Taxation Law Reviewer Feu

MEMORY AID
CBO OVER-ALL CHAIRPERSON: Evangeline Co

ASSISTANT CHAIRPERSON: Rose Lyn Rabanera
ACADEMICS COMMITTEE - HEADS:
Reigel Prado, Omar Gabrieles
SECRETARIAT HEAD: Romino Arzadon
FINANCE COMMITTEE HEAD: Kyan Sioco
LOGISTICS COMMITTEE - HEAD: Janis Ruckenbrod
TAXATION COMMITTEE
HEAD: Jocelyn Manalo
CO-HEAD: Marlyn Reyes
GENERAL PRINCIPLES: Marissa Asencion
INCOME TAXATION: Cheryl Hernandez
MEMBERS: Fatima Kristine Franco, Aries Magpantay
TRANSFER TAXATION: Nieves Elegado
MEMBER: Rosevee Paylip
TAX REMEDIES AND LOCAL TAXATION: Marlyn Reyes,
Jocelyn Manalo
MEMBER: Claudine Mayor
SUBJECT ADVISERS:
Justice Japar Dimaampao
Atty. Bernard Bandonell
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CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS:
Reigel Prado, Omar Gabrieles; FINANCE HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
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TABLE OF CONTENTS
Page
1
General Principles
National Taxation
A. Income Taxation
19
B. Transfer Taxes
1. Estate Tax
2. Donors Tax
41
49
C. Business Tax
1. Value- Added Tax
2. Excise tax
3. Percentage tax
4. Documentary Stamp Tax
54
60
61
62
Tax Remedies
66
Tariff and Customs Code
83
Local Taxation
94
Court of Tax Appeals
104
T A X A T I O N
ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell
TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes
MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
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It has the right to compel all persons and

property within its limits to contribute.
I. GENERAL PRINCIPLES
TAXATION
is the inherent power of the state to raise
revenues by impositions to defray
government expenses.
as a process, taxation to the manner by
which the government exercises the power
of taxation from the act of levy until final
collection of the imposition.
TAXES
enforced proportional contributions from
persons and property, levied by the state by
virtue of its sovereignty for the support of
the government and for all its public needs.
CHARACTERISTICS OF A TAX: (Code:
CPP SP)
an enforced contribution
it is levied on persons and property
it is a personal liability of the taxpayer
it is imposed by the state which has
jurisdiction over the person and property,
and
5. it is levied for public purpose.
1.
2.
3.
4.
THEORIES OF TAXATION
1. Lifeblood Theory
Taxes are the lifeblood of the government
and their prompt and certain availability is
an imperious need. This implies that:
1) The BIR is justified in availing of the
most expedient remedy in the collection
of the tax (CIR vs. Pineda)
2) The BIR is not bound by the mistakes,
errors, or omissions of its agents (thus,
the Doctrine of Estoppel does not apply
to the collection of taxes) (Rivera vs.
Fernandez)
3) No court other than the CTA may enjoin
the collection of taxes.
2. Necessity Theory
The existence of the government is a
necessity. No government can exist or
continue without means to pay its expenses
and to raise those means.
Although the power to tax is almost

unlimited, it must not be exercised in an
arbitrary manner. We may seek redress to
courts in case of irregularities.
3. Benefits-Protection Theory
In return for the taxes received, the
government only secures to the citizen that
general benefit which results from
protection to his person and property and
the promotion of those various schemes
which have for their object the welfare of all.
This theory spawned the doctrine of
symbiotic relationship.
DOCTRINE OF SYMBIOTIC
RELATIONSHIP
Taxes are what we pay for a civilized
society. Without taxes, the government would
be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the
natural reluctance to surrender part of ones
hard-earned income to the taxing authorities,
every person who is able to must contribute his
share in the burden of running the government.
The government, for its part, is expected to
respond in the form of tangible and intangible
benefits intended to improve the lives of the
people and enhance their material and moral
values.
NATURE OF THE TAXING POWER
a.
inherent attribute of sovereignty
The power of taxation is an incident of

sovereignty as it is inherent in the State,
belonging as a matter of right to every
independent government. It does not need
of constitutional conferment. Constitutional
provisions do not give rise to the power to
tax but merely impose limitations on what
would otherwise be an invincible power.
No attribute of sovereignty is more
pervading and at no point does the power of
government affect more constantly and
intimately all the relations of life than
through the exactions made under it.
T A X A T I O N
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[Churchill and Tait vs. Concepcion, 34 Phil.

969]
11. Freedom of religion ((Art. III, Sec. 5)

12. Exemption from property tax of
properties of religious, educational,
charitable institutions (Art. VI, Sec.
28[3])
13. Tax exemptions granted to non-stock,
non-profit educational institutions (Art.
XIV, Sec. [4,5])
14. No public money or property used for a
particular sect, priest, religious minister,
etc. (Art. VI, Sec. 29[1])
15. Grant of tax exemptions (Art. VI, Sec.
28[4])
16. Grant of power of taxation to local
government units (Art. X, Sec. 5)
17. Money collected for a special purposes
shall be considered a special fund (Art.
VI, 29[3])
18. Exclusive appellate jurisdiction of the SC
over judgments of lower courts involving
the
legality
of
taxes,
imports,
assessments, fees, penalty. (Art. VIII,
Sec. 5)
Being attribute of sovereignty, its

relinquishment is never presumed. [Luzon
Stevedoring Co. vs. CTA, L-30232, July 29,
1988]
Tax is an attribute of sovereignty which
emanates from necessity upon which
the very existence of the government is
dependent.
b. legislative in character
"the power to tax is exclusively vested in the
legislature and it cannot be delegated as a
whole."
In short, only the legislature can impose
taxes. This is why a person, activity, or
property is subject to tax because and only
because the law says so.
Further, about local government, taxation
remains exclusively legislative. Meaning,
only the local legislative body thru an
ordinance may impose taxes.
ASPECTS,
PROCESS,
PHASES
OF
TAXATION. (Code: LAP Levying,
Assessment, Payment)
Inherent limitations
1.
2.
3.
4.
5.
Public Purpose
Inherently Legislative
Territorial
International Comity
Exemption
from
Taxation
of
Government Agencies/Instrumentalities
a. Levying/Imposition of the tax. This is

essentially legislative. It refers to the
enactment of tax laws or statutes.
Note: Courts have no power to interfere in
the wisdom, objective, motive or expediency
in the passage of a tax law, as this is purely
legislative in character. To do so would be
tantamount to a violation of both the letter
and spirit of the organic laws by which the
Philippine Government was brought into
existence to invade a coordinate and
independent department of the Government
and to interfere with the legitimate powers
and functions of the Legislature. [Tolentino,
et al. vs. Secretary of Finance, 235 SCRA
630]
Constitutional Limitations
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Due Process Clause (Art. III, Sec. 1)

Equal Protection Clause (Art. III, Sec. 1)
Uniformity (Art. VI, Sec. 28[1])
Progressive system of taxation (Art. VI,
Sec. 28[1])
Non-impairment of contracts (Art. III,
Sec. 10)
Non-imprisonment for Non-payment of
Poll Tax (Art. III, Sec. 20)
Appropriation, revenue and tariff bills
must originate exclusively in the House
of Representatives (Art. III, Sec. 24)
Presidential veto (Art. VI, Sec. 27[2])
Presidential power to tax tariff rates
(Art. VIII, Sec. 28[2])
Freedom of the press (Art. III, Sec. 4)
b. Assessment and Collection. This is

essentially administrative. It is the act
of administration and implementation of
tax law by the executive branch through its
administrative agencies. Nonetheless, the
delegation must pass the completeness and
sufficient standard test in order to prevent
the abuse of its exercise.
T A X A T I O N
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c. Payment.
This signifies
compliance by the taxpayer.
A I D
an act of
SCOPE OF THE LEGISLATIVE POWER

TO TAX
[Code: SPASM]
T A X A T I O N
Taxation shall only be exercised on persons,

properties and excises within the taxing
power.
e. Manner, means and
collection of the tax.
a. Subjects or Objects of Taxation.

Coverage and the kind or nature of the tax.
They may be persons (natural or juridical),
property (real or personal); tangible or
intangible), businesses, transactions, rights
or privileges.
It is inherent in the power to tax that a state
be free to select the subjects of taxation, and
it has been repeatedly held that inequalities
which result from a singling out of one
particular class for taxation or exemption
infringe no constitutional limitation.
[Walter Lutz vs. J. Antonio Araneta, 98
Phil. 148]
b. Public Purpose.
The legislature primarily determines the
public purpose of taxation although the
courts can inquire as to whether the
purpose is really public or private.
However, judicial action is limited to the
determination of the validity of the
tax in relation to constitutional precepts or
provisions or the determination in an
appropriate case of the application of a tax
law.
c. Amount or Tax Rate.
The legislature is free to levy a tax on any
amount, provided, it is exercised within the
bounds of constitutional limitations.
Note: Not only is the power to tax unlimited in
its reach as to subjects, but in its very nature, it
acknowledges no limits and may be carried even
to the extent of exhaustion and destruction,
thus becoming in its exercise a power to
destroy.
d. Situs of taxation.
I N
agencies
of
Corollary to the sole power to tax is the sole

power to prescribe the mode or method by
which the tax shall be collected and to
designate the officers through whom its will
shall be enforced.
Q. Is the power to tax the power to
destroy?
IT DEPENDS. The power to tax includes
the power to destroy if it is used validly as an
implement of police power in discouraging and
in effect, ultimately prohibiting certain things
or enterprises inimical to the public welfare.
But where the power to tax is used solely
for the purpose of raising revenues, the modern
view is that it cannot be allowed to confiscate or
destroy.
Note: While taxation is said to be the power to
destroy, it is no means unlimited. If so great an
abuse is manifested as to destroy natural and
fundamental rights which no free governmental
could consistently violate, it is the duty of the
judiciary to hold such an act unconstitutional.
Hence, the modification: the power to tax is
not the power to destroy while the
Supreme Court sits.
PRINCIPLES OF A SOUND TAX SYSTEM
(Code: FAT)
a. Fiscal Adequacy. The taxes envisioned to
be collected must be sufficient for
government expenditures and other public
needs.
NOTE:
Be careful as sometimes... "an
approximate
estimate
of
government
expenditures" is sufficient to satisfy the
requirement.
Fiscal adequacy... requires that the sources
of revenues must be adequate to meet
government
expenditures
and
their
variations" (Chavez v. Ongpin)
T A X A T I O N
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b. Administrative Feasibility. The tax law

must be capable of convenient, just,
effective and efficient enforcement and
administration. Likewise, tax laws should
close-up the loopholes for tax evasion and
deter
unscrupulous
officials
from
committing fraud.
runs contrary to the principle of

theoretical justice, such violation will
render
the
law
unconstitutional
considering that under the Constitution,
the rule of taxation should be uniform
and equitable. [Sec. 28(1), Art. VI, 1987
Constitution]
Equally applies to taxpayers.. meaning, they

must not have difficulty understanding what
the tax law is all about.
Rule that taxes are personal to the

taxpayer
c. Theoretical Justice. The tax law or

system must be based on the taxpayers
ability to pay.
GEN. RULE: Taxes are personal to the

taxpayer. Corporations tax delinquency cannot
be enforced on the stockholder nor transfer
taxes on the estate are assessed on the heirs.
EXCEPTIONS:
Rule of taxation must be uniform and

equitable. The State must evolve a
progressive system of taxation.
Q. Will a violation of these principles

invalidate a tax law?
IT DEPENDS. A tax law will retain its
validity even if it is not in consonance with the
principles of fiscal adequacy and administrative
feasibility because the Constitution does not
expressly require so. HOWEVER, if a tax law
1. Stockholders may be held liable for unpaid

taxes of a dissolved corporation if corporate
assets have passed into their hands;
2. Heirs may be held liable for the transfer
taxes on the estate if the properties of the
decedent have been distributed to them
prior to the payment of the required
transfer taxes.
TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND IMPOSOTIONS

A.
Purpose
Amt of Exaction
Benefits
Contracts
Transfer
Taxation
Police Power
To levied for the To promote public welfare
purpose of raising through regulation
revenues
No limits
Limited to the cost of
regulation, issuance of the
license or surveillance
No special or direct No direct benefited, yet a
benefit is received healthy economic standard
by the taxpayer of society is maintained.
other than that the
government secures
the general welfare
of the citizens.
Recognized
the Does not apply to police
obligations imposed power
by of
Taxes paid form part Allows merely the restraint
of the public funds
on the exercise of property
rights.
T A X A T I O N
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B.
Purpose
A I D
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C.
Power
Eminent Domain
Taking
of property for
public use
General benefit of the citizens
Just compensation is given
to the owner of the
expropriated property
Applies to all persons, property Only particular property is
and excises that may be subject comprehended.
thereto
Taxation
License
Exercise of the taxing power
Exercise of police power
Purpose
To raise government fund
Compensation
Person Affected
Amt. of exaction
Imposition
Scope
Effect of Non-payment
Taxation
To raise public fund
Imposed
for
regulatory
purposes
No limits
Limited to the cost of
regulation, issuance of the
license or surveillance
EXCEPT: when the fees are
imposed for the purpose of
regulating
non-useful
business, occupation, or
activity, the amount may
now exceed the cost of
regulation.
If the primary purpose is to If the primary purpose is to
generate funds and regulation regulate and to generate
merely incidental
funds merely incidental
covers legitimate and
only legitimate business
illegitimate business, etc...
Non-payment of tax does not Non-payment of fee renders
render business illegal
the business illegal
D. Taxation
Not limited to land
As a rule, cannot be made a personal liability of
the persons assessed
Is based wholly on benefits
It is exceptional both as to time and locality. A
charge imposed only on the property owners
benefited is a special assessment rather than a
tax.
E.
Taxation
It is a demand of sovereignty for the purpose of
raising public revenues.
Special Assessment
Can be levied only on land
Personal liability
The imposition of a charge on all property in a

prescribed area is a tax not an assessment
although the purpose is to make a local
improvement on street or highway.
Toll
It is a demand of proprietorship, an amount
charged for the cost and maintenance of the
property used
F.
Taxation
Penalty
It is a civil liability. Person is criminally liable It is a punishment for the commission of a
only when he fails to satisfy his civil obligation crime.
to pay taxes
T A X A T I O N
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TAX as distinguished from DEBT

TAX
DEBT
Basis
Law
Contract or judgment.
Effect of non-payment
Imprisonment (except in case of poll tax)
No imprisonment
Mode of Payment
Generally payable in money
Payable in money, property or services
Assignability
Not assignable
Assignable
Set off
May not be a subject of compensation or

set-off
May be a subject of compensation or set-off
Interest
Does not draw interest unless delinquent
Draws interest if stipulated or delayed
Authority
Imposed by public authority
It is a private transaction
Taxes are not debts because a tax does not

depend upon the consent of the taxpayer and
there is no express or implied contract to pay
taxes.
Exceptions:
1. tax collection being enforceable by court
action [ Sambrano v. TA, 101 Phil. ]
2. in the application of certain statutes of
limitation [ Rep. Far Eastern American,
Co., 7 SCRA 399]
3. in the matter of deductible items from gross
income [ Commissioner v. Prieto, 109 Phil.
592] ( Vitug Book)
4. when it is secured by a bond, the tax is
considered as a bond.
SET-OFF
General Rule: Taxes cannot be the subject
of compensation or set-off.
Reasons:
1. Lifeblood theory
2. Taxes are not contractual obligation but
arise out of duty to the government.
3. The government and the taxpayers are not

mutually creditors and debtors of each
other.
Exception: Where both claims already became
overdue and demandable as well as fully
liquidated, or where the government and the
taxpayer are in their own right reciprocally
debtors and creditors of each other,
compensation takes place by operation of law.
Doctrine of EQUITABLE RECOUPMENT
not followed in the Philippines
Thus, a tax presently being assessed against a
taxpayer may not be recouped or set-off
against an overpaid tax the refund of which is
already barred by prescription
REQUISITE OF A VALID TAX. (Code:
PUJAN)
a. It should be for public purpose
b. The rule of taxation should be uniform
c. That either the person or property taxed be
within the jurisdiction of the taxing
authority
T A X A T I O N
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d. That the assessment and collection be

in consonance with the due process clause.
e. The tax must not infringe on the inherent
and constitutional limitations of the power
of taxation.
b. Secondary/non-revenue purposes
(RIPE)
1. To reduce social inequality
2. To implement the police power of the
State (regulatory purpose)
3. To protect our local industries against
unfair competition
4. To encourage the growth of local
industries
OF
THE
T A X A T I O N
a. the thing to be furthered by the

appropriation of public revenue is
something which is the duty of the
government to provide; or
b. When the proceeds of the tax will directly
promote the welfare of the community in
equal measure
PURPOSES OF TAXATION
a. Primary to raise revenues
EXTENT/SCOPE
POWER (CUPS)
I N
TAXING
a. It is comprehensive. It covers persons,

businesses, activities, professions, rights
and privileges.
NOTE: Incidental advantage to the public or

to the State, which results from the promotion
of private enterprise or business, does not
justify their aid by the use of public money.
Q.
Who
purpose?
may
determine
public
A. This is a legislative prerogative. The power to

determine whether the purpose of taxation is
public or private resides in Congress.
However, this will not prevent the court from
questioning the propriety of such a statute on
the ground that the law enacted is not for public
purpose; but once it is settled that the law is for
a public purpose, the court may no longer
inquire into the wisdom, expediency or
necessity of such tax measure.
b. It is unlimited. The power to impose

taxes is one so unlimited in force and so
searching in extent that the courts scarcely
venture to declare that it is subject to any
restrictions whatever, except such as rest in
the discretion of the authority which
exercises it
It is the purpose which determines the

public character of the tax law, not the number
of persons benefited. As long as the ultimate
result favors the welfare of the public in general,
the appropriation of public revenue is deemed
done for the public purpose.
c. It is plenary as it is complete.
Q. When must public purpose exist?
d. It is supreme.
Taxation, although
referred to as the strongest of all the powers
of the government, cannot be interpreted to
mean that it is superior to the other
inherent powers of the government, only
that it is supreme insofar as the selection of
the subject is concerned
A. "It must exist at the time the tax proceeds

are being used or a tax law is being passed for a
certain purpose, whichever comes first.
[Pascual vs. Sec. of Public Works]
LIMITATIONS ON THE TAXING POWER

A. Inherent limitations of the taxing
power
2. International Comity - principle of

sovereign equality among states and of
their freedom from suit without their
consent limit the authority of the
government to effectively impose taxes on a
sovereign state and its instrumentalities, as
well as on its property held, and activities
taken in that capacity.
1. Public purpose
Thus, if a tax law violates certain

international laws, it is not only invalid but
it is also UNCONSTITUTIONAL because
the constitution says " the Philippines....
Taxation is for public purpose when:
T A X A T I O N
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adopts the generally accepted principles of

international law as part of the law of the
land.... etc.."
The territoriality rule does not merely relate

to "geographical" location, but to the jural
concept or nexus or bond between the
taxing authority and the taxpayers. And this
nexus depends on the type of taxes imposed,
the personal circumstances of the taxpayers,
and also the location of the subject of
taxation.
3. Non-delegation of taxing power

