above what is required to
pay the entire claim shall be returned to the owner of the property sold. The expenses chargeable upon the seizure
and sale shall embrace only the actual expenses of seizure and preservation of the property pending the sale, and no
charge shall be imposed for the services of the local officer or his deputy. Where the proceeds of the sale are insufficient
to satisfy the claim, other property may, in like manner, be distrained until the full amount due, including all expenses,
is collected. (Section 175(f), LGC)

Levy on Real Property

After the expiration of the time required to pay the delinquent tax, fee, or charge, real property may be levied on,
before, simultaneously, or after the distraint of personal property belonging to the delinquent taxpayer.

To this end, the provincial, city or municipal treasurer, as the case may be, shall prepare a duly authenticated certificate
showing the name of the taxpayer and the amount of the tax, fee, or charge, and penalty due from him. Said certificate
shall operate with the force of a legal execution throughout the Philippines. Levy shall be effected by writing upon said
certificate the description of the property upon which levy is made. At the same time, written notice of the levy shall
be mailed to or served upon the assessor and the Register of Deeds of the province or city where the property is
located who shall annotate the levy on the tax declaration and certificate of title of the property, respectively, and the
delinquent taxpayer or, if he be absent from the Philippines, to his agent or the manager of the business in respect to
which the liability arose, or if there be none, to the occupant of the property in question.

In case the levy on real property is not issued before or simultaneously with the warrant of distraint on personal
property, and the personal property of the taxpayer is not sufficient to satisfy his delinquency, the provincial, city or
municipal treasurer, as the case may be, shall within thirty (30) days after execution of the distraint, proceed with the
levy on the taxpayer's real property. A report on any levy shall, within ten (10) days after receipt of the warrant, be
submitted by the levying officer to the sanggunian concerned. (Section 176, LGC)

Advertisement and Sale

Within thirty (30) days after the levy, the local treasurer shall proceed to publicly advertise for sale or auction the
property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement
shall cover a period of at least thirty (30) days. It shall be effected by posting a notice at the main entrance of the
municipal building or city hall, and in a public and conspicuous place in the barangay where the real property is located,
and by publication once a week for three (3) weeks in a newspaper of general circulation in the province, city or
municipality where the property is located. The advertisement shall contain the amount of taxes, fees or charges, and
penalties due thereon, and the time and place of sale, the name of the taxpayer against whom the taxes, fees, or
charges are levied, and a short description of the property to be sold.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the sanggunian
concerned, and which shall form part of his records. After consultation with the sanggunian, the local treasurer shall
make and deliver to the purchaser a certificate of sale, showing the proceeding of the sale, describing the property
sold, stating the name of the purchaser and setting out the exact amount of all taxes, fees, charges, and related
surcharges, interests, or penalties: Provided, however, that any excess in the proceeds of the sale over the claim and
cost of sales shall be turned over to the owner of the property.
The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of collection by
means of the remedies provided for in this Title, including the preservation or transportation in case of personal
property, and the advertisement and subsequent sale, in cases of personal and real property including improvements
thereon. (Section 178, LGC)

Right of Pre-Emption

At any time before the date fixed for the sale, the taxpayer may stay the proceedings by paying the taxes, fees,
charges, penalties and interests. If he fails to do so, the sale shall proceed and shall be held either at the main entrance
of the provincial, city or municipal building, or on the property to be sold, or at any other place as determined by the
local treasurer conducting the sale and specified in the notice of sale. (Section 178, LGC)

Right of Redemption

Within one (1) year from the date of sale, the delinquent taxpayer or his representative shall have the right to redeem
the property upon payment to the local treasurer of the total amount of taxes, fees, or charges, and related surcharges,
interests or penalties from the date of delinquency to the date of sale, plus interest of not more than two percent (2%)
per month on the purchase price from the date of purchase to the date of redemption. Such payment shall invalidate
the certificate of sale issued to the purchaser and the owner shall be entitled to a certificate of redemption from the
provincial, city or municipal treasurer or his deputy.

The provincial, city or municipal treasurer or his deputy, upon surrender by the purchaser of the certificate of sale
previously issued to him, shall forthwith return to the latter the purchase price paid by him plus the interest of not
more than two percent (2%) per month herein provided for, the portion of the cost of sale and other legitimate
expenses incurred by him, and said property thereafter shall be free from the lien of such taxes, fees, or charges,
related surcharges, interests, and penalties.

The owner shall not, however, be deprived of the possession of said property and shall be entitled to the rentals and
other income thereof until the expiration of the time allowed for its redemption. (Section 179, LGC)

Purchase of Property by the Local Government Units for Want of Bidder

In case there is no bidder for the real property advertised. for sale as provided herein, or if the highest bid is for an
amount insufficient to pay the taxes, fees, or charges, related surcharges, interests, penalties and costs, the local
treasurer conducting the sale shall purchase the property in behalf of the local government unit concerned to satisfy
the claim and within two (2) days thereafter shall make a report of his proceedings which shall be reflected upon the
records of his office. It shall be the duty of the Registrar of Deeds concerned upon registration with his office of any
such declaration of forfeiture to transfer the title of the forfeited property to the local government unit concerned
without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer or any of his representatives, may redeem the
property by paying to the local treasurer the full amount of the taxes, fees, charges, and related surcharges, interests,
or penalties, and the costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be
fully vested on the local government unit concerned. (Section 181, LGC)

Further Distraint or Levy

The remedies by distraint and levy may be repeated if necessary until the full amount due, including all expenses, is
collected. (Section 184, LGC)