GEN. RULE: Power of taxation is vested in
Congress and may not be delegated.
EXCEPTIONS:
a. Local taxing power granted
Constitution (Art. X, Sec. 5);
Rules Observed in Fixing Tax Situs

by
the
a. POLL/CAPITATION/COMMUNITY TAX
Poll or capitation, or community taxes
are based upon the residence of the
taxpayer, regardless of the source of income
or location of the property of the taxpayer.
Suppose this provision does not exist,

may LGU exercise the power of
taxation?
Yes, under the Doctrine of Implied
Necessity... meaning, the power to create
municipal corporations carries with it by
necessary implication the power to compel
upon it the power to tax.
Now, the importance of this provision now
is: in case of doubt as to whether the LGU
has the power to tax or not, all doubts must
be resolved in favor of the existence of such
power. This is not the rule without such
provision in the Constitution.
b. PROPERTY TAX
b.1. Real Property- is subject to taxation
in the state or country where it is located,
regardless of whether the owner is a
resident or a non-resident. [First National
Bank vs. Marine, 284 U.S. 321. 77 ALR 401]
b.2. Personal Property- the situs is
wherever it was actually kept or located, was
held to be the domiciled of its owner,
following the age-old Doctrine of Mobilia
sequuntur personam (movables follow
the person).
b. Authority of the President, under the

Constitution, to fix tariff rates, import and
export quotas (Art 6, Sec. 28[2])
MOBILIA SEQUUNTUR PERSONAM

c. When delegation relates merely to
administrative implementation that may
call for some degree of discretionary powers
under a set of sufficient standards expressed
by law.
NOTE: Some authors often include this
because when you talk of enforcement, it is no
longer legislative in character; thus, there is
nothing to delegate. In the ordinary set-up of
our bureaucracy, Congress makes the law
(impose the tax), the Executive (BIR) executes
the law.
Although a mere fiction of law, without

any constitutional foundation, it is nevertheless
applied when convenient, provided it is not
inconsistent with express provisions of the law.
To acquire a situs in a state other than the
domicile of the owner, tangible property must
have a definite location there, accompanied by
some degree of permanency; mere temporary or
transient presence in the state is not sufficient.
Exception:
Whether Congress likes it or not, it can't

collect the tax! So, what's being delegated?
Actual or business situs [Wells Fargo v. CIR]

which has been codified in Section 104, R.A.
8424 enumerates certain properties which
acquired actual situs in the Philippines, viz:
4. Territoriality or situs of taxation

persons or property must be within the
jurisdiction of the taxing power.
b.2.1. franchise exercised in the Philippines;

b.2.2 shares of stock, obligations, bonds
issued by domestic corporations organized
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in
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accordance
with
b.2.3 shares, obligation, bonds issued by

foreign corporation where 85% of its
business is located in the Philippines. It is
subject to donors tax and estate tax;
b.2.4. shares/right in a partnership business
or industry established in the Philippines;
b.2.5. shares, obligations, bonds, issued by
foreign corporations which acquired
business situs, when such have been used in
the furtherance of the business of the
foreign corporation.
Thus, the RULE: irrespective of the owner,
donors tax or estate tax can be imposed upon
these properties. EXCEPT where the foreign
corporation grants exemption or does not
impose taxes on intangible properties of
Filipino citizen.
c. BUSINESS TAX- place of business
I N
T A X A T I O N
d. EXCISE TAX- Where the act is performed

or where occupation is pursued
e. SALES
TAXwhere
the
sale
is
consummated
f. INCOME
TAXconsider
citizenship
residence and sources of income (Sec. 42,
R.A. 8424)
g. TRANSFER TAX- residence or citizenship
of the taxpayer or location of property
h. FRANCHISE TAX- state which granted the
franchise
i. VALUE
ADDED
TAXDestination
Principle is followed
5. Tax-exemption of the Government
as a matter of public policy, property of the
State or any of its political subdivisions
devoted to government uses and purposes
are generally exempt from taxation.
However, nothing can prevent Congress
from decreeing that even instrumentalities
or agencies of the government performing
functions may be subject to tax. [ MCIAA vs.
Marcos, 261 SCRA 667]
Agencies performing governmental functions distinguished from proprietary functions

Agencies performing
governmental functions
Tax-exempt unless expressly taxed
Agencies performing proprietary functions

Subject to tax unless expressly exempted.
Government-owned and controlled corporations perform proprietary
functions; hence, they are subject to taxation.
General Rule: government is taxable.
Exception: when there is a law which says that it is exempt from tax.
From these rules, you now make a distinction:
1) agencies performing governmental function as a rule are tax exempt
(by reason of public policy) UNLESS expressly subject to tax; and,
2) agencies performing proprietary function are subject to tax UNLESS
expressly exempt. (Posadas vs. Standard Well)
Now, with respect to government properties, NDC vs. Cebu City,

enunciated these principles:
1. Properties owned by the Republic of the Philippines AND agencies
without separate and distinct personality are exempt from taxation. (In
other words, those agencies with charter are treated for tax purposes in
accordance with the provisions of their respective charters.)
2. The exemption of public properties from taxation does not extend to
the improvements introduced upon them by the present occupants at
their expense.
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B. Constitutional
taxing power:
limitations
of
A I D
the
I N
T A X A T I O N
2. EQUAL PROTECTION OF THE LAW

Nor shall any person be denied the equal
protection of the law. (Art. 3, sec.1 of the
Constitution)
1. DUE PROCESS OF LAW

No person shall be deprived of life, liberty
or property without due process of law.
(Art 3, Sec.1 of the Constitution)
Requisites of Due Process:
Substantive Limitation- The interests of the
public generally as distinguished from those
of a particular class require the intervention
of the State; and
Procedural
LimitationThe
means
employed must be reasonably necessary to
the accomplishment of the purpose and not
unduly oppressive.
The requirement of due process whether
taken from the substantive to the procedural
aspect simply means one thing -reasonableness of the legislation.
Substantive means that it should not be
harsh, confiscatory, unjust and oppressive.
Procedural means that it must provide
notice and opportunity to be heard. Thus,
they simply mean that the law must be
reasonable.
There must be evidence to support a claim
of violation of this constitutional provision.
Without proof, the presumption of
constitutionality of law applies.
However, due process is violation by any of
these situations: (Code: VCORP)
1. where the law is in violation of inherent
limitations
Note: it merely requires that all persons

subjected to such legislation shall be treated
alike, under like circumstances and conditions,
both in the privileges conferred and in the
obligations imposed.
Requisites for a valid Classification:
a. It must be based on SUBSTANTIAL
distinctions
b. It must APPLY to both present and future
conditions
c. It must be GERMANE to the purposes of the
law
d. It must apply EQUALLY to all members of
the same class
Substantial distinction - it must be real,
material and not superficial distinction [See
cases of Punzalan, Association of Customs
Brokers, Hiu Tsong Pao, Ormoc Sugar, etc...]
3. UNIFORMITY OF TAXATION
The rule of taxation shall be uniform and
equitable. (Art. 6, Sec.28(1) of the
Constitution)
Uniformity in taxation is similar to equality
in taxation, but equitable taxation means
that the taxes must be reasonable, fair, etc...
and therefore, ... ability to pay. [See case of
Almanzor to illustrate this.]
UNIFORMITY
DISTINGUISHED
EQUALITY IN
TAXATION
2. if the tax amounts to a confiscation of

property
3. if the subject of confiscation is outside the
jurisdiction of the taxing authority
4. if the law which is applied retroactively
imposes unjust and oppressive taxes
5. if the law is imposed for a purpose other
than public purpose
Is accomplished when
the burden of the tax
falls
equally
and
impartially upon all
the
persons
and
property subject to it
Equitability
achieved when the
burden of taxation
falls to those better
able to pay.
AND
EQUALITY
UNIFORMITY
A tax is considered
uniform when it operates
with the same
force/effect in every
place where the subject
may be found.
All property belonging to
the same class shall e
taxed alike.
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Constitutional Equality in Taxation
5. NON-IMPAIRMENT CLAUSE
means that all persons who are similarly

situated should be treated alike both in the
privilege conferred and burdens imposed.
No law impairing the obligation of contracts

shall be passed.(Art. 3, Sec.10 of the
Constitution)
the application of the concept of equal

protection of the laws which prohibits
discrimination other than those instances
where there is valid classification.
Non-impairment
clause
of
the
Constitution constitutes a limitation on
the power of taxation
Thus, persons who are similarly situated, or

who belong to the same class, should be
given by law the same protection and
privileges as well as imposed the same
burdens and obligations.
Uniformity of taxation NOT the same as
equality in taxation
Uniformity of taxation means that all
articles or properties of the same class shall
be taxed at the same rate. Different articles
or other subjects like transactions, business,
right, etc. may be taxed at different rates
provided that the rate (not necessarily the
amount) is uniform in the same class
everywhere.
4.
PROGRESSIVE
TAXATION
SYSTEM
OF
Congress shall evolve a progressive system of

taxation (Art.6, Sec.28 (1) of the Constitution)
Tax rate increases as tax base increases.
The Constitution provides that the Congress
shall evolve a progressive system of
taxation. However, this provision is merely
a directive to Congress, NOT a right
enforceable before the courts.
Q. Is a tax adopting a regressive system
of taxation is valid?
A. Yes. The Constitution does not really
prohibit the imposition of indirect tax is which
like the VAT are regressive. The Constitution
provision means simply that indirect taxes shall
be minimized. The mandate to Congress is not
to prescribe but to evolve a progressive tax
system. [EVAT En Banc Resolution, Tolentino,
et.al vs. Secretary of Finance, Oct. 30, 1995]
The obligation or contract is impaired when

its terms or conditions are changed by law
or by a party without consent of the other
thereby weakening the position of the latter.
Thus, there is impairment by law when a tax
exemption based on a contract is revoked by
a later taxing statute.
It may be well to point out that the nonimpairment clause will only be violated if and
when the taxing authority was a party to the
contract in question.
Note: The rule, however, does not apply to
public utility franchises on right since they are
subject to amendment, alteration or repeal by
the Congress when the public interest so
requires. [Cagayan Electric and Light Co., Inc.
vs. Commissioner, G.R. no. 60216, September
25, 1985]
NOTE: This provision was NOT REALLY
thought of as a limitation on the power of
taxation EXCEPT in case where tax exemption
was granted for a valuable consideration. So
the question now should be are tax exemptions
falling under the subject constitutional
provision revocable? You have to qualify, if the
exemption is granted via a franchise, it can be
revoked because of Section 11 Article 12 of the
Constitution. However, if the exemption is via
a contract, it cannot be revoked. Why the
distinction? Because in the grant of franchise,
the government is exercising a governmental
function (thus, in so doing in the first place, it
considered public good etc...) while in contract,
the government merely exercises a proprietary
function (presumably there was no prior
determination of public good, etc...)
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6. NON-IMPRISONMENT
PAYMENT OF POLL TAX
FOR
A I D
NON-
No person shall be imprisoned for nonpayment of a debt or poll tax. (Art 3, Sec.20 of
the constitution)
NOTE: But if acts, violative of laws were
committed in the issuance and payment of the
cedula, imprisonment is allowed. For instance,
if a taxpayer was issued a cedula thru
misrepresentation or falsification, the taxpayer
could be imprisoned for falsification of public
document.
7. BILLS TO ORIGINATE EXCUSIVELY
FROM
THE
HOUSE
OF
REPRESENTATIVES
All appropriation, revenue or tariff bills, bills
authorizing the increase of the public debt, bills
of local application and private bills, shall
originate exclusively
in the House of
Representatives, but the senate may propose or
concur with amendments. (Art. 3, Sec. 24, of
the Constitution)
NOTE: It is the BILL and not the LAW that
should originate from the lower house. In other
words, if the final version is substantially that
bill passed by the Senate, for as long as the
initiatory bill was commenced by the lower
house, it's totally OK.
8. THE
VETO
PRESIDENT
POWER
OF
THE
The president shall have the power to

veto any particular item or
items in an
appropriation, revenue or tariff bill but the veto
shall not affect the item or items to which he
does not object. (Art. 6, Sec. 27(2) of the
Constitution)
9. PRESIDENTS DERIVATIVE POWER
TO TAX
The Congress may, by law, authorize the
President to fix within specified limits and
subject to such limitations and restrictions it
may impose, tariff rates, import and export
quotas, tonnage and wharfage dues and other
duties or imposts within the framework of the
national development program of the
I N
T A X A T I O N
government.(Art.
Constitution)
8,
Sec.28
(2)
of
the
The
term
FLEXIBLE
TARIFF
CLAUSE refers to the authority given to the
President to adjust tariff rates under Section
401 of the Tariff and Customs Code, which is
the enabling law that made effective the
delegation of the taxing power to the President
under the Constitution.
10. TAXATION AND THE FREEDOM OF
THE PRESS
No law shall be passed abridging the
freedom of speech, of expression or of the
press.(Art.3, Sec. 4 of the Constitution)
There is curtailment of press freedom and
freedom of thought and expression if a tax is
levied in order to suppress this basic right and
impose a prior restraint. [Tolentino, et.al vs.
secretary of Finance, 235 SCRA 630]
11. TAXATION
RELIGION
AND
FREEDOM
OF
No law shall be made respecting an

establishment of religion or prohibiting the free
exercise thereof. The free exercise and
enjoyment of religious profession and worship
without discrimination or preference shall
forever be allowed. No religious test shall be
required for the exercise of civil or political
rights. (Art.3,Sec.5, of the Constitution)
The income of such organizations from any
activity conducted for profit or from any of
their property, real or personal, regardless
of the disposition made of such income, is
taxable.
12. TAX EXEMPTION OF PROPERTIES
ACTUALLY,
DIRECTLY
AND
EXCLUSIVELY
USED
FOR
RELIGIOUS,
CHARITABLE
AND
EDUCATIONAL
PURPOSES
(Art.
6,sec.28(3) of the Constitution)
REASON FOR THE RULE:
Cemeteries are exempt from the payment of
taxes because of the difficulty of collecting a tax
thereon and the obvious impropriety of selling
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the graves of the dead to defray the expenses of

carrying on the government of the living.
Churches and parsonages or convents
appurtenant thereto, etc. are exempt from
taxation because such institutions perform
work which would otherwise have to be carried
on by the public at the expense of the taxpayers
and that the expenses of such institutions from
taxation lessens rather than increases the
burden upon other taxpayers.
CONTROLLING
DOCTRINE
ON
EXEMPTION FROM TAXATION OF
REAL PROPERTY OF RELIGIOUS,
CHARITABLE
AND
EDUCATIONAL
INSTITYUTIONS
In the recent case of Lung Center of the
Philippines vs. Q.C and Constantino p. Roxas,
City Assessor of Q.C., G.R. no. 144104, June 29,
2004, 433 SCRA 119, the prevailing rule on the
application of tax exemption to properties
incidentally used for religious, charitable and
educational purposes, as enunciated in the case
of Herrera vs. QC-BAA, 3 SCRA 187, has now
been ABANDONED. In resolving the issue of
whether or not the portions of the real property
of Lung Center that are leased to private entities
are exempt from real property taxes, the SC
reexamined the intent of the Constitutional
provision granting tax exemption of properties
ACTUALLY, DIRECTLY AND EXCLUSIVELY
USED FOR RELIGIOUS, CHARITABLE AND
EDUCATIONAL PURPOSES.
Thus, the records of the Constitutional
Commission reveal that what is exempted is not
the institution itself; those exempted from real
estate taxes are lands, buildings and
improvements actually, directly and exclusively
used for religious, charitable or educational
purposes.
What is meant by actual, direct and
exclusive use of property for charitable,
religious and educational institutions is the
direct and immediate and actual application of
the property itself to the purposes for which the
charitable institution is organized. It is not the
use of the income from the real property that is
determinative of whether the property is used
for tax-exempt purposes. [St. Louis Mens
Christian
association
vs.
Genher,
47
S.W.2d776]
I N
T A X A T I O N
NOTE: The rule remains that it is the USE and

not ownership that determines the exempt
character of the property. What is meant by
"use" remain a litigious issue, but should
always be measured under the constitutional
prescription of Actually-Directly-Exclusively
purposes.
13. TAX EXEMPTIONS GRANTED TO
NON-STOCK,
NON-PROFIT
EDUCATIONAL INSTITUTIONS
All revenues and assets of non-stock, non-profit
educational institution used actually, directly
and exclusively for educational purposes shall
be exempt from taxes and duties. Upon the
dissolution and cessation of the corporate
existence of such institution, their assets shall
be disposed of in the manner provided by law.
(Art. 14, Sec.4 (3) of the Constitution)
Subject to the conditions prescribed by
law, all grants, endowments, donation or
contributions used actually, directly and
exclusively for educational purposes shall be
exempt from tax. (Art. 14, Sec.4 (4) of the
Constitution)
ART. 14 and ART. 6 OF THE 1987
CONSTITUTION DISTINGUINSHED
GRANTEE
TAXES
COVERED
ART 14,
SEC. 4(3)
Non-stock,
non-profit
educational
institution
Income tax
Custom
duties
Property tax (
DECS Order
No. 137-87)
ART 6,
SEC. 28(3)
Religious,
educational,
charitable
institutions
Property tax
14. NO PUBLIC MONEY OR PROPERTY

USED FOR A PARTICULAR SECT,
PRIEST,
RELIGIOUS
MINISTER,
ETC. (Art. 6,Sec.29(1)Constitution)
GEN. RULE: No public money or property
shall be appropriated, applied, paid or
employed directly or indirectly for the use,
benefit or support of any sect, church,
denomination, sectarian institution, or system
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of religious or of any priest, preacher, minister,

or other religious teacher, or dignitary.
EXCEPT:
when such priest, preacher,
minister or dignitary is assigned to the armed
forces or to any penal institution or government
orphanage or leprosarium
15. GRANT OF TAX EXEMPTIONS
No law granting any tax exemption shall
be passed without the concurrence of a
majority of all the members of Congress.
(Art. 6, Sec.28 (4) of the Constitution)
GEN. RULE: NO EXEMPTION
EXCEPT: When a statute provides that certain
person or property is immune from taxation.
I N
T A X A T I O N
b. The rule does not apply to special taxes

relating to special cases and affecting only
special classes of persons;
c. In case of property owned by the state an
express exemption should not be construed
with the same degree of strictness that
applies to exemptions contrary to public
policy of the state, since as to such property
exemption is the rule and taxation the
exemption
d. Exemptions to traditional exemptees, such
as religious and charitable institution;
e. The rule does not apply in the case of
exemptions in favor of governmental
political subdivision or instrumentality
[Maceda vs. Macaraig, jr., 197 SCRA 771]
f.
Rule on Construction of Exemption:

1. Exemptions
presumed.
from
taxation
are
If the taxpayer falls within the purview of

exemption by clear legislative intent. [CIR
vs. Arnoldus Carpentry Shop, G.R. no.
71122, March 25, 1988]
not
2. He who claims as exemption must be able to

justify his claim by the clearest grant of
organic or statute law by words too plain to
be mistaken. If ambiguous, there is no
exemption.
3. He who claims exemption should prove by
convincing proof that he is exempted.
4. Taxation is the rule; tax exemption is the
exception.
5. Tax exemption must be strictly construed
against the taxpayer and liberally in favor of
the taxing authority.
6. Constitutional exemption is self-executing.
7. Tax exemptions are personal.
STRICT CONSTRUCTION RULE- It simply
means that if, after the application of all rules of
interpretation for the purpose of ascertaining
the intention of the legislature, a well founded
doubt exists, then the ambiguity occurs which
may be settled by the rule of strict construction.
EXCEPTION to Strict Construction Rule:
a. The rule on strict construction rule does not
apply where the statute granting the
exemption expressly provides for liberal
interpretation;
TAX AMNESTY
TAX EXEMPTION
Is an immunity from Is an immunity from

all criminal and civil the civil liability only.
obligations
arising
from non-payment of
taxes.
It is a general pardon
given to all taxpayers
16. GRANT OF POWER OF TAXATION TO
LOCAL GOVERNMENT UNITS
Each local government unit shall have
the power to create its own sources of revenues
and to levy taxes, fees and charges subject to
such guidelines and limitations as the Congress
may provide, consistent with the basic policy of
local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local
governments. (Art. 10, Sec. 5, Constitution)
Congress cannot abolish the local
governments power to tax as it cannot
abrogate what is expressly granted by the
fundamental law.
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17. SPECIAL FUND
I N
T A X A T I O N
18. SUPREME COURTS JURISDICTION

OVER TAX CASES (Art. VIII, Sec. 5)
All money collected on any tax levied for

a special purpose shall be treated as a
special fund and paid out for such purpose
only. If the purpose for which a special fund
was created has been fulfilled or abandoned,
the balance, if any, shall be transferred to
the general funds of the government. (Art.
6, Sec.29 (3), Constitution)
Supreme Court may review, revise, reverse,

modify or affirm on appeal or certiorari as the
law or the Rules of Court may provide all cases
involving the legality of any tax, impost,
assessment or toll, or any penalty imposed in
relation thereto.
KINDS OF TAXES DIFFERENTIATED

DIRECT
INDIRECT
Tax for which a taxpayer is directly liable on the Tax primarily paid by persons who can shift
transaction or business it engages in
the burden upon someone else
SPECIFIC
AD VALOREM
Imposed and based on weight or volume Based on selling price or other specified value
capacity or any other physical unit of of goods
measurement
GENERAL
SPECIAL
Imposed solely to raise revenue for the Imposed and collected to achieve a particular
government
legitimate object of government
NATIONAL
LOCAL
Imposed by the national government
Levied and collected by the local government
PERSONAL
PROPERTY
Is of fixed amount imposed on individuals, Imposed on property, real or personal, in

whether citizens or not, residing within a proportion to its value.
specified territory, without regard to their
property or occupation
PROGRESSIVE
REGRESSIVE
Tax rate increases as the tax base increases
Tax rate decreases as the tax base increases
T A X A T I O N
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DOUBLE TAXATION
4. INTERNATIONAL
Double taxation- strictly, taxing twice same
object/subject, same taxing jurisdiction, same
purpose, same tax, same year.. this is called
"direct duplicate"; should one of these is not
the same, i.e., say not same year, then it is
called "indirect duplicate"... in either case,
there is no law which prohibits the same. there
is not even a prohibition by the constitution as
you say it.
Refers to the
imposition of
comparable taxes
in two or more
states on the same
taxpayer in respect
of the same subject
matter and for
identical periods.
However, in case of direct duplicate, if it

amounts to confiscation of property for being
unjust, oppressive, unfair, etc... then it is
unconstitutional not on the ground of double
taxation but for being violative of the due
process clause.
TREATY AS A MODE OF ELIMINATING

DOUBLE TAXATION
Note: there is no constitutional prohibition

against double taxation. It is not favored but
permissible. [Pepsi Cola Bottling Co. vs. City of
Butuan, 24 SCRA 789]
itself
1. EXEMPTION METHOD - the income or

capital which is taxable in the state of source or
situs is exempted in the state of residence
- the focus is on the income or the credit
2. CREDIT METHOD the tax paid in the
state of source is credited against the tax levied
in the state of residence.
Kinds of Double Taxation

1. DIRECT
- focuses upon the tax.
-Occurs when the

same property is
taxed twice when it
should be taxed
once
-objectionable or
prohibited sense
2. INDIRECT
3. DOMESTIC
Allowed it the taxes

are of different
nature or
character, imposed
by different taxing
authority
FORMS OF ESCAPE FROM TAXATION

(Key: ESCATE)
1.
2.
3.
4.
5.
6.
Shifting
Capitalization
Transformation
Avoidance
Exemption
Evasion-unlawful
A. Shifting
Process by which tax burden is transferred
from statutory taxpayer (impact of
taxation) to another (incident of taxation)
without violating the law.
-permissible
double taxation
Illustration: Value added tax. The seller is

required by law to pay the tax, but the burden is
actually shifted or passed on to the buyer.
Arises when the

taxes are Imposed
by the local or
national
government
Impact of taxation point on which tax

is originally imposed.
Incidents of taxation point on which
the tax burden finally rests or settles down.
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B. Capitalization
I N
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As to form:
Reduction in the price of the taxed object

equal to the capitalized value of future taxes
which the purchaser expects to be called
upon to pay.
1. Express: Expressly granted by organic

or statute law
2. Implied: When particular persons,
properties, or excises are deemed
exempt as they fall outside the scope of
the taxing provision itself.
C. Transformation
The manufacturer or producer upon whom
the tax has been imposed, fearing the loss of
his market if he should add the tax to the
price, pays the tax and endeavors to recoup
himself by improving his process of
production, thereby turning out his units at
a lower cost.
D. Tax Avoidance
exploitation by the taxpayer of legally
permissible alternative tax rates or
methods of assessing taxable property or
income, in order to avoid or reduce tax
liability.
As to extent:
1. Total: Connotes absolute immunity.
2. Partial: One where a collection of a part of
the tax is dispensed with.
As to object:
1. Personal: granted directly in favor of
certain persons
2. Impersonal: granted directly in favor of a
certain class of property
TAX EVASION vs. TAX AVOIDANCE
TAX EVASION
E. Tax Evasion
Use by the taxpayer of illegal or
fraudulent means to defeat or lessen the
payment of the tax.
Indicia of Fraud in Tax Evasion
1. failure to declare for taxation purposes
true and actual income derived from
business for two consecutive years; or
2. substantial under declaration of income
tax returns of the taxpayer for four
consecutive
years
coupled
with
intentional overstatement of deductions.
F. Tax Exemption
TAX AVOIDANCE
Connotes
fraud Legal means used by
through the use of the
taxpayer
to
pretenses
and reduce taxes
forbidden devices to
lessen or defeat taxes
Scheme used outside Tax saving device
of those lawful means within the means
sanctioned by law
Rule of No
Government
Estoppel
Against
the
General Rule: The Government is not
A grant of immunity, express or implied, to

particular persons or corporations from the
obligation to pay taxes.
estopped by the mistakes or errors of its agents;

erroneous application and enforcement of law
by public officers do not block the subsequent
correct application of statutes.
Kinds of Tax Exemptions

As to basis:
Exception: In the interest of justice and fair
1. Constitutional: Immunities from taxation

which originate from the constitution
2. Statutory: Those which emanate from
legislation
play, as where injustice will result to the

taxpayer.
T A X A T I O N
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DOCTRINE OF IMPRESCRIPTIBILITY
TAXPAYERS SUIT
As a rule, taxes are imprescriptibly as they

are the lifeblood of the government. However,
tax statutes may provide
for statute of
limitations.
Requires illegal expenditure of public money.

NATIONAL TAXATION
The rules that have been adopted are as follows:

A. INCOME TAXATION
a. National Internal Revenue Code- the
statute of limitation for assessment of tax if
a return is filed is within three (3 )years
from the last day prescribed by law for the
filling of the return or if filed after the last
day, within three years from date of actual
filling. If no return is filled or the return is
false or fraudulent, the period to assess is
within ten (10) years from discovery of the
omission, fraud or falsity.
b. Tariff and Customs Code- it does not
express any general statute of limitation; it
provides, however, that when articles have
been entered and passed free of duty of final
adjustments of duties made, with
subsequent delivery, such entry and passage
free of duty or settlements of duties will,
after the expiration of three (3) years from
the date of the final payment of duties, in
the absence of fraud or protest or
compliance audit pursuant to the provisions
of this code be final and conclusive upon all
parties, unless the liquidation of the import
entry was merely tentative.
c. Local Government Code- Local taxes, fees,
or charges shall be assessed within five (5)
years from the date they become due. In
case of fraud, or intent to evade the payment
of taxes, fees, or charges the same may be
assessed within ten (10) years from
discovery of such. They shall also be
collected either by administrative or judicial
action within five (5) years from the date of
assessment.
PRINCIPLE OF PROSPECTIVITY OF TAX
LAWS
The general rule under the Civil Code that
laws shall have prospective application applies
to tax laws.
Retroactive application of revenue laws
may be allowed if it will not amount to denial of
due process.
Definitions
1. Income Tax tax on all yearly profits
arising from property, possessions, trade or
business, or as a tax on a persons income,
emoluments, profits and the like (61 CJS 1559)
tax on income, whether gross
or net. (27 Am. Jur. 308)
2. Income all wealth which flows into the
taxpayer other than as a mere return of capital.
3. Capital resource of person which can be
used in producing goods and services.
Income
All wealth which
flows
into
the
taxpayer other than
as a mere return of
capital.
Flow of Wealth
Source of wealth
Capital
Fund or property which
can
be
used
in
producing goods or
services
Fund or property
Wealth
Requisites for Income to be Taxable

1. There must be a gain or profit.
2. The gain must be realized or received.
3. The gain must not be excluded by law or
treaty from taxation.
Tests on Taxability of Income
1. Flow of Wealth Test The determining
factor for the imposition of income tax is
whether any gain was derived from the
transaction.
2. Realization Test - unless the income is
deemed "realized," there is no taxable
income.
3. Economic-Benefit Principle - flow of
wealth realized is taxable only to the extent
that the taxpayer is economically benefited.
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Classification of Taxpayers
a. Individuals
1) citizens
1.1 resident citizens (RC)
1.2 non-resident citizens (NRC)
2) aliens
2.1 resident aliens (RA)
2.2 non-resident aliens (NRA)
2.2.1 engaged in trade or business
within the Philippines. (NRAETB)
2.2.2 Not engaged in trade or
business
within
the
Philippines
(NRANETB)
b. Corporations
1) Domestic (DC)
2) Foreign
2.1 resident foreign corporation (RFC)
2.2 non-resident foreign corporation
(NRFC)
c. Estates
d. Trusts
e. Partnerships
3. Resident alien - means an individual

whose residence is within the Philippines
and who is not a citizen thereof. [Sec.22 (F)]
4. Non-resident alien engaged in trade
or business within the Philippines.
(Key: NRAETB)
A non-resident alien means an
individual whose residence is not within the
Philippines and who is not a citizen thereof.
[Sec.22 (G)]
The term trade or business includes
the performance of the functions of a public
office. [Sec. 22 (S)]
The term trade, business or
profession shall not include performance
of services by the taxpayer as an employee.
[Sec. 22 (CC)]
A non-resident alien individual who
shall come to the Philippines and stay
therein for an aggregate period of more than
180 days during any calendar year shall be
deemed a non-resident alien doing business
in
the
Philippines
Section
22(G)
notwithstanding [Sec. 25(A)(1)]
INDIVIDUALS
Situs of Taxation (Who are taxable?)
1. Resident Citizen
2. Non-resident Citizen
A non-resident citizen means, a
Filipino citizen:
a. who establishes to the satisfaction of the
Commissioner the fact of their physical
presence abroad with a definite
intention to reside therein;
b. who leaves the Philippines during the
taxable year to reside abroad, either as
an immigrant or for employment on a
permanent basis;
c. who works and derives income from
abroad and whose employment thereat
requires him to be physically present
abroad most of the time during the
taxable year;
d. who is previously considered as a nonresident and who arrives in the
Philippines at anytime during the
taxable
year
to
reside
thereat
permanently shall be considered nonresident for the taxable year in which he
arrives in the Philippines with respect to
his income derived from sources abroad
until the date of his arrival [Sec.22 (E)]
5. Non-resident aliens not engaged in

trade
or
business
within
the
Philippiness. (Key: NRANETB)
Note: ONLY RESIDENT CITIZENS are
taxable for income derived from sources within
and without the Philippines. All other
individual income taxpayers are taxable only for
income derived from sources within the
Philippines.
Note: An overseas contract worker
(OCW) is taxable only on income derived from
sources within the Philippines. [Sec. 23 (B)(C)]
Note: A seaman is considered as an OCW
provided the following requirements are met:
1. receives compensation for services
rendered abroad as a member of the
complement of a vessel; and
2. such vessel is engaged exclusively in
international trade.
T A X A T I O N
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CORPORATIONS
Jurisdiction to Taxation (who are taxable?)
1. Domestic Corporation created or
organized in the Philippines. or under its
law [Sec. 22(C)]
2. Resident Foreign Corporation
engaged in trade or business within the
Philippines [Sec. 22(H)]
3. Non-resident Foreign Corporation
not engaged in trade or business within the
Philippines [Sec. 22(I)]
Corporation
Includes:
1. Partnerships, no matter how created or
organized;
2. Joint-stock companies;
3. Joint
accounts
(cuentas
en
participacion)
4. Associations; or
5. Insurance companies [Sec. 22 (B)].
Excludes:
1. General professional partnerships;
2. 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;
3. Co-ownership.
I N
T A X A T I O N
1. Those enumerated under Sec. 30.

Exempt corporations are subject to
income tax on their income from any of
their properties, real or personal, or from
any other activities conducted for profit,
regardless of the disposition made of
such income.
2. With respect to GOCCs, the general rule is
that these corporations are taxable as any
other corporation except:
a. GSIS
b. SSS
c. PHIC
d. PCSO [Sec. 27 (C)]
NOTE: Sec. 27 (c) of the NIRC amended by
RA 9337, therefore, PAGCOR is not included
in the GOCCC exception and subject to tax.
3. Regional or Area Headquarters under Sec.
22 (DD)
NOTE: Regional operating headquarters
(ROH) under Sec. 22(EE) shall pay a tax of
10% of their taxable income.
Note:
ONLY
DOMESTIC
CORPORATIONS are taxable for income
derived from sources within and without the
Philippines. All other corporate income
taxpayers are taxable only for income derived
from sources within the Philippines.
Corporations exempt from income

taxation (for income realized as such)
under RA 8424
T A X A T I O N
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ESTATES AND TRUSTS
Where no such distribution to the

heirs is made during the taxable year that
the income is earned, and such income is
subjected to income tax payment by the
estate, the subsequent distribution thereof
is no longer taxable on the part of the
recipient.
Estate refers to the mass of properties left by

a deceased person.
Rules on Taxability of Estate:
1. An estate under administration or judicial
settlement is a taxable entity.
2. An estate, the settlement of which is not the
object of judicial testamentary or intestate
proceedings is not a taxable entity. The income
there of is taxable directly to the heir or
beneficiary.
Estates under Judicial Settlement
General Rule: An estate under judicial
settlement is subject to income tax in the same
manner as individuals. Its status is the same as
the status of the decedent prior to his death.
Estates
NOT
under
judicial
settlement subject to income tax as coownership.
The tax treatment of co-ownership is
similar to general professional partnership.
Hence, the tax liability on income is levied
directly on the co-owners. The co-ownership
income and deductions are simply apportioned
to the co-owners to the extent of their respective
interests therein, regardless of whether such
income is distributed or not.
Exceptions:
1. The entitlement to personal exemption is
limited only to P20, 000.
2. No additional exemption is allowed.
3. The distribution to the heirs during the
taxable year of estate income is deductible
from the taxable income of the estate. Such
distributed income shall form part of the
respective heirs taxable income.
Irrevocable Trusts (irrevocable both

as to corpus and as to income) taxed exactly
in the same way as estates under judicial
settlement and its status as an individual is that
of the trustor. It is entitled to the minimum
personal
exemption
(P20,
000)
and
distribution of trust income during the taxable
T A X A T I O N
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tear to the beneficiaries is deductible from the

trusts taxable income.
(6) Minimum Corporate Income Tax

(7) Fringe Benefits Tax
(8) Optional corporate Income tax
Revocable Trusts the trustor, not

the trust itself, is subject to the payment of
income tax on the trust income.
PARTNERSHIPS
General Rule: Partnerships, no matter how
created, are subject to corporate income tax.
(1) NET INCOME TAX

Definition: Means gross income less
deductions and/or personal and additional
exemptions (Sec. 31, RA 8424)
Net Income Tax Formula
General co-partnerships (GCP) are

partnerships which are by law assimilated to be
within the context of, and so legally
contemplated as, corporations. The partnership
itself is subject to corporate taxation. The
individual partners are considered stockholders
and, therefore, profits distributed to them by
the partnership are taxable as dividends.
Exception:
General
Professional
Partnerships (GPPs) as such are not subject
to income tax. GPP means:
1. a partnership formed by persons for the sole
purpose of exercising their common
profession; and
2. no part of the income of which is derived
from engaging in any trade or business [Sec.
22(B)].
GPPs, however, are required to file
returns of their income for the purpose of
furnishing information as to the share in the net
income of the partnership which the partners
shall include in their individual returns
Entire Income
Less: Exclusions and Income subject to Final
Tax(e.g. Passive Income)
Gross Income
Less: Deductions (Personal and/or Additional
Exemptions)
Net Taxable Income
X
Net Income Tax Due

Less: Tax Credit, if any
Tax Still due, if any/ Tax Payable
GROSS INCOME
Definition: Means all income derived from
whatever source, including but not limited to
the following (Sec. 32); (Key: CIG2AR2-P2D)
1.
2.
Compensation;
Gross income from profession, trade
or business;
3. Gains form dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
9. Prizes and winnings;
10. Pensions;
11. Partners share in the net income of
the general professional partnership
Members of the GPP are liable for

income tax only in their separate and
individual capacity. Each partner shall report
as gross income his distributive share, actually
or constructively received, in the net income of
the partnership.
KINDS OF INCOME TAXES
UNDER R.A. 8424
(1)
(2)
(3)
(4)
Net Income Tax