Personal Property Exempt from Distraint or Levy

The following property shall be exempt from distraint and the levy, attachment or execution thereof for delinquency in
the payment of any local tax, fee or charge, including the related surcharge and interest:

a. Tools and implements necessarily used by the delinquent taxpayer in his trade or employment;

b. One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and
necessarily used by him in his ordinary occupation;

c. His necessary clothing, and that of all his family;

 d. Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent
taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P10,000.00);

e. Provisions, including crops, actually provided for individual or family use sufficient for four (4) months;

f. The professional libraries of doctors, engineers, lawyers and judges;

g. One fishing boat and net, not exceeding the total value of Ten thousand pesos (P10,000.00), by the lawful
use of which a fisherman earns his livelihood; and

h. Any material or article forming part of a house or improvement of any real property. (Section 185, LGC)

Judicial Action
The local government unit concerned may enforce the collection of delinquent taxes, fees, charges, or other revenues
by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the
period prescribed in Section 194 of

the LGC. (Section 183, LGC) With respect to criminal action, a taxpayer may be held criminally liable under Section 516
of the LGC which provides penalties for violation of tax ordinances, to state:

"Section 516. Penalties for Violation of Tax Ordinances. The sanggunian of a local government unit is authorized to
prescribe fines or other penalties for violation of tax ordinances but in no case shall such fines be less than One
thousand pesos (P1,000.00) nor more than Five thousand pesos (P5,000.00), nor shall imprisonment be less than one
(1) month nor more than six (6) months. Such fine or other penalty, or both, shall be imposed at the discretion of the
court. The sangguniang barangay may prescribe a fine of not less than One hundred pesos (P100.00) nor more than
One thousand pesos (P1,000.00)."
 CHAPTER VII

REAL PROPERTY TAXATION

Real Property Taxation

Property taxes are assessed on all property or all property of a certain class located within a certain territory on a
specified date in proportion to its value or in accordance with some other reasonable method of apportionment. In the
Philippines, real property tax is an annual ad valorem tax imposed by LGUs on real property within their territorial
jurisdiction, determined based on a fixed proportion of the value of the property.

Real property tax is not a local tax but is a different category of tax under the LGC. In fact, it can be observed that
under Book II of the LGC, Local Government Taxation and Real Property Taxation fall into separate titles.

There are four (4) kinds of real property tax under the LGC, namely:

a. Real Property Tax proper;

b. Special Levy on Education Fund;
c. Special Levy on Idle Lands; and
d. Special Levy on Public Works.

The object of these real property taxes are real properties. However, one must identify which real property may be
subject of these taxes. Article 415 of the New Civil Code enumerates the real properties or the immovable properties,
to state:

1. Land, buildings, roads and constructions of all kinds. adhered to the soil;

2. Trees, plants, and growing fruits, while they are attached. to the land or form an integral part of an
immovable;

3. 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 of the object;

4. Statues, reliefs, paintings or other objects for use or, ornamentation, placed in buildings or on lands by the
owner of the immovable in such a manner that it reveals the intention to attach them permanently to the
tenements; Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or

5.works which may be carried on in a building or on a piece of land, and which tend directly to meet the
needs of the said industry or works;

6. Animal houses, pigeon-houses, beehives, fishponds or breeding places of similar nature, in case their owner
has placed them or preserves them with the intention to have them permanently attached to the land, and
forming a permanent part of it; the animals in these places are included;

7. Fertilizer actually used on a piece of land;

8. Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running
or stagnant;

9. Docks and structures which, though floating, are intended by their nature and object to remain at a fixed
place on a river, lake, or coast;

10. Contracts for public works, and servitudes and other real rights over immovable property.

All kinds of real properties may be subject of Real Property Tax Proper and Special Levy on Education Fund. On the
other hand, Special Levy on Idle Lands and Special Levy on Public Works pertain to or are imposed on land only to the
exclusion of all other real properties under Article 415 of the New Civil Code.
Lastly, the Special Levy on Education Fund, Special Levy on Idle Lands, and Special Levy on Public Works may be
imposed in addition to the Real Property Tax. Thus, a taxpayer may be made to pay two or three of these real property
taxes.

FUNDAMENTAL PRINCIPLES

The appraisal, assessment, levy and collection of real property tax are guided by the following fundamental principles:

a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its actual use;
c. Real property shall be assessed on the basis of a uniform classification within each local government unit;
d. The appraisal, assessment, levy and collection of real property tax shall not be let to any private person;
and
e. The appraisal and assessment of real property shall be equitable. (Section 198, LGC)

APPRAISAL AND ASSESSMENT OF REAL PROPERTY

"Appraisal" is the act or process of determining the value of property as of a specified date for a specific purpose.
(Section 199(e), LGC) All real properties, whether taxable or exempt, shall be appraised at the current and fair market
value prevailing in the locality where the property is situated. (Section 201, LGC) "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. (Section 199(1), LGC)

"Assessment," on the other hand, is the act or process of determining the value of a property, or proportion thereof
subject to tax, including the discovery, listing, classification, and appraisal of properties. (Section 199(f), LGC)

The term "assessment" in realty taxation has an entirely. different concept from that ascribed to such term from the
internal revenue, local tax and tariff and customs laws purposes. For realty tax purposes, this term means the act or
process of determining the value of the property subject to tax, including its discovery, listing, classification, and
appraisal. On the other hand, for internal revenue, local tax and tariff and customs laws purposes, such term means
the determination of the amount of the deficiency tax and the formal demand for the payment of the same. (The
Philippine Local Tax and Tariff and Customs Laws, Eric Recalde, First Edition, p. 319)

In real property taxation, the important offices are the local assessor and local treasurer. The former has the duty to
assess the value of the real property while the latter has the duty to collect the tax based on the assessment made by
the local assessor. The collection of taxes by the local treasurer includes the power and authority to resort to remedies
under the LGC, i.e., administrative and judicial remedies, to ensure the collection of taxes.