Gross Income Tax
Final Income Tax
Preferential Rates or Special Rates of
Income Tax
(5) Improperly Accumulated Earnings Tax
Tax Rates
all
income
derived
from
whatever source - embraces all income not
expressly exempted within the class of taxable
income under the law, irrespective of the
voluntary or involuntary action of the taxpayer
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in producing the gains, and whether derived

from legal or illegal sources, such as:
1. Gains arising from expropriation of
property which constitute income from
dealings in property;
2. Income derived from illegal sources,
such as gambling, theft, embezzlement,
and smuggling;
3. Compensation for damages if it
represents payment for loss of expected
profits;
4. Bad debts previously charged-off but
afterwards recovered;
5. Contest awards and prizes for
commercial
or
non-commercial
contests; and
6. Taxes previously deducted as an
expense and subsequently refunded.
Exclusions from Gross Income
1. proceeds of life insurance
NOTE: if the proceeds are retained by the
insurer, the interest thereon is taxable;
2. Return of insurance premium;
3. Gift, bequest or devise
NOTE: income there from is taxable;
I N
T A X A T I O N
3. separation pay because of death, sickness,

or other physical disability or for any cause
beyond the control of the official or
employee (e.g. retrenchment);
4. social
security
benefits,
retirement
gratuities, pensions and other similar
benefits received by citizens and aliens who
come to reside permanently here from
foreign sources private or public;
5. benefits due to residents under the laws of
the U.S. administered by the U.S. Veterans
Administration
6. SSS benefits; and
7. GSIS benefits.
Miscellaneous Items
1. Passive income derived by foreign
government in the Philippines;
2. Income derived from any public utility or
from the exercise of any governmental
function;
3. Prizes and awards made primarily in
recognition of charitable, civic achievement,
literary, artistic, religious, educational, and
scientific. (Code: C2LARES)
Requisites:
4. Compensation for personal injuries or

sickness, whether by suit or agreement
NOTE: The phrase personal injuries
should be given a restrictive meaning to
refer only to physical injuries;
5. Income exempt under Treaty;
6. Retirement benefits, pension, gratuities, etc.
7. Miscellaneous items
Retirement
Gratuities, Etc.
Benefits,
Pension,
1. those derived under R.A. 7641 (pertains to

private firms without retirement trust
fund);
2. those received by officials and employees of
private employers in accordance with a
reasonable private benefit plan;
Requisites:
a) in the service of the same employer
for at least 10 years;
b) at least 50 years old;
c) must be availed of only once
d) plan approved by the BIR (R.R.298);
a. recipient selected without any action

on his part; and
b. recipient not required to render
substantial future services.
4. Prizes and awards granted to athletes in
sports competitions and sanctioned by their
national sports association ;
5. 13th month pay and other benefits up to
P30,000.00;
6. GSIS,SSS, Medicare and union dues of
individuals;
7. Gains derived from debt securities with a
maturity of more than 5 years;
8. Gains from redemption of shares in Mutual
Fund.
DEDUCTIONS
Definition: Items or amounts which the law
allows to be deducted from gross income in
order to arrive at the taxable income.
Basic Principles governing Deductions
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1. The taxpayer seeking a deduction must

point to some specific provisions of the
statute authorizing the deduction; and
2. He must be able to prove that he is entitled
to the deduction authorized or allowed.
(Atlas Consolidated Mining & Dev. Corp.
vs. Comm.)
3. Any amount paid or payable which is
otherwise deductible from, or taken into
account in computing gross income or for
which depreciation or amortization may be
allowed, shall be allowed as deduction only
if it is shown that the tax required to be
deducted and withheld there from has been
paid to the BIR. (Sec. 34[K])
I N
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(j) pension
trust
contributions
of
employees; and
(k) premium payments on health and/or
hospitalization insurance. (This is the
only deduction which a compensation
income earner may claim as a
deduction.)
3. Personal and additional exemptions
Available only to individuals (business
income and compensation income earners).
NRAETB may be entitled to personal
exemptions (only) subject to reciprocity, i.e.,
(a) the country of which he is a subject
or citizen has an income tax law; and
(b) the income tax law of his country
allows personal exemption to citizens of the
Philippines not residing therein, but
deriving income there from and not to
exceed the amount allowed in CTRP.
Note: Deductions for income tax purposes

partake of the nature of tax exemptions; hence,
if tax exemptions are to be strictly construed,
then it follows that deductions must also be
strictly construed.
Taxpayers
who
cannot
avail
deductions from gross income
The personal exemption shall the be

equal to that allowed by the income tax law
of his country to a citizen of the Philippines
not residing therein, or the amount
provided in the CTRP, whichever is lower.
of
1. Citizens and resident aliens whose income is

purely compensation income (except for
premium payments on health and/or
hospitalization insurance);
2. Non-resident aliens not engaged in trade or
business in the Philippines; and
3. Non-resident foreign corporation
Kinds of Deductions
1. Optional standard deductions (OSD)
10% of the gross income.
NOTE: The OSD may be availed of only by
individuals (except nonresident alien) who
are not purely compensation income
earners.
2. Itemized deductions
(Key: ELIT-BD2CP2R)
(a) ordinary AND necessary expenses
(b) interests
(c) taxes
(d) losses
(e) bad debts
(f) depreciation of property;
(g) depletion of oil and gas wells and mines;
(h) charitable and other contributions;
(i) research and development;
4. Special deductions applicable only to

Insurance companies, whether domestic or
foreign. (Sec. 37, CTRP).
ITEMIZED DEDUCTIONS
a. ORDINARY AND NECESSARY
EXPENSE
Necessary Expense - appropriate and
helpful in the development of taxpayer's
business.
Ordinary Expense - normal or usual in
the line of business.
Requisites of Business Expense to be
deductible
1. ordinary and necessary;
2. paid or incurred w/in the taxable year;
3. paid or incurred in carrying on a trade or
business;
4. Substantiated with official receipts or other
adequate records.
5. if subject to withholding taxes proof of
payment to the BIR must be shown.
6. must
be
reasonable
under
the
circumstances.
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Capital Expenditure - An expenditure

that benefits not only the current period but
also future periods. It is not deductible but
depreciable, EXCEPT, if the taxpayer is a nonprofit proprietary educational institution which
may elect either to deduct the capital expense or
depreciate it.
Optional Treatment of Interest Expense

At the option of the taxpayer, interest
incurred to acquire property used in trade or
business may be allowed as a deduction or
treated as capital expenditure. [Sec 34 (B)(3)]
b. INTEREST
Interest payment for the use of forbearance or
detention of money, regardless of the name it is
called or denominated.
1. interest paid on indebtedness to finance

petroleum explorations;
2. interest on transactions by related parties
[Sec. 34 (B)(2)]
3. interest to purchase or carry tax-exempt
obligations;
4. dividend payments cannot be deducted as
interest; and
5. interest paid in advance thru discount or
otherwise, HOWEVER it is deductible in the
year indebtedness is paid.
Requisites for deductibility:

1. there must be an indebtedness;
2. an interest expense paid or incurred on such
indebtedness;
3. indebtedness that of taxpayer;
4. indebtedness connected with the taxpayers
trade, business or exercise of profession;
5. interest expense paid or incurred during the
taxable year;
6. interest stipulated in writing;
7. interest legally due;
8. interest arrange not between related
taxpayers;
9. interest not incurred to finance petroleum
operations, and
10. interest incurred to acquire property used in
trade, business or exercise of profession, the
same was not treated as capital expenditure.
Rules on Deductibility of Interest Expense
1. General Rule the amount of interest
expense paid/ incurred within a taxable year of
indebtedness in connection with the taxpayers
trade, business or exercise of profession (TBE)
shall be allowed as a deduction from the
taxpayers gross income.
Interest Payments not Deductible
c. TAXES
Requisites to be deductible
Must be in connection with taxpayers
business; tax must be imposed by law on,
and payable by, taxpayer (direct tax); and
paid or incurred during the taxable year.
Taxes not deductible
1.
2.
3.
4.
5.
income tax;
estate and donors tax;
special assessments;
excess electric consumption tax;
foreign income tax, war profits and excess
profits tax, if the taxpayer makes use of tax
credit; and
6. final taxes, being in the nature of income
tax.
TAX BENEFIT RULE
2. Limitation the amount of interest (in

connection with TBE) shall be reduced by an
amount equal the following percentages of
interest income earned w/c had been
subjected to final withholding depending on the
year when the interest income earned, viz:
Taxes allowed as deductions, when

refunded or credited, shall be included as part
of gross income in the year of receipt to the
extent of the income tax benefit of said
deduction.
41% - beginning January 1, 1998

39% - beginning January 1, 1999
38 % - beginning January 1, 2000 and
thereafter
For NRAETB and RFC, taxes paid or

incurred are allowed as deductions only if and
to the extent that they are connected from
income within the Philippines.
T A X A T I O N
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d. LOSSES
shares is held by or on behalf of

the same persons; or
b. not less than 75% of the paid up
capital is held by or on behalf of
the same person.
1. actually sustained during the taxable year;
2. connected with the business, trade or
exercise of profession;
3.
evidenced by a close and completed
transaction;
4. not compensated by insurance or otherwise.
5. not been claimed as deduction for estate tax
purposes; and
6. Notice of loss must be filed with the BIR
w/in 45 days form the date of discovery of the
casualty/robbery/theft/embezzlement.
The taxpayers failure to record in
his books the alleged loss proves that the
loss had not been suffered, hence, not
deductible. (City Lumber vs.
Commissioner)
CATEGORY AND TYPES OF LOSSES
1. Ordinary Losses- incurred in trade.
Business or exercise/practice of profession
2. Net
(NOLCO)
operating
loss
carry-over
Refers to the excess of allowable deductions

over gross income of the business for any
taxable year which had not been previously
offset as deduction from gross income.
Can be carried over as a deduction from
gross income for the next 3 consecutive years
immediately following the year of such loss.
For mines, other that oil and gas well, net
operating loss incurred in any of the first ten
years of operation may be carried over for the
next 5 years.
Requirements:
1. The taxpayer was not exempt from
income tax in the year of such net
operating loss;
2. There has been no substantial change in
the ownership of the business or
enterprise.
There is no substantial change in the
ownership of the business when:
a. not less than 75% in nominal
value of the outstanding issued
3.
Of property connected with the
trade, business or profession, if the loss arises
from fires, storms, other casualties.
Total Destruction total book value (cost
less accum. depr.) less any amount of insurance
or compensation received
Partial Destruction the replacement cost
to restore the property to its normal operating
condition, but in no case shall the deductible
loss be more than the net book value of the
property before the casualty.
The excess over the net book value immediately
before the casualty should be capitalized,
subject to depreciation over the remaining
useful life of the property.
3. Capital losses deductible only to
the extent of capital gains
a. Losses from sale/ exchange of capital assets.
b. Losses resulting from securities becoming
worthless and which are capital assets.
c. Losses from short sale of properties.
d. Losses due to failure to exercise privilege or
option to buy/ sell property.
Special Kinds of Losses
a. Wagering Losses deductible only to the

extent of gain/ winnings. [Sec. 34(D)(6)]
b. Losses on Wash Sales of Stocks not
deductible because these are artificial loss
Wash sales a sale or other disposition of
stock or securities where substantially identical
securities are acquired or purchased within 61day period, beginning 30 days before the sale
and ending 30 days after the sale. [Sec. 38]
General rule: Losses from wash sales are not
deductible.
Exception: When the sale is made by a dealer
in stock or securities and with respect to a
transaction made in the ordinary course of the
T A X A T I O N
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business of such dealer, losses from such sale is

deductible.
Elements of Wash Sales
a. The sale or other disposition of stock
resulted to a loss;
b. There was an acquisition or contract or
option for acquisition of stock or
securities within 30 days before the sale
or 30 days after the sale; and
c. The stock or securities sold were
substantially the same as those acquired
within the 61-day period.
I N
T A X A T I O N
1. Valid, subsisting and legally demandable
(NOTE: the taxpayer is the CREDITOR);
2. Debt must be actually ascertained to be
worthless and uncollectible as of the end
of the taxable year;
3. Obligation is not between related parties
[Sec. 36(B)];
4. Debt is expensed within the year
(actually charged off from the books of
accounts of the taxpayer) and
5. Debt is connected with taxpayers
profession, trade or business.
Equitable Doctrine of Tax Benefit
c. Abandonment losses in petroleum

operation and producing well. [Sec. 34 (D)
(7)]
a. In case a contract area where petroleum
operations are undertaken is partially or
wholly abandoned, all accumulated
exploration
and
development
expenditures pertaining thereto shall be
allowed as a deduction.
b. In case a producing well is abandoned,
the unamortized cost thereof, as well as
the undepreciated cost of equipment
directly used therein, shall be allowed as
deduction in the year the well,
equipment or facility is abandoned.
d. Losses of mines other than oil and gas
wells
e. Losses due to voluntary removal of
building
incident
to
renewal/
replacements deductible expense from
gross income.
f. Loss of useful value of capital assets
due to changes in business conditions
deductible up to the extent of actual loss
sustained (after adjustment for improvement,
depreciation and salvage value).
g. Losses from sales or exchanges of
property between related taxpayers
losses of this nature are not deductible but gains
are taxable.
h. Losses of farmers if incurred in the
operation of farm business, it is deductible.
e. BAD DEBTS
A recovery of bad debts previously

deducted from gross income constitutes
taxable income if in the year the account was
written off, the deduction resulted in a tax
benefit.
f. DEPRECIATION
Includes
1. The gradual diminution in the service or
useful value of tangible property due from
exhaustion, wear and tear and normal
obsolescence.
2. Amortization of the value of intangible
assets with definitely limited duration.
1. Must be reasonable;
2. Must be on property used in the conduct of
the business;
3. Must be expensed (charged off) during the
taxable year; and
4. Schedule of allowance must be attached to
the return.
g. DEPLETION OF OIL AND GAS WELLS
AND MINES
-
same requisites as depreciation
Depletion exhaustion of natural resources

as mines, oil and gas wells. The natural
resources are called wasting assets. As the
physical units representing such resources are
extracted and sold, such assets move towards
exhaustion.
T A X A T I O N
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Known as cost of depletion allowance for

mines, oil gas wells and other natural deposits.
To whom allowed only mining entities

owning economic interest in mineral deposits.
Deductible in Full
Economic Interest interest in minerals in

place investment therein or secured by
operating or contract agreement for which
income is derived, and return of capital
expected from the extraction of mineral.
Mere economic/ pecuniary advantage to be
derived when there is no capital investment is
involve, does not amount to economic interest.
h.
CHARITABLE
CONTRIBUTIONS
AND
not in excess of 10% of the taxable income in

case of an individual
Donations to the following shall be

allowed FULL deductibility:
1. Philippine government or to any of its
agencies, or political subdivisions, including
fully-owned
government
corporations
undertaking priority activities;
2. Foreign institutions or international
organizations, pursuant to agreements,
treaties or commitments entered into by the
Phil. Government or special laws;
3. Donations to certain accredited NGOs.
OTHER
i. RESEARCH
(R&D)
1. The contribution/ gift must be actually paid.
2. Given to the organizations specified in the
code.
3. The Net Income of the organization must not
inure to the benefit of any private stockholder/
individual.
AND
DEVELOPMENT
1. if incurred in connection with the trade,
business or profession of the taxpayer; and
2. if not charged to capital account
Treatment of the R&D Expenditures
Valuation acquisition cost of property

contributed
Partial Deduction
Donations to the following shall be allowed
LIMITED deductibility:
1. Phil. Government or any of its agencies or
any political subdivision thereof exclusively
for public purposes;
2. accredited
domestic
corporation
or
associations organized and operated
exclusively
for
religious,
charitable,
scientific, youth and sports development,
cultural or educational purposes or for the
rehabilitation of veterans,
3. social welfare institutions, or
4. non-government organizations (Sec 34[H])
The aforementioned donations shall be
deductible only to the extent:
-
not in excess of 5% of taxable income in case

of a corporation
At the option of the taxpayer, the R&D

expenditures may be treated as deferred
expenses:
1. if incurred in connection with the trade,
business or profession of the taxpayer;
2. if not treated as expense; and
3. if chargeable to capital account not subject
to depreciation.
If treated as deferred expense, the R&D
shall be amortized over a period of not less than
60 months.
Expenses not considered as R&D
1. Expenditures for the acquisition or
improvement of land, or for the
improvement of property to be used in
connection with R&D of a character which is
subject to depreciation and depletion; and
2. Expenditures paid or incurred for the
purpose of ascertaining the existence,
location, extent, or quantity of any deposit
or ore or other mineral including oil or gas.
T A X A T I O N
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j. PENSION TRUST CONTRIBUTION

A deduction applicable only to the
employer on account of its contribution to a
private pension plan for the benefits of its
employees. This deduction is purely business in
character.
I N
T A X A T I O N
c. individual taxpayer earning compensation

and business/ practice of profession during the
year
PERSONAL EXEMPTIONS
Amounts of Personal Exemptions [Sec.
35]
1. The employer must have established a
pension or retirement plan to provide for
the payment of reasonable pensions to his
employees;
2. The pension plan is reasonable and
actuarially sound;
3. It must be funded by the employer;
4. The amount contributed must be no longer
subject to the control and disposition of the
employer;
5. The payment has not yet been allowed as a
deduction; and
6. The deduction is apportioned in equal parts
over a period of 10 consecutive years
beginning with the year in which the
transfer or payment is made.
k. PREMIUM PAYMENTS ON HEALTH
AND/OR
HOSPITALIZATION
INSURANCE
1. The taxpayer must be an individual;
2. The amount of premiums shall not exceed
P2,400 per family;
3. Such family must have a gross income of not
more than P250,000 for the taxable year;
and
4. In the case of married taxpayers, only the
spouse claiming the additional exemption
for dependents shall be entitled to this
deduction.
Who may avail of the deduction
a. individual taxpayers earning purely
compensation income during the year.
b. individual taxpayer earning business income
or in the practice of his profession whether
availing of itemized or optional standard
deductions during the year.
1. Single individual or married individual

judicially decreed as legally separated with
no qualified dependents: P20,000
2. Head of the family: P25,000
3. Each married person: P32,000
Head of the Family
1. Unmarried or legally separated person with
one or both parents, or one or more
brothers or sisters, or one or more
legitimate, recognized natural or legally
adopted children living with and dependent
upon the taxpayer for their chief support;
and
2. Where such brother / sister or children are
not more than 21 years of age, unmarried
and not gainfully employed, or where such
dependents regardless of age, are incapable
of self support because of mental or
physical defect.
Additional Exemption for DependentsP8, 000 for each dependent not to exceed four
(4).
Qualifications of a dependent
1. legitimate, illegitimate or legally adopted
child of the taxpayer
2. chiefly dependent upon and living with the
taxpayer
3. not more than 21 years old, unmarried AND
not gainfully employed or where such
dependents regardless of age are incapable
of self-support because of mental of physical
defect.
Note: The P8, 000 additional exemptions is
given only for dependent children. It cannot be
claimed for dependent parents, brothers, or
sisters. The taxpayer must be either married or
head of the family. Furthermore, according to
the Senior Citizens Law, may include an
individual above 60 years old as dependent
T A X A T I O N
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provided all the requisites provided by the said

law are present.
Clarificatory Illustrations:
1. If only 19 years old but married, not
qualified as a dependent.
2. Even if 25 years old but physically
incapacitated, qualified as a dependent.
3. If there is any change of status at any time
during the taxable year, the law expressly
favors the taxpayer.
NRAETB may deduct personal exemption
(not additional exemption), but only to the
extent allowed by his country to Filipinos not
residing therein, and shall not exceed the
aforementioned amounts.
ITEMS NOT DEDUCTIBLE FROM GROSS
INCOME
Reasons for non-deductibility:
1. Personal Expenses
2. Capital Expenditures
3. Items not normally subject to income tax and
therefore not deductible
4. Items taken advantage of by the taxpayer to
avoid payment of income tax.
I N
T A X A T I O N
Transactions between related parties

1. Between members of the family;
Family includes only the brothers,
sisters (whether by the whole or half blood),
spouse, ancestors, and lineal descendants of
the taxpayer.
2. Except in the case of distributions in
liquidation:
a. between an individual and a corporation
more than 50% in value of the
outstanding stock of which is owned,
directly or indirectly, by or for such
individual;
b. between two corporations more than
50% in value of the outstanding stock of
each of which is owned, directly or
indirectly, by or for the same individual,
if either one of such corporations, with
respect to the taxable year of the
corporation preceding the date of the
sale of exchange was a personal holding
company or a foreign personal holding
company; or
3. Between the grantor and a fiduciary of any
trust;
4. Between the fiduciary of a trust and the
fiduciary of another trust if the same person
is a grantor with respect to each trust;
5. Between a fiduciary of a trust and a
beneficiary of such trust.
The following are NOT deductible from

gross income
Consequences
1. Personal, living or family expenses;

2. Amount paid out for new buildings or for
permanent improvements, or betterment
made to increase the value of any property
or estate,
EXCEPT that intangible drilling and
development cost incurred in petroleum
operations are deductible;
3. Amount expended in restoring property or
in making good the exhaustion thereof for
which an allowance has been made;
4. Premiums paid on any life insurance policy
covering the life of any officer or employee,
or of any person financially interested in
any trade or business carried on by the
taxpayer, individual or corporate, when the
taxpayer is directly or indirectly a
beneficiary under such policy. [Sec. 36]
5. Losses from sales or exchanges of property
between related taxpayers. [Sec. 36]
1. Interest expense is not allowed as a

deduction if both the taxpayer and the
person to whom the payment was made are
persons specified above. [Sec. 34 (B)(2)]
2. Bad debts sustained in a transaction entered
into between parties mentioned above are
not deductible. [Sec. 34 (E)(1)]
3. Losses from sales or exchanges of property
between persons specified above are not
deductible. [Sec 36 (B)]
T A X A T I O N
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(2) GROSS INCOME TAX
PREFERENTIAL OR SPECIAL RATES

Pertains to income derived by a
particular individual or corporation belonging
to a class of income taxpayer that is subject to
either a preferential or special rate. Please
refer to Annex A.
Gross Income Tax (GIT) Formula

Entire Income
Less: Exclusions and Income subject to Final
Tax (e.g. Passive Income)
(5) IMPROPERLY ACCUMULATED

EARNINGS (IAE) TAX
Gross Income
X
Tax Rates
Net Income Tax Due

GIT applies to
1. Non-resident alien not engaged in trade
or business; and
2. Non-resident foreign corporation.
Definition:
Improperly
accumulated
earnings (IAE) are the profits of a corporation
that are permitted to accumulate instead of
being distributed by a corporation to its
shareholders for the purpose of avoiding the
income tax with respect to its shareholders or
the shareholders of another corporation.
Rate: 10% of the Improperly Accumulated
Taxable Income (in addition to other taxes).
Tax Rates: Please refer to Annex A.
Improperly Accumulated
Income means taxable income
(3) FINAL INCOME TAX

General Principles
1. It is constituted as a full and final payment
of the income tax due from the payee on a
particular type of income subject to final
withholding tax (FWT).
1.
2.
3.
4.
Taxable
Adjusted by:
Income exempt from tax
Income excluded from gross income
Income subject to final tax
The amount of net operating loss carry-over
deducted.
The finality of the withholding tax is limited

only to the payees income tax liability and does
not extend to other taxes that may be imposed
on said income.
And reduced by the sum of:

1. Dividends actually or constructively paid;
and
2. Income tax paid for the taxable year
2. The income subjected to final income tax is

no longer subject to the net income tax;
otherwise, there would be a violation of
prohibited double taxation.
3. The liability for the payment of the tax rests
primarily on the payor as withholding agent.
4. The payee is not required to file an income
tax return for the particular income
subjected to FWT.
5. The rate of the final tax is multiplied to the
gross income. Thus, deductions and/or
personal and additional exemptions are not
allowed.
Exclusions
For corporations using the calendar basis

the accumulated earnings tax shall not
apply on IAE as of Dec. 31, 1997.
For fiscal year basis, the tax shall not apply
to the 12-month period of fiscal year 19971998.
IAE as of the end of a calendar or fiscal year

period on or after Dec. 31, 1998 shall be subject
to the 10% tax on such IAE
Who are covered?
Tax Rates: Please refer to Annex A.