Classes of Real Property

For purposes of assessment, real property shall be classified as follows:

a. Residential a land principally devoted for habitation

b. Agricultural land devoted principally to the planting of trees, raising of crops, livestock and poultry, dairying,
salt making, inland fishing and similar aquacultural activities, and other agricultural activities, and is not
classified as mineral, timber, residential, commercial or industrial land (Section 199(d), LGC)

c. Commercial land devoted principally for the object of profit and is not classified as agricultural, industrial,
mineral, timber, or residential land (Section 199(i), LGC)

d. Industrial-land devoted principally to industrial activity as capital investment and is not classified as
agricultural, commercial, timber, mineral or residential land (Section 199(n), LGC)

e. Mineral lands in which minerals, metallic or non-metallic, exist in sufficient quantity or grade to justify the
necessary expenditures to extract and utilize such materials (Section 199(p), LGC)

f. Timberland refers to forest land or land with trees growing on it

 g. Special all lands, buildings, and other improvements thereon actually, directly and exclusively used 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 of electric power. (Section 216, LGC)

The city or municipality within the Metropolitan Manila Area, through their respective sanggunian, shall have the power
to classify lands as residential, agricultural, commercial, industrial, timberland, or special in accordance with their zoning
ordinances. (Section 215, LGC)

Actual Use of Real Property as Basis for Assessment

Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located,
whoever owns it, and whoever uses it. (Section 217, LGC)

Section 199(b) of Republic Act No. 7160 defines "actual use" as the purpose for which the property is principally or
predominantly utilized by the person in possession thereof. It contemplates concrete, as distinguished from mere
potential, use. (The Provincial Assessor of Marinduque v. Court of Appeals, G.R. No. 170532, April 30, 2009)

Assessment Levels

The sangguniang panlalawigan, sangguniang panlungsod, or sangguniang bayan of a municipality within the
Metropolitan Manila Area shall determine, through an ordinance, the assessment levels to be applied to the fair market
value of real property to determine its assessed value.

"Assessment Level" is the percentage applied to the fair market value to determine the taxable value of the property.
(Section 199(g), LGC) The range of assessment levels per class of real property is specified in the LGC. "Assessed
Value" is the fair market value of the real property multiplied by the assessment level. It is synonymous to taxable
value. (Section 199(h), LGC) Thus, the following formula:

Fair Market Value xx

Multiplied by: Assessment Level xx
Assessed Value xx
Multiplied by: Rate of Tax xx
Real Property Tax xx

The tax base of real property tax is not the fair market value of the real property but its assessed value as determined
above.

All assessments or reassessments made after the first (1st) day of January of any year shall take effect on the first
(1st) day of January of the succeeding year. The reassessment of real property due to its partial or total destruction,
or to a major change in its actual use, or to any great and sudden inflation or deflation of real property values, or to
the gross illegality of the assessment when

made or to any other abnormal cause, shall be made within ninety (90) days from the date any such cause or causes
occurred, and shall take effect at the beginning of the quarter next following the reassessment. (Section 221, LGC)

Issuance of Notice of Assessment

When real property is assessed for the first time or when an existing assessment is increased or decreased, the local
assessor shall within thirty (30) days give written notice of such new or revised assessment to the person in whose
name the property is declared. (Section 223, LGC) The notice of assessment fixes the liability of the taxpayer and
constitutes a demand to make the payment of tax liability.

The notice may be delivered (1) personally; (2) by registered mail; or (3) through the assistance of the punong
barangay to the last known address of the person to be served. (Section 223, LGC) An assessment is deemed made
when the notice is released, mailed, or sent to the taxpayer.

CONTESTING AN ASSESSMENT OF VALUE OF REAL PROPERTY

Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city, or
municipal assessor in the assessment of his property may file an appeal observing the following requirements:

a. The appeal must be filed within sixty (60) days from the date of receipt of the written notice of assessment;
b. The appeal must be filed to the Local Board of Assessment Appeals (LBAA) of the province or city;
c. The appeal must be through a petition under oath; and
d. The petition must be supported by the tax declarations and such affidavits or documents submitted in
support of the appeal. (Section 226, LGC)

When challenging the assessment of the local assessor, a party challenging an appraiser's finding of value is required
to prove not only that the appraised value is erroneous but also what the proper value is. (Caltex (Philippines), Inc. v.
Court of Appeals, G.R. No. 104781, July 10, 1998)

Local Board of Assessment Appeals and the Central Board of Assessment Appeal

The LBAA of the province or city is composed of the Registrar of Deeds, as Chairman, the provincial or city prosecutor
and the provincial or city engineer as members, who shall serve as such in an ex officio capacity without additional
compensation. (Section 227(a), LGC)

In resolving the petition contesting the assessment, the LBAA adopts the following rules and procedures:

a. The LBAA shall decide the appeal within one hundred twenty (120) days from the date of receipt of the
appeal. The Board, after hearing, shall render its decision based on substantial evidence or such relevant
evidence on record as a reasonable mind might accept as adequate to support the conclusion.

b. In the exercise of its appellate jurisdiction, the LBAA shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum.

C. The proceedings of the LBAA shall be conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial proceedings.

d. The secretary of LBAA shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or
the person having legal interest therein of such fact using the form prescribed for the purpose.

The owner of the property or the person having legal interest therein or the assessor who is not satisfied with the
decision of the LBAA, may, within thirty (30) days after receipt of the decision, appeal to the Central Board of
Assessment Appeals. (Section 229, LGC)

Effect of Appeal on the Payment of Real Property Tax

An appeal on assessments of real property does not suspend the collection of the corresponding realty taxes on the
property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment depending
on the final outcome of the appeal. (Section 231, LGC)

IMPOSITION OF TAXES

Real Property Taxes

A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvement not specifically exempted. (Section 232, LGC) A
municipality outside Metropolitan Manila Area has no power to impose real property taxes. The rate of real property
tax is:

a. Province not exceeding one percent (1%) of the assessed value of the real property; and
 b. City or Municipality within Metropolitan Manila Area not exceeding two percent (2%) of the assessed
value. (Section 233, LGC)

As the LGC merely provides for a range and the maximum rate, i.e., not exceeding one percent (1%) and two percent
(2%), LGU must enact an ordinance that will fix these rates.

Exemptions from Real Property Tax

The following are exempted from payment of the real property tax under Section 234 of the LGC:

a. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;

b. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or

religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;

c. All machineries and equipment that are actually, directly and exclusively used by local water districts and
government owned or controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;

d. All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

e. Machinery and equipment used for pollution control and environmental protection.

In Mactan Cebu International Airport Authority v. Hon. Ferdinand J. Marcos (G.R. No. 120082, September 11, 1996),
the Supreme Court explained that these exemptions are based on the ownership, character, and use of the property.
Thus;

a. Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties
owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered
cooperatives.

b. Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable
institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto,
mosques, and (iii) non-profit or religious cemeteries.

C. Usage exemptions. Exempted from real property taxes on the basis of the actual, direct, and exclusive use
to which they are devoted are: (i) all lands buildings and improvements which are actually, directly, and
exclusively used for religious, charitable, or educational purposes; (ii) all machineries and equipment actually,
directly, and exclusively used or by local water districts or by government-owned or controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of electric power; and
(iii) all machinery and equipment used for pollution control and environmental protection.

Real Property Owned by the Republic of the Philippines or Any of Its Political Subdivisions

The properties owned by the Republic of the Philippines of its political subdivisions are, as a rule, exempt from real
property tax. These political subdivisions are the province, city, municipality, and barangay. or any

Recall that Section 133(0) of the LGC provides, as a common limitation on the taxing power of LGUs, that no taxes,
fees, or charges of any kind shall be imposed on the national government, its agencies and instrumentalities, and
LGUS. Compared to Section 234(a), the LGC uses the "Republic of the Philippines." One might ask, is there a difference
between "Republic of the Philippines" and "National Government"?

In Mactan Cebu International Airport Authority, the Supreme Court explained that the terms "Republic of the
Philippines" and "National Government" are not interchangeable. The former is broader and synonymous with
"Government of the Republic of the Philippines" which the Administrative Code of the 1987 defines as the "corporate
governmental entity through which the functions of the government are exercised through at the Philippines, including,
saves as the contrary appears from the context, the various arms through which political authority is made effective in
the Philippines, whether pertaining to the autonomous reason, the provincial, city, municipal or barangay subdivision
or other forms of local government." These autonomous regions, provincial, city, municipal, or barangay subdivisions
are the political subdivision.

On the other hand, "National Government" refers "to the entire machinery of the central government, as distinguished
from the different forms of local Governments." The National Government then is composed of the three great
departments: the executive, the legislative and the judicial.

An "agency" of the Government refers to "any of the various units of the Government, including a department, bureau,
office instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein,"
while an "instrumentality" refers to "any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers,
administering special funds, and enjoying operational autonomy; usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned and controlled corporations."

If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real
property taxes under the last sentence of the said section to the agencies and instrumentalities of the National
Government mentioned in Section 133(0), then it should have restated the wording of the latter. Yet, it did not.
Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property
owned by other instrumentalities or agencies of the government including government-owned and controlled
corporations is further borne out by the fact that the source of this exemption is Section 40(a) of Presidential Decree
No. 646, otherwise known as the Real Property Tax Code, which reads:

Sec 40. Exemption from Real Property Tax. - The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any
government-owned or controlled corporations so exempt by its charter: Provided, however, that this
exemption shall not apply to real property of the above mentioned entities the beneficial use of which has
been granted, for consideration or otherwise, to a taxable person.

Real Properties by Government-Owned and Controlled Corporation are Subject to Real Property Tax

Further in Mactan Cebu International Airport Authority, the Supreme Court ruled that government-owned and controlled
corporations are not included in the term "Republic of the Philippines," and thus, its real properties are not exempt
from real property tax. As explained by the Supreme Court:

"Note that as reproduced in Section 234(a), the phrase "and any government-owned or controlled corporation so
exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems obvious:
to limit further tax exemption privileges, specially in light of the general provision on withdrawal of exemption from
payment of real property taxes in the last paragraph of property taxes in the last paragraph of Section 234. These
policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective
of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development
as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is
the most effective instrument to raise needed revenues to finance and support myriad activities of local government
units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of
tax exemption privileges granted to government-owned and controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated
enterprises, and there was a need for these entities to share in the requirements of the development, fiscal or
otherwise, by paying the taxes and other charges due from them."

Beneficial Use Doctrine

Under Section 234(a) of the LGC, properties owned by the Republic of the Philippines when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person is subject to real property tax..

In Government Service Insurance System v. City Treasurer of the City of Manila (G.R. No. 186242, December 23,
2009), it was held that the tax exemption the property of the Republic or its instrumentalities carries ceases only if, as
stated in Section 234(a) of the LGC of 1991, "beneficial use thereof has been granted, for a consideration or otherwise,
to a taxable person." The GSIS, as a government instrumentality, is not a taxable juridical person under Section 133(0)
of the LGC. The GSIS, however, lost in a sense that status with respect to the Katigbak property when it contracted its
beneficial use to Manila Hotel Corporation, doubtless a taxable person. Thus, the real estate tax assessment of Php
54,826,599.37 covering 1992 to 2002 over the subject Katigbak property is valid insofar as said tax delinquency is
concerned as assessed over said property.

In Manila International Airport Authority (MIAA) v. Court of Appeals (G.R. No. 155650, July 20, 2006), the Supreme
Court held that Section 234(a) of the LGC states that real property owned by the Republic loses its tax exemption only
if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a
government instrumentality, is not a taxable person under Section 133(0) of the LGC. Thus, even if we assume that
the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these
real properties subject to real estate tax.