(4) INCOME SUBJECT TO
General Rule: The IAE tax shall apply to

every corporation formed or availed for the
T A X A T I O N

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purpose of avoiding the income tax with respect

to its shareholders or the shareholders of any
other corporation, by permitting earnings and
profits to accumulate instead of being divided
or distributed.
Exception: The said tax shall not apply to:
a. Publicly held corporations
b. Banks and other non-banks Financial
intermediaries
c. Insurance companies
Evidence of purpose to avoid income tax
1. The fact that any corporation is a mere
holding company or investment company
shall be prima facie evidence of a purpose to
avoid the tax upon its shareholders or
members
2. The fact that the earnings or profits of a
corporation are permitted to accumulate
beyond the reasonable needs of the business
shall be determinative of the purpose to
avoid the tax upon its shareholders or
members unless the corporation, by the
clear preponderance of evidence, shall prove
the contrary.
Reasonable needs of the business
includes the reasonably anticipated needs
of the business; such as:
a. For working capital requirement;
b. Reserve for future expansion;
c. Reserve for employees retirement
benefit;
d. Investment in affiliates customers
business
and
other
related
enterprise; and
e. Earnings retained for sinking fund.
I N
T A X A T I O N
Limitations
a. The MCIT shall apply only to domestic and
resident foreign corporations subject to the
normal corporate income tax (income tax
rates under Sec 27[A] of the CTRP).
b. In the case of a domestic corporation whose
operations or activities are partly covered
by the regular income tax system and
partly covered under a special income tax
system, the MCIT shall apply on operations
covered by the regular corporate income tax
system.
c. In computing for the MCIT due from a
resident foreign corporation, only the gross
income from sources within the Philippines
shall be considered for such purpose.
When does a corporation become liable
under the MCIT?
MCIT is imposed beginning on the
fourth taxable year immediately following the
year in which such corporation commenced its
business. The taxable year in which the business
operations commenced shall be the year when
the corporation registers with the BIR.
Relief from MCIT
The Secretary of Finance is authorized
to suspend the imposition of the MCIT on any
corporation which suffers losses because of:
a. prolonged labor dispute;
b. force majeure; or
c. legitimate business reverses.
Tax Rate: 2% of gross income or taxable base
pertinent to a trading/merchandising concern
or a service entity
Tax Base: GROSS INCOME
(6) MINIMUM CORPORATE

INCOME TAX (MCIT)
Who are covered?
MCIT is imposed on domestic and resident
foreign corporations
a. Whenever such corporation has zero or
negative taxable income; or
b. Whenever the amount of MCIT is greater
than the normal income tax due from such
corporation determined under Section
27[A] of the CTRP.
A. Trading or Merchandising Concern

Gross Income Cost of Sales =
= gross sales/ Invoice cost of the
receipts less sales goods sold, plus import
returns,
duties,
freight
in
discounts
and transporting the goods
allowances
and to the place where the
cost of goods sold goods are actually sold,
including
insurance
while the goods are in
transit.
T A X A T I O N
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B.
Manufacturing Cost of Sales = All
Gross Income cost of production of
(Same)
finished goods, such as
raw materials used,
direct
labor
and
manufacturing
overhead, freight cost,
insurance
premiums
and
other
costs
incurred to bring the
raw materials to the
factory or warehouse.
C. Services
Gross Income
= Gross receipts Cost of Services = All
costs
and
less sales returns, direct
expenses
necessarily
allowances,
discounts
and incurred to provide the
services required by the
costs of services
customers and clients
including:
a. Salaries
and
employee benefits
of
personnel,
consultants
and
specialists directly
rendering
the
service;
b. Cost of facilities
directly utilized in
providing
the
service.
It shall not
include
interest
expense except for
banks
and
other
financial institutions.
I N
T A X A T I O N
(7) FRINGE BENEFIT TAX (FBT)

Definitions: Fringe Benefit Tax is a final
income tax on the employee which shall be
withheld and paid by the employer on a
quarterly basis.
Fringe benefit means any good,
service, or other benefit furnished or granted by
an employer, in cash or in kind, in addition to
basic salaries, to an individual employee (except
rank and file employees) such as, but not
limited to the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
The excess can be credited against the

normal income tax due in the next 3
immediately succeeding taxable years.
Any amount of the excess MCIT which
cannot be credited against the normal
income tax due in the next 3-year period
shall be forfeited.
Gross income excludes passive income

subject to final tax.
Other income and Extraordinary Income
are included since RR 9-98 provides that
gross sales include sales contributory to
income taxable under the regular corporate
tax.
Housing
Expense Account
Vehicle of any kind
Household personnel, such as maid, driver
and others
Interest on loan at less than market rate to
the extent of the difference between the
market rate and actual rate granted.
Membership fees, dues and other expenses
borne by the employer for the employee in
social and athletic clubs and similar
organizations
Expenses for foreign travel
Holiday and vacation expenses
Educational assistance to the employee or
his dependents; and
Life or health insurance and other non-lire
insurance premiums or similar amounts on
excess of what the law allows.
Persons liable
Carry Forward of the Excess Minimum

Tax
the EMPLOYER (as a withholding agent),

whether
individual,
professional
partnership or a corporation, regardless of
whether the corporation is taxable or not, or
the government and its instrumentalities
Any excess of MCIT over the normal income

tax can be carried forward on an annual
basis.
Tax rate: 32% (from January 1, 2000

onwards) of the Grossed up Monetary Value
(GMV) of fringe benefits.
T A X A T I O N
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In the case of aliens, the tax rates to be

applied on fringe benefit shall be as follows:
1. NRANEBT 25%
2. Aliens employed by regional HO 15 %
3. Aliens employed by OBU 15%
4. Aliens employed by Petroleum Service
5. Contractors and Subcontractors
3. Benefits given to the Rank and File

Employees, whether granted under a
collective bargaining agreement or
not; and
4. The De minims benefits benefits
which are relatively small in value
offered by the employer as a means
of promoting goodwill, contentment,
efficiency of Employees
GMV of the fringe benefit represents
The term Rank and File

Employees shall mean all employees
who are holding neither managerial nor
supervisory position as defined in the
Labor Code
1. the whole amount of income realized by the

employee which includes the net amount of
money or net monetary value of property
which has been received; plus
2. the amount of fringe benefit tax thereon
otherwise due from the employee but paid
by the employer for and in behalf of the
employee.
GMV of the fringe benefit shall be
determined by dividing the monetary value of
the fringe benefit by the Grossed up divisor.
The Grossed up divisor is the difference
between 100% and the applicable rates.
YEAR
1998
1999
2000
onwards
GROSSED UP
DIVISOR
66%
67%
68%
RATE
In the case of rank and file

employees, fringe benefits other than
those excluded from gross income under
the Tax Code and other special laws, are
taxable under the individual normal tax
rate.
Deductibility to the Taxable income of
the EMPLOYER
General Rule: The amount of taxable fringe
benefit and the fringe benefits tax shall
constitute allowable deductions from gross
income of the employer.
34% FWT
33% FWT
32% FWT
Exception:
Fringe Benefits not subject to FBT

A. Fringe benefits not considered as gross
income 1. if it is required or necessary to the
business of employer
2. if it is for the convenience or
advantage of employer
B. Fringe Benefit that is not taxable under
Sec. 32 (B) Exclusions from Gross
Income
C. Fringe benefits not taxable under Sec.
33 Fringe Benefit Tax:
1. Fringe Benefits which are authorized
and exempted under special laws,
such as the 13th month Pay and
Other Benefits with the ceiling of
P30, 000.
2. Contributions of the employer for
the benefit of the employee to
retirement,
insurance
and
hospitalization benefit plans;
If the basis for computation of the fringe

benefits tax is the depreciation value, the zonal
value or the fair market value, only the actual
fringe benefits tax paid shall constitute a
deductible expense for the employer. The value
of the fringe benefit shall not be deductible and
shall be presumed to have been tacked on or
actually claimed as depreciation expense by the
employer. Provided, however, that if the
aforesaid zonal value or fair market value of the
said property is greater than its cost subject to
depreciation, the excess amount shall be
allowed as a deduction from the employer's
gross income as fringe benefit expense. (Sec.
2.33[D], Rev. Reg. No. 3-98)
T A X A T I O N
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(8) OPTIONAL CORPORATE

INCOME TAX
Optional Rate: 15% of Gross income
Requisites
A. Authorized by the President (effective
January
1,
2000),
upon
recommendation of the Secretary of
Finance.
B. Conditions precedent to grant of
Presidents authority
1. A tax effort ratio of 20% of GNP;
2. A ratio of 40% of income tax to total
tax revenue;
3. A VAT tax effort of 4% of GNP
4. A 0.9% ratio of Consolidated Public
Sector Financial Position to GNP.
C. Option available only to corporations
with the following ratio:
Cost of sales
Gross sales or receipts
from all sources
I N
T A X A T I O N
on the gross selling price or the fair market

value at the time of sale, whichever is
higher, regardless of gain or loss
2. Shares of stock of Domestic Corporation not
traded thru a local exchange taxed at the
rate of 5% for net capital gains not over
P100T, and 10% in excess of P100T.
Capital Gains and Losses
1. Ordinary assets
a. Stock in trade of the taxpayer or
other properties of a kind which
would properly be included in the
inventory of the taxpayer;
b. Property held by the taxpayer
primarily for sale to customers in the
ordinary course of business;
c. Property used in trade or business
and subject to depreciation; and
d. Real property used in trade or
business.
2. Capital Assets include all property
held by the taxpayer whether or not
connected in trade or business but not
including those enumerated above (#1)
as ordinary assets.
=55%
D. Once elected, option is irrevocable for 3

consecutive years
INCOME TAX INCIDENCE
ON
SALES
OR
EXCHANGES
PROPERTY
Capital Gain
The gain derived
from the sale or
exchange of capital
assets.
OF
Sale on Exchange of Ordinary Assets

General rules of income taxation apply
to both as to the gain and as to the loss.
Requisites for recognition of Capital

Gain/Loss
1.
Transaction Resulting in Taxable Gains

but Non-Recognition of Losses
a. Sale or exchange between related parties;
b. Wash sales by non-dealers of securities and
when not subject to the stock transfer tax;
c. Exchanges not solely in kind in merger and
consolidation; and
d. Sales or exchanges that are not at arms
length.
Sale or Exchange of Real Property, and
Shares
of
Stocks
of
Domestic
Corporation Held as Capital Assets
Subject to Capital Gains Tax
Capital Loss
The loss incurred
from the sale or
exchange of capital
assets.
2.
The transaction must involve property

classified as capital asset; and
The transaction must be a sale or
exchange or one considered as
equivalent to a sale or exchange.
Net Capital Gain

The excess of the
gains
from
sales/exchanges of
capital assets over
the gains from such
sales/exchanges.
Net Capital Loss

The excess of the
losses from sales or
exchanges of capital
assets over the
gains from such
sales or exchanges.
1. On real property each independent

transaction is subject to the final tax of 6%
T A X A T I O N
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Rules on the recognition of capital gains

or losses
Individual
Corporation
Non-deductibility of Net Capital
losses
Capital losses shall be deducted only
to the extent of the capital gains; hence,
the net capital loss is not deductible.
Ordinary losses are deductible from
capital gains but net capital loss cannot be
deducted from ordinary gain or income;
Holding
Period
Capital
gains
losses
are
The percentages and
of gain or loss to be recognized to the
taken into account extent of 100%.
shall be the ff.:
(There
is
no
a. 100% if the holding period)
capital assets has
been held for 12
mos. or less; and
b. 50% if the capital
asset has been held
for more than 12
mos.
Net Capital Loss Carry-Over
The net capital
There is a net
capital loss carry loss carry-over is
over, i.e., a net not applicable
capital
loss
sustained
in
a
taxable year in an
amount
not
in
excess of the net
income
(before
exemptions)
for
such year may be
deducted
as
a
short-term capital
loss (at 100%) from
the net capital gains
of the next or
succeeding taxable
year but not beyond
such period.
I N
T A X A T I O N
a. Between the corporations which are

parties to the merger or consolidation
(property for stocks);
b. Between a stockholder of a corporation
party to a merger or consolidation and
the other party corporation (stock for
stock);
c. Between a security holder of a
corporation party to a merger or
consolidation and the other party
corporation (securities for securities)
2. Exchange of property for stocks resulting in
acquisition of corporate control by a person,
alone or together with others not exceeding
four.
Control means ownership of stocks in
a corporation amounting to at least 51% of
the total voting power of all classes of stocks
entitled to vote.
FILING
OF
TAX
RETURN
PAYMENT OF THE TAX
AND
Tax Return A report prepared by the

taxpayer showing to internal revenue officers an
enumeration of taxable amounts and
description of taxable transactions, allowable
deductions, amounts subject to tax and the tax
payable by the taxpayer to the government
correct (Self-assessment). There is pain of
perjury if the return is not.
Persons Required to File Income Tax
Return
A. Individual
Tax Exempt Exchanges

Sales or exchanges resulting in nonrecognition of gains or losses:
1. Exchange solely in kind in legitimate
mergers and consolidation; includes:
1. Resident citizen;
2. Non-resident citizen on income from
within the Phil.;
3. Resident alien on income from within
the Phil.;
4. NRAETB on income from within the
Phil.
5. An individual (citizens / aliens) engaged
in business or practice of a profession
within the Phil. regardless of the amount
of gross income;
6. Individual
deriving
compensation
income concurrently from two or more
employers at any time during the
taxable year;
7. Individual whose pure compensation
income derived from sources within the
Phil. exceeds P60, 000.
T A X A T I O N
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B. Taxable Estate and Trust

C. General Professional Partnership
D. Corporation
I N
T A X A T I O N
equal to the tax withheld) resulting to

collectible or refundable return.
Employees
whose
monthly
gross
compensation income does not exceed P5,
000 or the statutory minimum wage,
whichever is higher, and opted for nonwithholding of tax on said income.
Individuals deriving other non-business,
non-profession-related
income
in
addition to compensation income not
otherwise subject to final tax.
Individuals
receiving
purely
compensation income from a single
employer although the income tax of
which has been correctly withheld, but
whose spouse falls under 1 to 4 above.
Non-resident aliens engaged in trade or
business in the Philippines deriving
purely
compensation
income,
or
compensation income and other nonbusiness, non-profession-related income.
3.
1. Not exempt from income tax;

2. Exempt from income tax under Sec. 30
of NIRC but has not shown proof of
exemption.
4.
Individuals Exempt From Filing Income

Tax Return
5.
1. Individual whose gross income does not
exceed total personal and additional
exemptions;
2. Individual
with
respect
to
pure
compensation income derived from sources
within the Philippines, the income tax on
which has been correctly withheld;
3. Individual whose sole income has been
subjected to final withholding income tax;
4. Individual who is exempt from income tax.
Substituted filing of Income tax Returns
by
Employees
Receiving
Purely
Compensation Income. [Section 4, RR
3-2002]
Individuals
receiving
purely
compensation
income,
regardless
of
amount, from only one employer, the
income tax of which has been withheld
correctly by the said employer (tax due equals
tax withheld), shall not be required to file
an income tax return.
In lieu of the ITR, the Annual
Information Return of Income Taxes Withheld
on Compensation and Final Withholding Taxes
filed by their respective employers, duly
stamped received by the BIR, shall
tantamount to the substituted filing of income
tax returns by said employees.
6.
Note: Non-filing of ITR, for employees who

are qualified for the substituted filing shall be
OPTIONAL for the taxable year 2001, the
returns for which shall be filed on or before
April 15, 2002. Thereafter, substituted filing
where applicable shall be MANDATORY. [Sec 5
RR 3-2002
INCOME TAX vs. TRANSFER TAXES
TRANSFER TAX
INCOME TAX
Tax on transfer of Tax on income
property.
Rates are lower
Rates are higher
--5% to 20% -- 5% to 32%
estate tax
-- 2% to 15 % donors tax
Lesser exemptions
More exemptions
Individuals not qualified for substituted

filing (still required to file)
1.
2.
Individuals deriving compensation from 2

or more employers concurrently or
successively during the taxable year.
Employees
deriving
compensation
income, regardless of the amount,
whether from a single or several
employers during the calendar year, the
income tax of which has not been
withheld correctly (i.e. tax due is not
T A X A T I O N
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TRANSFER TAXES
ESTATE TAX:
4. it is an excise tax and its object is to the

shifting of economic benefits and enjoyment
of property from the dead to the living.
Tax which the state exacts where the

property left by the decedent, considered as
a unit, departs from the dead on its way to
the living
Reasons justifying the imposition of

estate tax
It is also the tax on the right to transmit

property at death and on certain transfers
which are made by law equivalent of
testamentary disposition.
Accrues as of the death of the decedent and

the accrual of the tax is distinct from the
obligation to pay the same.
The statute in force at the time of death
governs the estate taxation.
ESTATE TAX FORMULA
Gross Estate (Sec. 85)
Less: Deductions (Sec. 86)
Net share of the surviving spouse
Net taxable Estate
X Tax rate (Sec.84)
Estate Tax Due
Less: Tax credit, if any (Sec.86 [E] or 110 [B]
Estate Tax Due
1. Benefit-Received Theory -considers the

service rendered by the government in the
distribution of the estate of the decedent,
either by law or in accordance with his
wishes.
For the performance of these
services and other benefits that accrue to
the estate and the heirs, the State collects
the tax.
2. Privilege Theory/State Partnership
Theory inheritance is not a right but a
privilege granted by the state, and large
estate have been acquired only with the
protection of the State. Consequently, the
State as a passive and silent partner in the
accumulation of property has the right to
collect the share which is properly due to it.
3. Ability to Pay Theory receipt of
inheritance which is in the nature of an
unearned wealth or windfall, place assets
into the hands of the heirs and beneficiaries
hereby creating an ability to pay the tax and
thus contributes to government income.
Rate: first 200,000 pesos exempt