However, portions of the airport lands and buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real
estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to a taxable
person and therefore such land area is subject to real estate tax.

In City of Pasig v. Republic of the Philippines (G.R. No. 185023, August 24, 2011), the Supreme Court ruled that the
portions of the properties not leased to taxable entities are exempt from real estate tax while the portions of the
properties leased to taxable entities are subject to real estate tax. The law imposes the liability to pay real estate tax
on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is, of course, assumed
that the Republic of the Philippines passes on the real estate tax as part of the rent to the lessees.

Real Properties Actually, Directly, and Exclusively Used for Religious, Charitable, and Educational
Purposes

In the old case of Jose Herrera v. Quezon City Board of Assessment Appeals (G.R. No. L-15270, September 30, 1961)
involving a charitable hospital that accepts paying patients and sets up a school where its students practice in the
hospitals, it was held that the exemption in favor of property used exclusively for charitable or educational purposes is
"not limited to property actually indispensable" therefor but extends to facilities which are "incidental to and reasonably
necessary for" the accomplishment of said purposes, such as, in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses, interns and residents" such as "athletic
fields," including "a farm used for the inmates of the institution."

Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital is, therefore, a charitable
institution, and the fact that it admits pay-patients does not bar it from claiming that it is devoted exclusively to
benevolent purposes, it being admitted that the income derived from pay-patients is devoted to the improvement of
the charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from "out-charity
patients" who come only for consultation.

In the subsequent case of Abra Valley College, Inc. v. Juan P. Aquino (G.R. No. L-39086, June 15, 1988), a two (2)-
story building owned by an educational institution became subject of the tax assessment case. In this building, the first
(1st) floor was leased and occupied by a private corporation for commercial purpose while the second (2nd) floor was
occupied by the Director of Abra Valley College and his family for residential purposes. Adopting its previous ruling in
Jose Herrera, the Supreme Court held that the second (2nd) floor is exempt from the real property tax its use being
incidental and reasonably necessary for the accomplishment of the main purposes of an educational institution. The
first (1st) floor, however, cannot by any stretch of the imagination be considered incidental to the purpose of education.
Thus, only the first (1st) floor became subject to real property tax.

In must be noted that Jose Herrera and Abra Valley College, Inc. were decided by the Supreme Court during the
effectivity of 1935 Constitution where the provision for exemption simply states:

Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable, or educational purposes shall be exempt from
taxation. (Section 22(3), Article VI, 1935 Constitution)
As interpreted by the Supreme Court in Jose Herrera and Abra Valley College, "exclusive use" includes its incidental
use.

Beginning in the 1973 Constitution and later on reproduced in the 1987 Constitution, the provision for exemption from
real property now states:

Charitable institutions, churches and personages 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. (Section 28(3), Article VI, 1987 Constitution)

Noticeably, the qualification for exemption is not only the exclusive use of the land, building, and improvements but
also their actual and direct use for religious, charitable, and educational purposes.

The Supreme Court, in Lung Center of the Philippines v. Quezon City (G.R. No. 144104, June 29, 2004), held that
under the 1935 Constitution, "all lands, buildings, and improvements used 'exclusively for charitable, religious and
educational purposes shall be exempt from taxation." However, under the 1973 and the present Constitutions, for
"lands, buildings, and improvements" of religious, charitable, and educational institutions to be considered exempt, the
same should not only be "exclusively" used for these purposes; it is required that such property be used "actually" and
"directly" for such purposes.

Under the 1973 and 1987 Constitutions and even in the LGC, in order to be entitled to the exemption, it must be
proved, by clear and unequivocal proof, that (a) the institution is a religious, charitable, or educational institution; and
(b) its real properties are actually, directly, and exclusively used for religious, charitable, and educational purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment;
and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." If real property is used for
one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The
words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence
to the Constitutions and the law. Solely is synonymous with exclusively.

Further in Lung Center of the Philippines v. Quezon City, the charitable character of Lung Center of the Philippines was
put into test when the Quezon City assessed it of real property taxes. Quezon City contended that Lung Center lost its
character as charitable institution, and thereby subject to real property tax because (1) a portion of the property of
Lung Center was being leased to private parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they charge for their professional
services; (2) almost one-half (1/2) of the entire area on the left side of the building along Quezon Avenue is vacant
and idle; (3) a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, was being leased for
commercial purposes to a private enterprise; and (4) Lung Center accepted paying and non-paying patients and
receives annual subsidies from the government.

In ruling in favor of the charitable character of the Lung Center, the Supreme Court explained that to determine whether
an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute
creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature
of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the
use and occupation of the properties.

In the legal sense, a charity may be fully defined as a gift, to be applied consistently with existing laws, for the benefit
of an indefinite number of persons, either by bringing their minds and hearts under the influence of education or
religion, by assisting them to establish themselves in life or otherwise lessening the burden of government. It may be
applied to almost anything that tend to promote the well-doing and well-being of social man. It embraces the
improvement and promotion of the happiness of man. The word "charitable" is not restricted to relief of the poor or
sick. The test of a charity and a charitable organization are in law the same. The test whether an enterprise is charitable
or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain,
profit, or private advantage.

Under the charter creating the Lung Center, it was organized for the welfare and benefit of the Filipino people principally
to help combat the high incidence of lung and pulmonary diseases in the Philippines. Hence, a charitable institution.

Moreover, as a general principle, a charitable institution does not lose its character as such and its exemption from
taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or
receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable
object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating
the institution.

However, even if the Supreme Court found that Lung Center is a charitable institution, it held that those portions of its
real property that were leased to private entities are not exempt from real property taxes as these were not actually,
directly, and exclusively used for charitable purposes. Accordingly, the portions of the land

leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such
taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.

Based on the above ruling, it appears that specific identification of real property based on its actual, direct, and exclusive
use is required and necessary to determine whether it is exempted from real property tax.