Over 200,000 graduated rate of 5%20%
THE LAW THAT GOVERNS THE
IMPOSITION OF ESTATE TAX:
The statute in force at the time of death of
the decedent shall govern estate taxation
Nature of Estate Tax:
1. tax on the right to transfer property at death
and on certain transfers which are made by
law equivalent to testamentary dispositions
and is measured by the value of the
property;
2. it is imposed on the basis of the net estate
considered as a unit. The first Php200,000
of the net estate is exempt
3. estate tax is not a property tax but rather an
excise tax.
4. Redistribution of Wealth Theory - the

receipt of inheritance is a contributing
factor to the inequalities in wealth and
incomes.
The imposition of death tax
reduces the property received by the
successor, thus helping bring about a more
equitable distribution of wealth in society.
The tax base is the value of the property and
the progressive scheme of taxation is
precisely motivated by the desire to mitigate
the evils of inheritance in the present form.
I. GROSS ESTATE (GE):
A. Resident alien and Filipino decedent:

All properties, real or personal,
tangible or intangible, wherever
situated.
B. Non-resident alien shall:
Only properties situated
Philippines
in
the
T A X A T I O N
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With respect to intangible personal

property, its inclusion is subject to the
rule of reciprocity
No tax shall be collected in respect of
intangible personal property:
a. if the decedent at the time of his death
was a citizen and resident of a
foreign country which at the time of
his death did not impose a transfer
tax in respect of intangible personal
property
of
citizens
of
the
Philippines not residing in that
foreign country, OR
b. if the laws of the foreign country of
which the decedent was a citizen and
resident at the time of is death
allows a similar exemption from
transfer taxes in respect of intangible
personal property owned by Filipino
citizens not residing in that foreign
country.
Intangible personal property
situs in the Philippines:
I N
T A X A T I O N
4. Transfer
under
General
Power
Appointment
5. Proceeds of life insurance
6. Transfer for Insufficient Consideration
7. Prior Interests
1. DECEDENTS INTEREST
To the extent of the interest in property
of the decedent at the time of his death.
2.TRANSFER IN CONTEMPALTION OF
DEATH
it is the thought of death as the
controlling motive which induces the
disposition of the property for the
purpose of avoiding the tax.
Includes:
1. transfer by trust or otherwise, in
contemplation of, or intended to take
effect in possession or enjoyment at or
after his death; or
having
2. transfer by trust or otherwise, with

retention or reservation of
a. the possession or enjoyment of
or the right to the income from
the property, or
b. the right, either alone or in
conjunction with any person, to
designate the person who shall
possess or enjoy the property or
the income there from.
a. Franchise which must be exercised in the

Philippines;
b.
Shares, obligations, or bonds issued by

any corporation or sociedad anonima
organized or constituted in the Philippines
in accordance with its laws;
c. Shares, obligations, or bonds issued by any

foreign corporation, 85% of the business is
located in the Philippines;
d.
Shares, obligations, or bonds issued by

any foreign corporation if such shares,
obligations or bonds have acquired business
situs (i.e., they are used in furtherance of its
business in the Philippines. by any foreign
corporation) in the Philippines.
e. Shares or rights in any partnership,

business or industry established within the
Philippines.
INCLUSIONS IN THE GROSS ESTATE
1. Decedents Interests
2. Transfer in Contemplation of Death
3. Revocable Transfer
of
Exception: in case of bona fide sale for

an adequate and full consideration in
money or money's worth
Amount included in the GE: interest
therein
Circumstances taken into account
1. Age and state of health of the decedent at
the time of gift, especially where he was
aware of a serious illness;
2. Length of time between the gift and the date
of death;
3. Concurrent making of a will or making a will
within a short time after the transfer.
T A X A T I O N
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Exception: in case of bona fide sale for

an adequate and full consideration in
money and moneys worth
3. REVOCABLE TRANSFER
1. with reserved power to alter, amend,
revoke or terminate - transfer, by trust
or otherwise, where the enjoyment
thereof was subject to any change
through the exercise of a power (in
whatever capacity exercisable) by the
decedent alone or by the decedent in
conjunction with any other person
(without regard to when or from what
source the decedent acquired such
power), to alter, amend, revoke or
terminate;
2. or where any such power is
relinquished in contemplation of the
decedent's death.
Except: in case of bona fide sale for an
adequate and full consideration in
money or moneys worth
therein
4.TARNSFER UNDER GENERAL POWER
OF APPOINMENT
A power of appointment is the right to
designate the person or persons who will
succeed to the property of the prior decedent.
It may be exercised by the decedent:
(a) by will; or
(b) by deed executed in contemplation
of, or intended to take effect in
possession or enjoyment at, or after
his death;
(c) by deed under which he has retained
for his life or any period not
ascertainable without reference to
his death or for any period which
does not in fact end before his death:
(1) the possession or enjoyment of, or the
right to the income from, the property; or
(2) the right, either alone or in conjunction
with any person, to designate the persons
who shall possess or enjoy the property or
the income there from; except in case of a
bona fide sale for an adequate and full
consideration in money or money's worth.

therein
Kinds:
1. General power of appointment when
it authorizes the donee to appoint any
person he pleases, including himself, his
spouse, his estate, his executor or
administrator, and his creditor thus having
full dominion over the property as though
he owned it.
2. Special power of appointment when
the donee can appoint only among a
restricted or designated class or persons
other than himself.
5.PROCEEDS OF LIFE INSURANCE
Beneficiary is the estate of the deceased, his
executor or administrator, irrespective of
whether or not the insured retained the
power of revocation; or
Beneficiary is other than the decedents
estate, executor or administration, when
designation of beneficiary is revocable, that
is, when the designation of the beneficiary is
not expressly made irrevocable.
The proceeds of life insurance are NOT
taxable in the following cases:
1. Proceeds of a group insurance policy taken
out by the company for its employees;
2. Accident insurance proceeds;
3. Amount receivable by any beneficiary
irrevocably designated in the policy of
insurance by the insured;
4. Proceeds of insurance policies issued by the
GSIS to the government official and
employees;
5. Benefits accruing under the SSS law;
6. Proceeds of life insurance payable to heirs of
deceased members of military personnel
T A X A T I O N
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6. TRANSFER FOR INSUFFICIENT

CONSIDERATION
When the decedents property is
transferred
a. in contemplation of death,
b. revocable transfers, or
c. passed under a general power of
appointment for a consideration in
money or money's worth
Exception: bona fide sale
Amount to be included in the GE: the
excess of the fair market value (FMV), at
the time of death, of the property
otherwise to be included on account of
such transaction, over the value of the
consideration received therefore by the
decedent.
FMV(time of death) less value received
7.PRIOR INTEREST
I N
T A X A T I O N
II. DEDUCTIONS:
A. For resident aliens and citizens:
1. expenses, losses, indebtedness, taxes,
etc. (E-L-I-T)
a.
funeral expenses;
b.
judicial expenses;
c.
claims against estate;
d.
claims against insolvent
person;
e.
unpaid mortgages;
f.
taxes;
g.
losses
2. transfers for public use;
3. vanishing deduction;
4. family home;
5. standard deduction of P1 million;
6. medical expenses;
7. amounts received by heirs under RA
4917 (Retirement Benefits)
8. Share of surviving spouse in conjugal or
community property.
All transfers, trusts, estates, interests,

rights, powers and relinquishment of powers
made, created, arising, existing, exercised or
relinquished before or after the effectivity of the
Tax Code.
B. For non-resident alien-decedent:

1. expenses, losses, indebtedness, taxes,
etc. (E-L-I-T)
2. transfers for public use (T.P.U);
3. vanishing deduction;
4. Share of surviving spouse in conjugal or
community property.
EXEMPT Acquisition and transmission:

(Sec. 87)
Funeral Expenses:
1. the merger of usufruct of the owner of the

naked title;
Actual funeral expenses or 5% of the gross

estate; or P200, 000, WHICHEVER IS
LOWEST
2. the transmission or delivery of the

inheritance or legacy of the fiduciary heir or
legatee to the fideicommissary;
Must be duly supported by receipts or

other evidence to show that they were
actually incurred.
3. the transmission from the first heir, legatee

or donee in favor of another beneficiary, in
accordance with the will of the predecessor;
Not confined to its ordinary or usual

meaning. They include:
4. all bequests, devises, legacies, or transfers to

social welfare, cultural and charitable
institutions no part of the net income of
which inures to the benefit of any
individual; provided that not more that 30%
of said bequests, legacies or transfers shall
be used by such institutions for
administration purposes.
a. mourning apparel of the surviving spouse

and unmarried minor children of the
deceases bought and used on the occasion of
the burial;
b. expenses for the deceaseds wake, including
food and drinks;
c. publication charges for death notices;
d. telecommunication expenses incurred in
informing relatives of the deceased;
e. cost of burial plot, tombstones, monument
or mausoleum but not their upkeep. In case
T A X A T I O N
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the deceased own a family estate or several

burial lots, only the value corresponding to
the plot where he is buried is deductible;
f. interment and/or cremation fees and
charges; and
g. all other expenses incurred for the
performance of the rites and ceremonies
incident to interment.
Expenses incurred after the interment, such
as for prayers, masses, entertainment, or
the like are not deductible.
Any portion of the funeral and burial
expenses borne or defrayed by relatives and
friends of the deceased are not deductible.
Judicial Expenses:
Those incurred during the settlement of the
estate but not beyond the last day
prescribed by law, or the extension thereof,
for the filing of the estate tax return (6
months after death)
Those incurred in the:
a. inventory taking of assets comprising
the GROSS ESTATE,
b. their administration,
c. the payment of debts of the estate
d. the distribution of the estate among the
heirs.
Any unpaid amount should be supported by
a sworn statement of account issued and
signed by the creditor.
I N
T A X A T I O N
deceased in his lifetime and could have been

reduced to simple money judgments.
1. the liability represents a personal obligation
of the deceased existing at the time of his
death except unpaid obligations incurred
incident to his death;
2. it was contracted in good faith and for
adequate and full consideration in money or
moneys worth;
3. the claim must be valid in law and
enforceable in court;
4. the indebtedness must not have been
condoned by the creditor or the action to
collect must not have been prescribed.
5. the debt instrument must be notarized;
6. if the loan was contracted within three (3)
years before the death of the decedent, the
administrator or executor shall submit a
statement under oath showing the
disposition of the proceeds of the loan.
Claims against insolvent persons:
The amount of said claims has been initially
included as part of the GE;
The incapacity of the debtors to pay their
obligations is proven, not merely alleged.
Unpaid mortgages:
It may include the following

1.
2.
3.
4.
5.
6.
Fees of executor or administrator

Attorneys fees
Court Fees
Appraisers fee
Clerk hire
Costs of preserving and distributing the
estate
7. Costs of storing or maintaining property of
the estate; and
8. Brokerage fees for selling property of the
estate.
Claims against the estate:
Debts or demands of a pecuniary nature
which could have been enforced against the
1. The value of the property mortgaged to the

extent of the decedents interest therein,
undiminished by such mortgage or
indebtedness, is included in the GE;
2. The indebtedness must have been
contracted bona fide and for an adequate
and full consideration in money or moneys
worth;
3. Verification must be made as to who was the
beneficiary of the loan proceeds.
4. If found to be merely an accommodation
loan, the value of the unpaid loan must be
included as a receivable of the estate.
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5. If there is a legal impediment to recognize

the same as receivable, said unpaid
mortgage shall not be allowed as a
deduction.
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4. Identity of the property - the property

must be identified as the one received from
the prior decedent, or something acquired
in exchange therefore; and
Taxes:
5. No previous vanishing deduction on
the property was allowed to the estate of the
prior decedent.
Accrued as of the death of the decedent

Unpaid as of the time of death
Limitations as to amount of deduction

allowable:
The following are not deductible:

1. income tax on income received after the
death of the decedent;
2. property taxes not accrued after death;
3. estate tax.
Losses:

1. arising from fire, storm, shipwreck or other
casualty, robbery, theft or embezzlement;
2. not compensated by insurance or otherwise;
3. not claimed as deduction in an income tax
return of the taxable estate;
4. incurred during the settlement of the estate
5. incurred before the last day for the payment
of the estate tax (6 months after the
decedents death)
Vanishing
deductions/Property
Previously taxed: (VD/PPT)
Operates to ease the harshness of successive
taxation of the same property within a
relatively short period of time (up to 5
years) occasioned by the untimely death of
the transferee
a. Value of property limited by the value

of the property previously taxed as finally
determined for the purpose of the prior
transfer tax or the value of the property in
the present decedents GE, WHICHEVER IS
LOWER.
b. Deduction for mortgage or other lien
the initial value in #1 above shall be
reduced by the total amount paid, if any, by
the present decedent on any mortgage or
other lien on the property
c. Deduction for E-L-I-T and T.P.U the
value as reduced in #2 above shall be
further reduced by an amount which bears
the ratio to the amounts allowed as
deductions for E-L-I-T and T.P.U as the
amount otherwise deductible for property
previously taxed bears to the value of the
decedents GE.
d. Percentage of deductions the
vanishing deduction shall be the value in #3
multiplied by the following percentage of
deduction:
100% - if the 1st transfer is within 1 year
prior to the death of the present
decedent;
80% - more than 1 year but not more
than 2 years;
60% - more than 2 years but not more
than 3 years;
than 4 years;
than 5 years.
REQUISITES (D-I-P-I-N)
1. Death - the present decedent died within
five years from transfer of the property from
a prior decedent;
2. Inclusion of the property - the property
formed part of the GE located in the
Philippines of the prior decedent, or of the
taxable gift of the donor within 5 years prior
to the present decedents death;
3. Previous taxation of the property - the
estate tax or donors tax on the gift must
have been finally determined and paid;
In outline form, the

vanishing deduction is:
computation
T A X A T I O N
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1. Value taken (value of property at

the
time of the first transfer or at the
time of the present decedents
death, whichever is lower)
Less: Mortgage debt paid, if any
Equals: Initial Basis
I N
T A X A T I O N
2. said fact must be certified to by the

barangay captain of the locality where it is
located;
3. the total value of the family home must be
included as part of the GE of the decedent;
and
2. Initial basis x (ELIT+TPU) = 2nd deduction

4. the amount deductible is the current FMV
but not to exceed 1 million pesos.
Gross Estate
3. Initial Basis
Standard Deduction:
Less: 2nd deduction

Final Basis
X Percentage
Vanishing deduction
1 million pesos
Without need of substantiation
Medical Expenses:
Transfer for Public Use (TPU):

Requisites
Requisites
1. the disposition is in a last will and
testament;
2. to take effect after death;
3. in favor of the government of the
Philippines or any political subdivision
thereof; and
4. for exclusive public purpose.
This should also include bequests, devices, or
transfers to social welfare, cultural and
charitable institutions.
Family Home:
The dwelling house including the land on
which it is situated, where the husband and
wife, or head of the family, and members of
their family reside, as certified to by the
Barangay Captain of the locality.
1. incurred within one year prior to his

death;
2. substantiated with receipts; and
3. maximum of Php500,000
Approval
of
the
court
where
a
probate/intestate proceeding is pending is
not a mandatory requirement in the
collection of estate taxes. On the contrary,
the probate/intestate court is prohibited
from delivering any distributive share to any
party unless there is certification from the
Commissioner that the estate taxes are
already paid.
AMOUNT RECEIVED BY HEIRS UNDER
REPUBLIC ACT NO. 4917
Characterized by permanency, that is, the

place to which, whenever absent for
business or pleasure, one still intends to
return (Domicile).
One person may constitute only one family
home
Requisites
1. said family home must be the actual
residential home of the decedent and his
family at the time of his death;
Any amount received by the heirs from the

decedents employer as a consequence of the
death of the decedent employee in
accordance with R.A. 4917 is allowed as a
deduction provided that the amount of the
separation benefit is included as part of the
gross estate of the decedent.
NET SHARE OF THE SURVIVING

SPOUSE IN THE CONJUGAL
PARTNERSHIP OR COMMUNITY
PROPERTY.
After deducting the allowable
appertaining to the conjugal or
properties included in the gross
share of the surviving spouse must
deductions
community
estate, the
be removed
T A X A T I O N
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to ensure that only the decedents interest in the

estate is taxed.
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SETTLEMENT OF THE ESTATE TAX
2. The itemized deductions from the gross

estate;
3. the amount of tax due, whether paid or still
due and outstanding.
NOTICE OF DEATH
Where to file:
a. resident decedent:
accredited agent bank, or Revenue
District Officer, Collection Officer, or
duly authorized Treasurer of the city or
municipality in which the decedent was
domiciled at the time of his death
or if there be no legal residence in the
Philippines, with the Office of the
Commissioner.
filed in all cases where the gross value of the

estate exceeds twenty thousand pesos
(P20,000),
the executor, administrator or any of the
legal heirs, as the case may be, within two
(2) months after the decedent's death, or
within a like period after qualifying as such
executor or administrator, shall give a
written notice thereof to the Commissioner.
b. non-resident decedent:
the Revenue District Office (RDO)
where the executor or administrator
is registered
ESTATE TAX RETURN

filed within six (6) months from the
decedent's death.
if not registered, with the RDO

having jurisdiction over the executor or
administrators legal residence
Extension of time to file: The Commissioner

or any Revenue Officer shall have authority
to grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for
filing the return.
An estate tax return is required to be
filed:
1. When the estate is subject to estate tax;
2. When the estate is not subject to estate tax
but the gross estate exceeds P200,000; or
3. regardless of the amount of the gross estate,
where the gross estate consists of registered
or registrable property such as motor
vehicle or shares of stock or other similar
property for which clearance from the BIR
is required as a condition precedent for the
transfer of ownership thereof in the name of
the transferee.
When the gross estate exceeds P2, 000,
000 the estate tax return shall be accompanied
by a statement which is CERTIFIED by an
INDEPENDENT
CERTIFIED
PUBLIC
ACCOUNTANT stating:
1. The itemized assets of the decedent with its
corresponding gross value at the time of his
death, or in the case of a non-resident, not
citizen of the Philippines, that part of his
gross estate situated in the Philippines;
if there is no executor or
administrator, with the Office of the
Commissioner
PAYMENT OF THE ESTATE TAX
GEN RULE: at the time the return is filed.
EXCEPT: When the Commissioner finds that
the payment on the due date of the estate tax or
of any part thereof would impose undue
hardship upon the estate or any of the heirs he
may extend the time for payment of such tax or
any part thereof
not to exceed five (5) years, in case the
estate is settled through the courts,
or two (2) years in case the estate is
settled extrajudicially.
Note: The CIR shall deny the application for
extension where the request for extension is by
reason of:
negligence,
intentional disregard of rules
and regulations,
or fraud on the part of the
taxpayer,
T A X A T I O N
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Liability for payment