Special Levy on Education Fund

A province or city, or a municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one
percent (1%) on the assessed value of real property. This is in addition to the basic real property tax. The proceeds
thereof shall exclusively accrue to the Special Education Fund (SEF). (Section 235, LGC)

Similar to real property tax, municipalities outside the Metropolitan Manila Area cannot levy and collect special levy on
education fund. In this instance, it is the province which shall levy and collect this tax on real properties located and
registered in its registry.

It is also apparent that, unlike other taxes under the LGC upon which a maximum limit of the rate is provided, Section
235 of the LGC provides for a fixed rate of tax, i.e., one percent (1%) of the assessed value of the real property. The
implication of this provision is that no LGU can increase or decrease the said rate of tax. However, an ordinance is still
needed before an LGU may impose and collect this tax.

Special Levy on Idle Lands

A province, 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 of the property. This is an addition to the basic real property
tax. (Section 236, LGC)

Like Special Levy on Education Fund, a municipality outside the Metropolitan Manila Area does not have the power to
levy this tax. The rate provided is a range not exceeding five percent (5%) of the assessed value of the real property.
This means the LGU needs to enact an ordinance fixing the rate of the special levy.

For the purpose of imposing this tax, idle land is defined as land including:

a. 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; and

b. 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 unutilized or unimproved by the owner of the property or person having legal
interest therein.

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

Regardless of land area, Special Levy on Idle Lands applies to 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. Individual lots of such subdivisions, the ownership of which has not been transferred to the buyer shall be
considered part of the subdivision and shall be subject to the additional tax payable by subdivision owner or operator.
(Section 237, LGC)
Idle Lands Exempt from Tax

The Special Levy on Idle Lands may not be imposed on the idle lands due to (1) force majeure, (2) civil disturbance,
(3) natural calamity; or (4) any cause or circumstance which physically or legally prevents the owner of the property
or person having legal interest therein from improving, utilizing, or cultivating the same. (Section 238, LGC)

Special Levy by Local Government Units

A province, city, or municipality may impose a special levy on the lands comprised within its territorial jurisdiction
specially benefited by public works projects or improvements funded by the local government unit concerned.
Compared to other impositions, all

municipalities, whether within or outside the Metropolitan Manila Area, may impose this special levy on lands within
their respective territorial jurisdiction.

The rate of 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. If the land is exempt from
the imposition of basic real property tax, or those enumerated under Section 234 of the LGC, this special levy does not
apply. (Section 240, LGC)

Requirements in the Imposition of the Special Assessment

The following are requirements in the imposition of special assessment:

a. There must be a tax ordinance. The ordinance shall describe with reasonable accuracy the following:
i. nature, extent, and location of the public works projects or improvements to be undertaken,
ii. state the estimated cost thereof,
iii. specify the metes and bounds by monuments and lines, and
iv. the number of annual installments for the payment of the special levy which in no case shall be
less than five (5) nor more than ten (10) years. (Section 241, LGC)

b. The sanggunian shall conduct a public hearing on the proposed imposition of special assessment. (Section
242, LGC)

C. The owners of the real property to be affected or the persons having legal interest shall be notified in
writing as to the date and place of the public hearing to afford the latter the opportunity to express their
positions or objections relative to the proposed ordinance. (Section 242, LGC)

It must be emphasized that in imposition of local taxes, fees, charges, and real property taxes, it is only in special
assessment where an affected party of the proposed ordinance is required to be notified of the public hearing.

Fixing the Amount of Special Levy

The special levy authorized herein shall be apportioned, computed, and assessed according to the assessed valuation
of the lands affected as shown by the books of the assessor concerned, or its current assessed value as fixed by said
assessor if the property does not appear of record in his books. Upon the effectivity of the ordinance imposing special
levy, the assessor concerned shall forthwith proceed to determine the annual amount of special levy assessed against
each parcel of land comprised within the area especially benefited and shall send to each landowner a written notice
thereof by mail, personal service or publication in appropriate cases. (Section 243, LGC)

Accrual of Special Levy

The special levy shall accrue on the first day of the quarter next following the effectivity of the ordinance imposing
such levy. (Section 245, LGC)

Summary of Imposition

The imposition of real property taxes may be summarized as follows:

COLLECTION OF REAL PROPERTY TAX

Accrual of Real Property Tax

The real property tax for any year shall accrue on the first day of January. From this date, real property tax constitutes
a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever,
and shall be extinguished only upon the payment of the delinquent tax. (Section 246, LGC)

The date of accrual of tax is likewise important when there is a transfer of a real property during the year. If at the
beginning of the year, the real property is owned and used by a taxable person, such property remains taxable and
the tax must be paid for the whole year even if during the year, the property is transferred to a tax-exempt person.
On the contrary, if at the beginning of the year, the real property is owned and used by a tax-exempt person, the
property is exempt from tax for the whole year even if during the said year, the property is transferred to a taxable
person. (Taxation Law Reviewer, Francis J. Sababan, 2008 Edition, p. 228)

Duty to Collect Taxes

The city or municipal treasurer has the primary responsibility to collect the real property tax including the interest
thereon and related expenses, and the enforcement of the remedies provided for in the LGC to ensure its prompt
collection.