DONORS TAX
1. Primarily liable: executor or administrator
before distributing the net estate to the heirs
Not a property tax, but is a tax

imposed on the transfer of property
by way of gift inter vivos
2. Subsidiary liable: the heir or beneficiary to

the extent of his share in the inheritance
Does not apply unless and until

there is a completed gift
3. The liability of 2 or more executors of

administrators shall be severally.
The transfer is perfected from the

moment the donor knows of the
acceptance of the donee
Tax credit for estate taxes paid to a

foreign country:
It is completed by the delivery of the

donated property, either actual or
constructive
General: the estate tax shall be credited

with the amounts of any estate tax imposed
by the foreign country
Renunciation by the surviving

spouse of his/her share in the
conjugal partnership or absolute
community after the dissolution of
the marriage is subject to donors tax
Limitations
a. For estate taxes paid to one foreign
country
The amount of the credit in respect
to the tax paid to any country shall
not exceed the same proportion of
the tax against which such credit is
taken, which the decedents net
estate situated within such country
taxable under the NIRC bears his
entire net estate.
General renunciation by an heir,

including the surviving spouse, of
his/her share in the hereditary estate
is not subject to tax, unless
specifically and categorically done in
favor of identified heir/s to the
exclusion or disadvantage of the
other co-heirs in the hereditary
estate.
Net estate,
=Tax
Foreign country x Philippine.
credit
Entire net estate state tax limit
DONATION
An act of liberality whereby a person
disposed gratuitously of a thing or right
in favor of another who accepts it.
b. For estate taxes paid to two or more

foreign countries
Requisites (C-I-D-A)
1. capacity of the donor to make
donation;
2. donative intent or intent to make a gift
on the part of the donor;
3. delivery,
whether
actual
or
constructive; and
4. acceptance of the gift by the donee
The total amount of the credit shall

not exceed the same proportion of
the tax against which such credit is
taken, which the decedents net
estate
situated
outside
the
Philippines taxable under the NIRC
bears to his entire net estate.
Net estate outside
the Philippines x Phil. =Tax credit
Entire net estate estate tax limit
TAX RATE:
General: 2-15%; Php100,000 is exempt
Special rate: 30% - in case of donation to
a stranger
T A X A T I O N
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STRANGER
the consideration received shall be

deemed a gift.
A person who is not a:

1. brother, sister (whether by whole or
half blood), spouse, ancestor, and
lineal descendant; or
2. a relative by consanguinity in the
collateral within the 4th civil degree
A legally adopted child is entitled to
all the rights and obligations
provided by law to legitimate
children, and therefore, donation to
him shall not be considered as
donation made to stranger.
Exemptions:
1. Gifts made by a resident:
a. dowries
gifts on account of marriage
before its celebration or
within one year thereafter by parents to
each of their legitimate, illegitimate or
adopted children
to the extent of the first Php10,000
b. gifts made for the use of the national
government or any entity created by any
of its agencies which is not conducted
for profit, or to any political subdivision
of said government;
Donation made between business organizations

and those made between an individual and a
business organization shall be considered as
donation made to a stranger.
c. gifts in favor of educational, charitable,

religious, cultural or social welfare
corporation, institution, foundations,
trust or philanthropic organization,
research institutions or organizations,
accredited NGO, provided that not
more than 30% of said gift shall be used
by such donee for administrative
purposes.
VALUATION OF GIFTS OF PROPERTY

The fair market value of the property
given at the time of the gift shall be the
value of the gift.
INTANGIBLE PERSONAL PROPERTIES
WITH SITUS IN THE PHIL.
2. Gifts made by a non-resident alien

only gifts mentioned in letters (b) and
(c) are exempt
Same in estate tax subject to the

reciprocity rule.
Transfers subject to donors tax:
Tax Credit:
1. Upon the transfer by any person, resident or

nonresident, of the property by gift.
Whether the transfer is in trust or
otherwise,
General: the donors tax imposed by the

Tax Code upon a donor who was a citizen or
a resident at the time of donation shall be
credited with the amount of any donors
taxes imposed by the foreign country
Limitations
Whether the gift is direct or indirect,
Whether the property is real

personal, tangible or intangible.
or
2. Transfer for insufficient consideration

Where property is transferred for less
than an adequate and full consideration
Exception: transfer of real property
classified as capital assets subjected to
the capital gains tax
Amount included in the net gifts: the
excess of the FMV of the property over
a. For donors tax paid to one foreign

country
The amount of the credit in respect to
the tax paid to any country shall not
exceed the same proportion of the tax
against which such credit is taken, which
the net gifts situated within such
country taxable under the NIRC bears
his entire net gift.
T A X A T I O N
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Net gifts in a
foreign country x Phil. =Tax credit
Entire net gifts Donors tax limit
b. For donors taxes paid to two or more
foreign countries
The total amount to the credit shall not
exceed the same proportion of the tax
against which such credit is taken, which
the net gifts situated outside the
Philippines taxable under the NIRC
bears to this entire net gifts.
I N
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The name of the donee;

Relationship of the donor to the donee; and
Such further information as may be
required by rules and regulations made
pursuant to law.
The tax is paid at the time the return is filed
within said period.
Filed and paid:
Net gifts outside

the Philippines x Phil. =Tax credit
Entire net gifts Donors tax limit
Donors Tax Return:
To be filed within thirty (30) days after the
gift is made.
The return shall be under oath in duplicate
setting forth:
Each gift made during the calendar year
which is to be included in computing net
gifts;
The deductions claimed and allowable;
Any previous net gifts made during the
same calendar year;
a. Resident Donor
To an accredited agent bank, RDO,
revenue Collection Officer or duly
authorized treasurer of the city or
municipality where the donor is
domiciled at the time the transfer, or
if there can be no legal residence in the
Philippines, with the Commissioner.
b. Non-resident donor
Philippine Embassy or Consulate in the
country where he is domiciled at the
time of the transfer, or
Directly with the Office of the
Commissioner.
T A X A T I O N
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T A X A T I O N
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T A X A T I O N
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T A X A T I O N
A percentage tax imposed at every stage of

the distribution process on the sale, barter,
exchange (including transactions deemed by
law as a sale), or lease of goods, properties,
or services in the course of trade or
business, or on the importation of goods.
gross receipts realized from the sale of

services
d) An ad valorem tax because it is based on the
gross selling price or gross value in money,
or gross receipts derived from the
transaction
e) A tax on the value added by every seller as
the goods, properties or services pass along
the distribution chain, unless the seller is
exempt.
Nature of VAT
Purposes of VAT system:
a) An indirect tax; hence, amount of the tax

may be shifted or passed on to the buyer
b) A privilege tax; hence, the tax is imposed
not on the goods, properties or services as
such but on the sale, barter, exchange or
lease of goods or properties, or the sale or
performance of services for a fee,
remuneration, etc
c) A uniform tax computed at the rate of 0% or
12% of the gross selling price of goods or of
a. realizing the system of taxing goods and
BUSINESS TAXES
VALUE ADDED TAX (VAT)
services;
b. simplifying tax administration; and
c. making the tax system more equitable, to
enable the country to attain economic

recovery.
T A X A T I O N
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Transactions subject to 10% VAT: (SITS)
Philippines by nonresident foreign

persons shall be considered as being
rendered in the course of trade or
business.
every sale, barter or exchange,

leases, goods or properties made in
the course of business or trade;
Businesses where the aggregate sales

or receipts do not exceed Php1, 500,
000 during any 12-month period shall
be
considered
principally
for
subsistence or livelihood and not in
the course of trade or business, and
shall be exempt from VAT. They shall,
however, be subject to percentage tax
equivalent to 3% of their gross
quarterly sales or receipts, provided
that the business is not VATregistered.
importation of goods, whether or

not in the ordinary course of
business; and
transactions deemed sale for VAT
purposes:
Transfer, use or consumption not in
the course of business of goods or
properties originally intended for sale
or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as
share in the profit of the VATregistered persons; or
(b) Creditors in payment of debt;
Transactions subject to 0% VAT:

Zero-rated sales:
a. EXPORT SALES
(3)
Consignment of goods if actual
sale is not made within sixty (60) days
following the date such goods were
consigned; and
(4)
Retirement from or cessation of
business, with respect to inventories of
taxable goods existing as of such
retirement or cessation
every sale of service made in the
course of trade or business other than
services rendered by persons subject
to other percentage taxes.
1. in the ordinary course of trade
or business means the regular
conduct or pursuit of a commercial
or an economic activity, including
transactions incidental thereto, by
any person regardless of whether or
not the person engaged therein is a
non-stock,
nonprofit
private
organization (irrespective of the
disposition of its net income and
whether or not it sells exclusively to
members or their guests), or
government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined
in this Code rendered in the
1. Direct importation - the sale and actual

shipment of goods from the Philippines
to a foreign country, paid for in
acceptable foreign currency or its
equivalent in goods or services and
accounted for in accordance with BSP
rules;
2. Indirect importation - the sale of raw
materials to a non-resident buyer for
delivery to a resident local exportoriented enterprise to be used in
manufacturing, processing, packing or
repacking in the Philippines of the said
buyers goods, paid for in acceptable
foreign currency and duly accounted
for in accordance with BSP rules;
3. Sale of raw materials or packaging
materials (RM/PM) to an exportoriented enterprise whose export sales
exceed 70% of the total annual
production;
4. Sale of gold to the BSP;
5. Those considered export sales under
the Investment Code;
6. The sale of goods, supplies,
equipment and fuel (GSEF) to
persons engaged in international
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rules
shipping or international transport

operations.
c. Services rendered to exempt entities

under special laws and international
agreements to which the Philippines is a
signatory;
Note: Importations of GSEF by such

persons are VAT-exempt.
b.
FOREIGN
CURRENCY
DENOMINATED SALES:
Sales to whom: non-resident
d. Services rendered to persons engaged

exclusively in international shipping/
international air transport operations;
Of
what:
goods
assembled
manufactured in the Philippines.
e. Those performed for an enterprise

whose export sales exceed 70% of the
annual production, by subcontractors
and/or contractors duly accredited by
the Board of Investments or the Export
Development Council in processing,
converting or manufacturing goods;
or
Except: automobiles and non-essential

goods (jewelries, perfumes, yachts, etc.)
To whom delivered: resident of the
Philippines.
f.
Paid for in acceptable foreign currency
g. Sale of power or fuel generated through

renewable sources of energy.
Duly accounted for in accordance with

the BSP rules
c. EFFECTIVELY
TRANSACTIONS:
ZERO-RATED
1.
all
VAT
is
removed from the
goods, activity or
transaction
2. the taxpayer can
claim the refund or
input taxes passed
on to him by the
supplier, etc. or
credit such input
taxes on his nonzero-rated
transactions
3. generally, taxable
sales are taken into
account
in
determining turnover sales or sale for
VAT
registration
purposes
ZERO-RATED
Sales to whom: persons or entities

exempted under special laws or
international agreements to which
the Philippines is a signatory
2.) Zero-rated services:
a. Processing, manufacturing or repacking
of goods
For: persons doing business outside the
Philippines
When: the goods are subsequently exported
Paid for in acceptable foreign currency
Duly accounted for in accordance with
the BSP rules;
b. Services other than those provided in
#2a rendered to:
1. Persons engaged in business outside the
Philippines or;
2. Non-resident persons not engaged in
business
3.when the services were rendered
4.Paid for in acceptable foreign currency
duly accounted for in accordance with BSP
Transport of passengers and cargo by air

or sea vessels from the Philippines to a
foreign country;
EXEMPT
1. removes the VAT
only at the exempt
stage
2. the taxpayer is not
entitled to credit or
refund of the input
tax passed on to him
by the supplier, etc.
3. it is not taken into

account
in
determining
turnover
or
VAT
registration purposes
Rules in lease of residential units for

VAT purposes:
1. Lease of property situated in the Philippine
shall be subject to VAT irrespective of the

place where the contract of lease or
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licensing agreement was executed if the

property leased or used in the Philippines.
the effects are exempt under Tariff

and Customs Code
Residential
units shall
refer
to
apartments, houses, and/or lands on which
anothers dwelling is located, used for
residential purposes and shall include not
only buildings, but also the parts or units
thereof used solely as dwelling places (e.g.
dormitories, rooms and bed spaces) except
motels, motel rooms, hotel and hotel rooms.
4. Importation of professional instruments and

implements, wearing apparel, domestic animals
except vehicle, vessel, aircraft and machinery
used to manufacture any merchandise in
commercial quantity, provided:
1.
2.
2. It likewise includes apartment, houses,
buildings, parts or units thereof used fro

home industries, retail stores or other
business purposes if the tenant thereof and
his family actually live therein and used
them principally for dwelling purposes.
The term unit shall mean an apartment
unit in the case of apartments, house in case
of residential houses; per person in the case
of dormitories, boarding houses and bed
spaces; and per room in case of room for
rent.
3.
the effects belong to persons

coming to settle in the
Philippiness.
the effects are for their own use
and not for sale
evidence should be produced
before the Commissioner that
the change or
Residence is
bona fide
5. Services subject to percentage tax;

6. Services by agricultural contract growers and
milling for others of RiCo Su (rice, corn grits,
sugar cane);
7. Medical, dental, hospital and veterinary
services
except
those
rendered
by
professionals;
Exempt Transactions:
1. Sale/ importation of agricultural and marine
food products in their original state; livestock
and poultry generally used for human
consumption;
Note: a. products are considered in their
original state even if they have undergone
simple processes of preparation or preservation
for the market freezing, drying, salting,
broiling, roasting, smoking, and stripping
(Code:FreDSBRoSS)
b. rice, corn grits, sugar cane, molasses
are always considered in their original state
(Code: RiCo SuMo)
2. S/I of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry
feeds;
3. Importation of personal and household
effects provided:
the effects belong to residents
returning to/or non-residents
coming to resettle in the
Philippines.
8. Educational services rendered by government

educational institutions and private educational
institutions accredited by DepEd, CHED,
TESDA;
9. Services rendered pursuant to an employeremployee relationship;
10. Services rendered by regional or area
headquarters established by Multinational
Corporations;
11. Transactions exempt under special laws and
international agreements to which the
Philippines is a signatory except those under
P.D. 529;
12. Sales by agricultural cooperatives registered
with CDA;
13. Gross receipts from lending activities by
credit of multi-purpose cooperatives registered
with the CDA;
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14. Sales by non-agricultural, non-electric and

non-credit cooperatives registered with the
CDA;
tariff and customs duties, excise

taxes and other charges or;
12% of the landed cost plus excise
taxes where the customs duties are
determined on the basis of the
quantity or volume of the goods
such tax shall be paid by the
importer prior to the release of the
goods from Customs custody
15. Export sales by persons who are not VATregistered;

16. Sale of real property utilized for low-cost
and socialized housing;
17. Lease of residential unit with a monthly
rental less than P10, 000;
18. S/I, printing, publication of books and any
newspaper, magazine, review or bulletin, which
appear at regular intervals with fixed price for
subscription and which are not devoted
principally for paid advertisements;
19. S/I or lease of passenger or cargo vessels
and aircraft including engine, equipment and
spare parts thereof;
20. Importation of (GSEF) goods, supplies,
equipment and fuel by persons engaged in
international shipping and air transport
operations;
21. Services of banks, non-bank financial
intermediaries
performing
quasi-banking
activities;
3. for the Sale of Services and Use or Lease of

Properties
12% of the gross receipts derived
from the sale or exchange of services
gross receipts means the total
amount in money or its equivalent
representing the contract price,
compensation, service fee, rental or
royalty, including the amount
charged for materials supplied with
the services and deposits and
advanced payments actually or
constructively received during the
taxable quarter for the services
performed or to be performed for
another person, excluding VAT
Deductions or Exclusions from the gross
sales/receipts:
1. Discounts
Must be determined and granted at the
time of sale
Expressly indicated in the invoice
The amount thereof forms part of the
gross sales duly recorded in the books of
the seller
The grant of which does not depend
upon the happening of a future event
22. Sale or lease of goods, properties or services

where the gross annual sales and/or receipts do
not exceed P1, 500,000.00;
Computation of the VAT:
1. for the Sale of Goods or Properties
12% of the gross selling price or
gross value in money (effective
February 1, 2006)
gross selling price means the total
amount in money or its equivalent
which the purchaser pays or is
obligated to pay to the seller in
consideration of the transaction,
excluding the VAT
such tax shall be paid by the seller
or the transferor
2. Sales returns and allowances

A proper credit or refund was made
The sales previously recorded as
taxable sales
When may property dividends be subject
to VAT?
2. for the Importation of Goods

12% of the total value used by the
Bureau of Customs in determining
Property dividends which constitute

stocks in trade or properties primarily
held for sale or lease declared as retained
earnings on or after January 1, 1996 and
distributed by the company to its
shareholders shall be subject to VAT
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based on the zonal value or fair market

value at the time of distribution whichever
is applicable.
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Rule on Input Tax on Capital Goods:

a. if the aggregate acquisition cost of the
capital goods, excluding VAT, exceeds P1,
000,000.00; and
Tax Credits:
Output tax
the value-added tax due on the sale or
lease of taxable goods or properties by any
person required to register
Input tax
the value-added tax due from or paid by a
VAT-registered person in the course of his
trade or business on importation of goods
or local purchase of goods or services,
including lease or use of property, from a
VAT-registered person.
b. where such goods are purchased or

imported in a calendar month for use in trade
or business for deduction for depreciation is
allowed;
c. then, the input tax shall be spread evenly
over a period of 60 months, commencing from
the month the acquisition was made
d. provided, however, that if the estimated
useful life of such goods is less than 5 years,
then the input VAT shall be spread over such
shorter period.
A VAT-Registered person also
engaged in non-vatable transactions
shall be allowed tax credit as follows:
Creditable input tax:

any input tax evidenced by VAT
invoice or official receipt
on the following transactions:
a. Purchase/Importation
1. for sale
2. for conversion into or intended
to form part of a finished product
for sale including packaging
materials
3. for use as supplies in the course
of business
4. for use as materials supplied in
the sale of services
5. for use in trade or business for
which deduction for depreciation
or amortization is allowed
a. total input tax directly attributable

to vatable transactions;
b. A ratable portion of any input tax
which cannot be directly attributed
to either activity;
Excess Output or Input Tax
a. if, O > I ; then, the excess shall be
paid by the VAT-registered person
b. Purchase of services on which a VAT

Has actually been paid
Creditable to:
a.
the
purchaser
upon
consummation of the sale and on
importation of goods and properties
b. the importer upon payment of the
VAT prior to the release of the goods
from Customs custody
c. to the purchaser, lessee or licensee
upon payment of the compensation,
rental, royalty or fee, in case of
purchase of services or lease or use
of properties
b. if, I > O; then, the excess shall be

carried over to the succeeding
quarters or quarters, provided:
the input tax carried over from the
previous quarter shall not exceed
70% of the output VAT
the input tax attributable to zerorated sales may, at the option of
the taxpayer, be refunded or
credited against other internal
revenue taxes
The excess input tax to be carried
over from the preceding month or
quarter shall be reduced by:
a. amount of claim for refund or tax credit
for VAT
b. other adjustments, such as purchase
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returns or allowances
c. input tax attributable to exempt sales
Transitional input tax credits is the input
tax allowed to be credited against the output tax
of a person who becomes liable to value-added
tax or any person who elects to be a VATregistered person, on his beginning inventory of
goods, materials and supplies, equivalent to two
percent (2%) of the value of such inventory or
the actual value-added tax paid on such goods,
materials and supplies, whichever is higher.
Presumptive Input tax credits is the
input tax credit allowed to persons liable for
VAT where their purchases are not subject to
input tax. The following persons are entitled to
presumptive input tax credits:
a. Persons or firms engaged in the
processing of sardines, mackerel and milk, and
in manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, equivalent
to four percent (4%) of the gross value in
money of their purchases of primary
agricultural products which are used as inputs
to their production.
I N
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f. in other appropriate cases, the