In the performance of this duty, the city or municipal treasurer may deputize the barangay treasurer to collect all taxes
on real property located in the barangay. For this purpose, the barangay treasurer shall be properly bonded. The
premium on the bond shall be paid by the city or municipal government concerned. (Section 247, LGC)

The city or municipal treasurer shall, on or before the thirty first (31st) day of January each year, in the case of the
basic real property tax and the additional tax for the SEF or any other date to be prescribed by the sanggunian
concerned in the case of any other tax levied, post the notice of the dates when the tax may be paid without interest
at a conspicuous and publicly accessible place at the city or municipal hall. Said notice shall likewise be published in a
newspaper of general circulation in the locality once a week for two (2) consecutive weeks. (Section 249, LGC)

The provincial, city or municipal assessor, on the other hand, has the duty to prepare and submit to the treasurer of
the local government unit, on or before the thirty-first (31st) day of December each year, an assessment roll containing
a list of all persons whose real properties have been newly assessed or reassessed and the values of such properties.
(Section 248, LGC)

Payment of Real Property Tax

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 SEF due thereon without interest in four (4) equal installments:

First Installment - On or before March 31

Second Installment - On or before June 30
Third Installment - On or before September 30
Fourth Installment - On or before December 31
The special levy however may not be paid in installment.

Payments of real property taxes 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. (Section 50, LGC)

Advanced payment of real property taxes is also encouraged and favored. The sanggunian may, through an ordinance,
grant a discount not exceeding twenty percent (20%) of the annual tax due on basic real property tax and the additional
tax accruing to the SEF paid in advance. (Section 251, LGC)

Periods to Collect Real Property Taxes

The local treasurer must be able to collect the basic real property tax and any other tax levied within five (5) years
from the date they become due. In case of expiration of this period, no action for the collection of the tax, whether
administrative or judicial, shall be instituted by the local treasurer to enforce the collection of tax.

In case of fraud or intent to evade payment of the tax, action to collect taxes may be instituted within ten (10) years
from the discovery of such fraud or intent to evade payment.

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

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

b. The owner of the property or the person having legal interest therein requests for reinvestigation and
executes a waiver in writing before the expiration of the period within which to collect; and

c. The owner of the property or the person having legal interest therein is out of the country or otherwise
cannot be located. (Section 270, LGC)

TAXPAYER'S REMEDIES

When a notice of assessment of real property tax is issued by the local treasurer, the concerned taxpayer may resort
to the following remedies:

a. Pay under protest the real property tax assessed.

Any protest filed will not be entertained without paying the tax first. The payment shall be annotated on the
tax receipts with the words "paid under protest." The tax or a portion thereof paid under protest, shall be held
in trust by the treasurer concerned. (Section 252, LGC)

b. File a written protest within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal
treasurer. The local treasurer has a period of sixty (60) days from receipt of the protest to decide thereof.

c. In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability.
(Section 252, LGC)

d. In case of adverse decision or inaction of the local treasurer, the taxpayer has a period of sixty (60) days
from receipt of the decision or the lapse of the sixty (60) day period to appeal to the LBAA.

e. The LBAA is required to decide the appeal within one hundred twenty (120) days from the receipt of such
appeal.

f. In case of adverse decision of the LBAA, an appeal may be made to the CBAA within thirty (30) days from
the receipt of the decision. The decision of the CBAA is appealable to the Court of

g. Tax Appeals En Banc. Section 2(e), Rule 4 of the Revised Rules of Court of Tax Appeals provides that the
Court of Tax Appeals En Banc shall exercise exclusive appellate jurisdiction to review by appeal the decisions
 of the CBAA in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of
real property originally decided by the provincial or city board of assessment appeals.

h. The decision of the Court of Tax Appeals En Banc is appealable to the Supreme Court.

In Alejandro B. Ty u. The Hon. Aurelio C. Trampe (G.R. No. 117577, December 1, 1995), the Supreme Court explained
the power of the LBAA as well as the requirement of payment under protest in real property assessment. The Supreme
Court ruled:

"In laying down the powers of the Local Board of Assessment. Appeals, R.A. 7160 provides in Sec. 229 (b) that" (t)he
proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts..." It follows that appeals
to this Board may be fruitful only where questions of fact are involved. Again, the protest contemplated under Sec.
252 of R.A. 7160 is needed where there is a question as to the reasonableness of the amount assessed. Hence, if a
taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to "first pay the
tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. In the case at bench however,
the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose
the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in
the tax but attacks on the very validity of any increase."

Section 1, Rule 16 of the Revised Rules of Court of Tax Appeals provides that a party adversely affected by a decision
or ruling of the Court of Tax Appeals En Banc may appeal therefrom by filing with the Supreme Court a verified petition
for review on certiorari within fifteen (15) days from receipt of a copy of the decision or resolution, as provided in Rule
45 of the Rules of Court. If such party has filed a motion for reconsideration or for new trial, the period herein fixed
shall run from the party's receipt of a copy of the resolution denying the motion for reconsideration or for new trial.

CLAIM FOR REFUND

When an assessment of basic real property tax, or any other tax levied is found to be illegal or erroneous and the tax
is accordingly reduced or adjusted, the taxpayer may file a written claim for refund or credit for taxes and interests
with the provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such reduction or
adjustment.

The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof.
In case the claim for tax refund or credit is denied, the taxpayer may avail of the remedies similar to that of protesting
a notice of assessment in Chapter 3, Title II, Book II of this LGC. (Section 253, LGC)

REMEDIES OF LGUS FOR COLLECTION OF REAL PROPERTY TAXES

Notice of Delinquency in the Payment of the Real Property Tax

When the real property tax or any other tax imposed under this Title becomes delinquent, the provincial, city or
municipal treasurer shall immediately cause a notice of the delinquency to be posted at the main hall and in a publicly
accessible and conspicuous place in each barangay of the local government unit concerned. The notice of delinquency
shall also be published once a week for two (2) consecutive weeks, in a newspaper of general circulation in the province,
city, or municipality.

Such notice shall specify the date upon which the tax became delinquent and shall state that personal property may
be distrained to effect payment. It shall likewise state that any time before the distraint of personal property, payment
of the tax with surcharges, interests and penalties may be made in accordance with the next following Section, and
unless the tax, surcharges and penalties are paid before the expiration of the year for which the tax is due except
when the notice of assessment or special levy is contested administratively or judicially pursuant to the provisions of
Chapter 3, Title II, Book II of this Code, the delinquent real property will be sold at public auction, and the title to the
property will be vested in the purchaser, subject, however, to the right of the delinquent owner of the property or any
person having legal interest therein to redeem the property within one (1) year from the date of sale. (Section 254,
LGC)

Remedies for the Collection of Real Property Tax

For the collection of the basic real property tax and any other tax levied under this Title, the local government unit
concerned may avail of the remedies by administrative action thru levy on real property or by judicial action. (Section
256, LGC)

Local Governments Lien

The basic real property tax and any other tax levied under this Title constitutes a lien on the property subject to tax,
superior to all liens, charges or encumbrances in favor of any person, irrespective of the owner or possessor thereof,
enforceable by administrative or judicial action, and may only be extinguished upon payment of the tax and the related
interests and expenses. (Section 257, LGC)

Levy on Real Property

After the expiration of the time required to pay the basic real property tax or any other tax levied under this Title, real
property subject to such tax may be levied upon through the issuance of a warrant on or before, or simultaneously
with, the institution of the civil action for the collection of the delinquent tax. The provincial or city treasurer, or a
treasurer of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant of levy
shall prepare a duly authenticated certificate showing the name of the delinquent owner of the property or person
having legal interest therein, the description of the property, the amount of the tax due and the interest thereon. The
warrant shall operate with the force of a legal execution throughout the province, city or municipality, within the
Metropolitan Manila Area. The warrant shall be mailed to or served upon the delinquent owner of the real property or
person having legal interest therein, or in case he is out of the country of

cannot be located, the administrator or occupant of the property. At the same time, written notice of the levy with the
attached warrant shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or
municipality within the Metropolitan Manila Area where the property is located, who shall annotate the levy on the tax
declaration and certificate of title of the property, respectively.

The levying officer shall submit a report on the levy to the sanggunian concerned within ten (10) days after receipt of
the warrant by the owner of the property or person having legal interest therein. (Section 258, LGC)

Advertisement and Sale

Within thirty (30) days after service of the warrant of levy, the local treasurer shall proceed to publicly advertise for
sale or auction the property or a usable portion thereof as may be necessary to satisfy the tax delinquency and expenses
of sale. The advertisement shall be effected by posting a notice at the main entrance of the provincial, city or municipal
building, and in a publicly accessible and conspicuous place in the barangay where the real property is located, and by
publication once a week for two (2) weeks in a newspaper of general circulation in the province, city or municipality
where the property is located. The advertisement shall specify the amount of the delinquent tax, the interest due
thereon and expenses of sale, the date and place of sale, the name of the owner of the real property or person having
legal interest therein, and a description of the property to be sold. At any time before the date fixed for the sale, the
owner of the real property or person having legal interest therein may stay the proceedings by paying the delinquent
tax, the interest due thereon and the expenses of sale. The sale shall be held either at the main entrance of the
provincial, city, or municipal building, or on the property to be sold, or at any other place as specified in the notice of
the sale.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the sanggunian
concerned, which shall form part of his records. The local treasurer shall likewise prepare and deliver to the purchaser
a certificate of sale which shall contain the name of the purchaser, a description due thereon, the expenses of sale,
and a brief description of the of the property sold, the amount of the delinquent tax, the interest proceedings: Provided,
however, that proceeds of the sale in excess

of the delinquent tax, the interest due thereon, and the expenses of sale shall be remitted to the owner of the real
property or person having legal interest therein.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of collection
thru the remedies provided for in this Title, including the expenses of advertisement and sale. (Section 260, LGC)

Redemption of Property Sold

Within one (1) year from the date of sale, the owner of the delinquent real property or person having legal interest
therein, or his representative, shall have the right to redeem the property upon payment to the local treasurer of the
amount of the delinquent tax, including the interest due thereon, and the expenses of sale from the date of delinquency
to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of
sale to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the
owner of the delinquent real property or person having legal interest therein shall be entitled to a certificate of
redemption which shall be issued by the local treasurer or his deputy.

From the date of sale until the expiration of the period of redemption, the delinquent real property shall remain in
possession of the owner or person having legal interest therein, who shall be entitled to the income and other fruits
thereof.

The local treasurer or his deputy, upon receipt from the purchaser of the certificate of sale, shall forthwith return to
the latter the entire amount paid by him plus interest of not more than two percent (2%) per month. Thereafter, the
property shall be free from lien of such delinquent tax, interest due thereon and expenses of sale. (Section 261, LGC)

Final Deed to Purchaser

In case the owner or person having legal interest fails to redeem the delinquent property as provided herein, the local
treasurer shall execute a deed conveying to the purchaser said property, free from lien of the delinquent tax, interest
due thereon and expenses of sale. The deed shall briefly state the proceedings upon which the validity of the sale
rests. (Section 262, LGC)

Purchase of Property by the Local Government Units for Want of Bidder

In case there is no bidder for the real property advertised for sale, the real property tax and the related interest and
costs of sale, the local treasurer conducting the sale shall purchase the property in behalf of the local government unit
concerned to satisfy the claim and within two (2) days thereafter shall make a report of his proceedings which shall be
reflected upon the records of his office. It shall be the duty of the Registrar of Deeds concerned upon registration with
his office of any such declaration of forfeiture to transfer the title of the forfeited property to the local government unit
concerned without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the property
by paying to the local treasurer the full amount of the real property tax and the related interest and the costs of sale.
If the property is not redeemed as provided herein, the ownership thereof shall be vested on the local government unit
concerned. (Section 263, LGC)

Further Distraint or Levy

Levy may be repeated if necessary, until the full amount due, including all expenses, is collected. (Section 265, LGC)

Collection of Real Property Tax Through the Courts

The local government unit concerned may enforce the collection of the basic real property tax or any other tax levied
under this Title by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer
within the period prescribed in Section 270 of this Code. (Section 266, LGC)