Commissioner shall grant refund or issue the
tax credit certificate for creditable input taxes
within 120 days from the date of submission of
complete documents in support of the
application
Rule where the taxpayer is engaged in
zero-rated or effectively zero-rated
transactions and also in taxable or
exempt sales:
a. the amount of the creditable input tax due
or paid which cannot be directly and entirely
attributed any one of the transactions shall be
allocated proportionately on the basis of
the volume of sales
b. in case of a person making zero-rated and
non zero-rated sales, the input tax shall be
allocated ratably between his zero-rated and
non zero-rated sales
Withholding of VAT:

the Government or any of its political

subdivisions,
instrumentalities
or
agencies, including GOCCs shall,
before making payment on account
of purchase of goods and services
deduct and withhold a final VAT at
the rate of 5% of the gross payment
thereof
the payment for lease or use of

properties or property rights to
nonresident owners shall be subject
to 10% withholding tax at the time
of payment
b. Public works contractors, equivalent

to one and one-half percent (1 1/2%) of the
contract price with respect to government
contracts only in lieu of actual input taxes there
from.
Refunds or Tax Credits for Zero-Rated
or Effectively Zero-Rated Sales:
a. taxpayer must be VAT-registered;
otherwise, the transaction is exempt which does
not entitle him to any refund or tax credit;
b. application for a tax credit certificate or
refund must be made within 2 years after the
close of the taxable quarter when the sales were
made;
c. to the extent that the input tax has not
been applied against output tax.
d. the transactions are paid for in an
acceptable foreign currency and duly accounted
for in accordance with BSP rules.
e. in the case of a person whose registration
is cancelled due to retirement from or cessation
of business, or due to changes in or cessation of
status, the application may be made within 2
years from the date of cancellation, etc
PERCENTAGE TAX, EXCISE TAX AND

DOCUMENTARY STAMP TAX
EXCISE TAX
Applies to articles manufactured or
produced in the Philippines for
domestic sale or consumption or for any
other disposition and to things
imported.
In case of importation, excise tax shall
be in addition to the value added tax
imposed by R.A. No. 8424.
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a. Specific Tax - imposed on weight or

volume capacity or any other
physical unit of measurement
b. Ad valorem Tax - an excise tax
imposed and based on selling price
or other specified value of the article
PERCENTAGE TAX
Based on a given ratio between the gross
receipt and the burden imposed upon
the taxpayer.
If the taxpayers sale of services is
already subject to VAT, he is no longer
subject to other percentage taxes, or vice
versa.
Includes the following:
1. Tax on persons exempt from VAT
3% of gross sales/receipts
one whose sales/receipts does not
exceed 550,000, and
who is not VAT-registered
cooperatives are exempt
2. Tax on domestic carriers and keepers
of garage
3% of gross receipts
for the transport of passengers
except on owners of bancas and
animal-drawn 2-wheeled vehicle
radio and TV broadcasting companies

shall have an option to be registered as a
VAT taxpayer, provided that once the
option is exercised,, it shall not be
revoked
5. Tax on overseas dispatch, message

and conversation
10% of gross receipts
transmitted from the Philippines
payable by the person paying for the
services rendered
paid to the person rendering the
services who is required to collect
and pay the tax within 20 days after
the end of each quarter
does not apply to:
a. the government
b. diplomatic services
c. public international organizations
enjoying privileges and immunities
d. news services
6. Tax on banks and non-bank financial
intermediaries
and
finance
companies
a. on interest, commissions and
discounts from lending activities as
well as income from financial
leasing, based on the remaining
maturities of instruments from
which the receipts are derived:
5 years or less
5%
more than 5 years 1%
3. Tax on international carriers

3% of gross receipts from outbound
revenues only
applies to both international air and
shipping carriers doing business in
the Philippines
b. on dividends and equity shares in

net income of subsidiaries 0%
c. on royalties, rentals of property and
other items treated as frosts income
5%
4. Tax on franchises
a. franchises on radio and/or television
broadcasting companies whose annual
gross receipts of the preceding year does
not exceed 10 million pesos 3%
d. on net trading gains on foreign

currency, debt securities, derivatives
and other similar instruments 5%
b. franchises on electric, gas and water

utilities 2%
7. Amusement taxes
imposed on the proprietor, lessee or
operator of:
a. cockpits, cabarets, night or day
clubs 18%;
the gross receipts must be derived from

the business covered by the law granting
the franchise
b. boxing exhibitions 10%; exempt if

the World or Oriental Championships in
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any division is at stake, provided at least

1 of the contenders is a Filipino citizen
and said exhibition is promoted by a
citizen or corporation at least 60% of
the capital of which is owned by such
citizens;
c. professional basketball games 15%
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It is a tax on documents, instruments &
paper evidencing the acceptance, assignment,
sale or transfer of an obligation, right, or
property incident thereto.
d. jai-alai and racetracks 30%

Nature of Documentary Stamp Tax
8. Tax on winnings
from horse races 10%
tax is based on the actual amount paid
to him after deducting the cost of the
ticket
from double, forecast/quiella and
trifecta bets 4%
on owners of winning race horses
10% of the prizes
9. Tax on sale of shares of stock listed
and traded through the local stock
exchange or through initial public
offering (IPO)
It is an excise tax because it is really

imposed on the transaction than on the
document. It is paid only once. The liability to
the tax and the amount thereof are determined
from the face of the document itself.
Persons Liable: THE ONES
1. Making
2. Issuing
3. Signing
4. Accepting
5. Transferring
the document, instrument or paper
DOCUMENTS SUBJECT TO TAX
sale made through the local stock

exchange, other than the sale by a dealer
in securities of 1% of the gross selling
price
through the IPO of shares of stock in
closely held corporations, based on the
gross selling price sold in accordance with
the proportion of shares of stock sold to
the total outstanding shares after the
listing in the local stock exchange:
-up to 25%
-over 25% but
-not over 33-1/3%
-over 33-1/3
1%
1.
2.
3.
4.
5.
6.
7.
8.
Corporate documents
Commercial documents
Insurance policies
Deeds of sale
Special contracts
Maritime documents
Certificates
Luxuries
Other assignments and renewals
A. CORPORATE DOCUMENTS
1) Original issue of shares of stock (sec.
175)
4%
(a) Cost of imposition is borne by
the corporation originally issuing
the stock certificate
2%
the tax is paid by the issuing corporation

in primary offering or by the seller in
secondary offering
(b) Revenue Memorandum Circular

#47-97
The documentary stamp tax on original
issues of certificates of stock as provided under
Section 175 of the Tax Code attaches upon
acceptance of the stockholders subscription in
the capital stock of a corporation regardless of
the physical issuance and delivery to the
stockholder of the certificate of stock evidencing
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his stockholding. Therefore, taxes accrue at the

time the shares are issued.
5) All bonds, loan agreements, promissory

notes, bills of exchange, drafts,
instruments and securities issued by the
government
or
any
of
its
instrumentalities, deposit substitute
debt instruments, certificates of deposits
bearing interest and others not payable
on sight or demand (sec. 180)
Meaning of the term original issue is point at which the stockholder acquires and
may exercise attributes of ownership over the
stocks.
Certificates of stock temporarily subject
to suspensive conditions shall only be liable for
DST only when released from said conditions.
For then and only then shall they truly acquire
any practical value for their owners.
Basis: face value of document

Exemptions:
a.) bank notes issued for circulation
b.) loan agreements and promissory
notes that aggregate of which
does not exceed P250.00
executed by an individual for his
purchase, on installment, of a
house, lot, motor, vehicle,
appliance or furniture, for his
personal use or that of his family
2) On proxies (sec. 192)

Basis: each proxy document
Exemption: proxies issued at affecting the
affairs of association, or corporation
organized for religious, charitable or literary
purposes.
B. COMMERCIAL DOCUMENTS
1) Debentures
and
Certificates
indebtedness (sec. 174)
Note: Renewal is also subject to documentary

stamp tax.
of
Note: renewal postponement of the

maturity of the obligation dealt with; an
extension of the time in which that obligation
may be discharged.

2) Bonds, debentures, certificates of stock
or indebtedness issued in foreign
countries (sec. 177)
Note: Tax on renewal shall be at the same

rate as the tax on the original document.
Basis: fixed tax as required by law on similar

instruments when issued sold or transferred
in the Philippines.
6) Upon acceptance of bills of exchange

and others (sec. 181)
Issued in any foreign country but sold or

transferred in the Philippines
3) Certificates of profits or interest in
property or accumulations (sec. 178)
Basis: Face value

Document taxable: any bill or exchange or
order for the payment of money purporting to
be drawn in the foreign country but payable in
the Philippines.
7) Foreign bills of exchange and letters of
credit (sec. 182)

4) Bank Checks, drafts, certificates of
deposit not bearing interest, and other
instruments (sec. 179)
Basis: face value

Document taxable: all foreign bills of
exchange and letters of credit drawn in but
made payable outside the Philippines.
Basis: fixed on each instrument

the tax applies only to inland bank
checks, drafts, or certificates of deposit
not drawing interest
8) Warehouse Receipts (sec. 189)
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Basis: each warehouse receipt

Exemption: warehouse receipt issued to any
one person in any one calendar month covering
property the value of which does not exceed
P200.
9) Bills of lading or receipts (sec. 191)
Basis: Value of the goods
Exemptions: charter party, freight tickets
covering goods, merchandise or effects carried
as accompanied baggage of passengers on land
and water carriers primarily engaged in the
transportation of passengers.
I N
T A X A T I O N
Certificate of damage or otherwise issued by

any public official in public capacity for the
purpose of giving info or establishing proof of
fact.
Basis: each document
D. DEEDS OF SALES
1) Sales, agreements to sell, memoranda of
sales, deliveries or transfer of due-bills,
certificates of obligation, or shares or
certificates of stock (sec. 176).
Basis: Par value of due-bill, certificate of
obligation or stock
2) Deeds of sale and conveyances of real
property (sec. 196)
C. INSURANCE POLICIES
1) Life insurance policies (sec.183)
Basis: Tax rate based on amount

Basis: Amount insured by an such policy
The tax is collectible not only on the original
policy but also upon renewals. No DST is due on
insurance policies issued by a Phil. company to
persons in other countries. The tax is imposed
upon issuance of the policy even if at that time
premium had not yet been paid. If the policy is
cancelled, no refund of the tax shall be made.
2) Property insurance policies (sec.184)
Property must be located in the Philippines

and deeds of partition & deeds of redemption,
taxable
E. SPECIAL CONTRACTS
1) Powers of attorney (sec. 193)
Basis: Fixed tax rate
Exemption: Collection of claims due from
or accruing to the government of the
Philippines or the government of any province,
city or municipality.
Basis: Premium charged

3) Fidelity bonds and other insurance
policies (sec.185)
2) Leases and other hiring agreement

(sec.194)

Basis: Fixed tax rate
4) Policies of annuities and pre-need plans
(sec.186)
Annuity - Basis: Capital of the annuity
Pre-need plans - Basis: Value or amount
of the plan
5) Indemnity Bonds (sec. 187)
3) Mortgages, pledges and deeds of trust

(sec. 195)
a. Basis: Tax rate based on amount
b. transactions must be effected and
consummated within the Philippines
c. tax is based on the amount secured and
not on the value of property mortgaged
d. there must be an existing debt
Exemption: such as may be required in

legal proceedings.
4) Jai-alai, horse race tickets, lotto or other

authorized numbers games (sec. 190)
6) Certificates (sec.188)
Basis: each ticket
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F. MARITIME DOCUMENTS
Charter parties and similar instrument (sec.
197)
by any government official in his official

capacity.
g. Compulsory
Information
for
Statistical Purposes-Statements and
other compulsory information required
of persons or corporations by the rules
and regulations of the national,
provincial
city
or
municipality
government exclusively for statistical
purposes and which are wholly for the
use of the bureau in which they are filed,
and not at the instance or for the use or
benefit of the person filing them
EXEMPTIONS:
a. Written
AppearancesWritten
appearances in any court by any
government official in his official
capacity
b. Fraternal
or
Beneficiary
Organization Insurance Policies of
Annuities- Policies of insurance of
annuities made by a fraternal or
beneficiary society, order, association or
cooperative company, operated on the
lodge system or local cooperation plan
and organized and conducted solely by
the members thereof for the exclusive
benefit of each member and not for
profit
c. Government
and
Indigent
Documents filed in Court- Papers
and documents filed in courts by or for
the national, provincial, city or
municipal governments, affidavits of
poor persons for the purpose of proving
poverty
h. Certificates of the Administration

of Oaths for Paper AuthenticityCertificates of the administration of
oaths to a person as to the authenticity
of a paper required to be filed in court
by any person, whether the proceedings
be civil or criminal
DOCUMENTARY STAMP TAX PAYMENT
d. Certificates of the Assessed Value

of Lands NOT EXCEEDING P200Certificates of the assessed value of
lands not exceeding P200 in value
assessed, furnished by the provincial,
city or municipal treasure to applicants
for registration of the title to land.
e. Solo use- Certified copies and other
certificates placed upon documents,
instruments, and papers by the national,
provincial,
city
or
municipal
governments made in the instance and
for the sole use of some other branch of
the national, provincial, city or
municipal governments.
f.
WHEN to file RETURN

1) within 10 days after close of month
when taxable document was within 5
days after close of each week for
Revenue Collection Officers
2) each time documentary stamp are
purchased
for
reloading,
for
documentary stamp tax metering
machine authorized persons
WHERE to FILE/PAY
1) authorized agent bank within the
jurisdiction of the revenue district
office having jurisdiction over the
residence or principal place of
business of the taxpayer
2) revenue district officer, collection
agent or his duly authorized
treasurer of the city or municipality
in which the taxpayer has his legal
residence or principal place of
business
Certificate of Oaths administered

to any government official in his
official capacity- Certificates of oaths
administered to any government official
in his official capacity or of
acknowledgment by any government
official in the performance of his official
duties, written appearance in any court
WHO are required to accomplish and file

a documentary stamp tax DECLARATION
under BIR Form 2000
1) Any
person
liable
to
pay
documentary stamp tax on a taxable
document/transaction when tax due
is >P200.
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2) Any Revenue Collection Officer, duly

authorized to sell loose debts
Any person authorized to use DST
Metering Machine
WHEN to PAY
1) general rule: simultaneous with
filing of return
2) exception: purchase and actual
affixture
Actual Stamping System: loose
documentary stamps
Constructive Stamping System:
constructive affixture
printing through a DS metering
machine
AFFIXTURE
1) In general: DS is affixed on the
original copy of the document
2) Exception: duplicate copy when the
same has been substituted and used
in place of the original
FAILURE TO STAMP TAXABLE
DOCUMENT
1) will not render the document void
2) but document cannot be:
3) recorded in government offices
4) cannot be accepted in evidence in
court
PENALTY
25% surcharge plus 20% interest per
annum
I N
T A X A T I O N
Powers and Duties of the BIR (Sec. 2,

CTRP) (Key: AGEE)
1. Assessment and collection of all national
internal revenue taxes, fees, and charges
2. Give effect to and administer the
supervisory and police power conferred to
it by the Tax Code or other laws
3. Enforcement of all forfeitures, penalties
and fines in connection therewith
Execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the
ordinary courts
I. TAX REMEDIES UNDER THE NIRC
General Rule: Tax collection cannot be
enjoined by court injunction.
Tax Code
provides that 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 this Code. (Sec. 18, NIRC)
Exception: An injunction that may be issued
by the CTA in aid of its appellate jurisdiction
under RA 1125
A. POWER TO ASSESS:
Starts with the self-assessment by the
taxpayer of his tax liability, filing of the tax
return, and payment of the entire tax due
shown on his return
Means Employed in the Assessment of
Taxes (Sec. 6, CTRP) (Key: BETI-PPEA)
1. Examination of tax returns
2. Use of the best evidence obtainable
3. Inventory taking, surveillance and use of
presumptive gross sales and receipts
4. Termination of taxable period
5. Prescription of real property values
6. Examination of bank deposits to
determine the correct amount of the gross
estate
7. Accreditation and registration of tax
agents.
8. Prescription of additional procedural or
documentary requirements.
DUTY OF NOTARY PUBLIC

Not
to
add
his
jurat
or
acknowledgment to any document
subject to documentary stamp tax
unless the proper documentary
stamps are affixed thereto and
cancelled.
TAX REMEDIES
Agencies Involved in Tax Administration

1. BIR
2. Bureau of Customs
3. Provincial, city, and municipal assessors
and treasurers
The role of the government in assessment

process includes the following:
1. Examination of books of accounts
and other accounting records of
taxpayers by revenue officer to
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determine his correct tax liability

(Letter of Authority- LOA)
Period:
Letter of Authority must be served to the
concerned taxpayer within thirty (30) days from
its date of issuance otherwise it hall be null and
void.
Revenue officer is allowed only 120 days
from the date of receipt of a letter of authority
by the taxpayer to conduct the audit and submit
the required report of investigation.
Who may issue letter of
authority?
After a return has been filed, the
commissioner
or
his
duly
authorized
representative may authorize the examination
of the books of any taxpayer and the assessment
of the correct amount tax. (Sec. 6, NIRC)
The revenue Regional Director shall
approve and sign all LAs for all audit cases
within his regional jurisdiction, EXCEPT
a. cases involving civil or criminal tax
fraud under the jurisdiction of the tax fraud
division of the enforcement service;
b. policy cases under audit by Special
Teams in the National Office. (RAMO 36-99)
I N
T A X A T I O N
and from such information as he can obtain

through testimony or otherwise) when:
1. 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
2. there is reason to believe that any such
report is
i. false
ii. incomplete
iii. erroneous.
The return made by the Commissioner,
in this instance, shall be prima facie correct and
sufficient for all legal purposes.
2. Preparation of tentative findings
and
holding
of
informal
conference ( Notice of Informal
Conference-NIC)

If the taxpayer do not submit
the documents or information requested by the
BIR, the person may be required to testify or
the document may be summoned and required
to be presented to the BIR
Q. Can the BIR issue LOA more than
once within a taxable year?
A. No. BIR officer are allowed to issue LOA
only once. EXCEPT:
1. when BIR determines that there is fraud or
irregularities was committed by taxpayer
2. taxpayer itself request for an examination of
his accounts
3. when there is a need to verify the withholding
taxes required by the BIR.
4. when capital gains tax must be verified.
Power of the Commissioner to assess
deficiency tax based on best evidence
obtainable Sec. 6B of R.A. 8424 empowers
the Commissioner to assess the proper tax and
make or amend the return based on the best
evidence obtainable (from his own knowledge
Soon after the completion of the tax

audit, the revenue officer will render
a written report stating:
a. the factual and legal basis of
his findings
b. whether the taxpayer agrees
with his findings
If the taxpayer is not amenable, the
taxpayer shall be informed in writing
by the Revenue District Officer of by
the Chief of the Division of the
discrepancies in the taxpayers
liability for the purpose of informal
conference, in order to afford the
taxpayer with an opportunity to
present his side of the case.
If the taxpayer fails to respond
within 15 days from date of receipt of
the notice for informal conference,
he shall be considered in default
In such a case, the Revenue District
Officer of the Chief of the Division
shall endorse the case to the
Assessment Division for review and
issuance
of
deficiency
tax
assessment, if warranted.
3. Issuance of Preliminary
Assessment Notice (PAN)
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It 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 BIR
officer following the review of these findings.
must show in detail the facts and law
on which the proposed assessment is
based, otherwise its fatal to BIR.
If the taxpayer disagrees with the
findings stated in the PAN, he shall
then have 15 days from his receipt of
the PAN to file a written reply
contesting the proposed assessment.
I N
T A X A T I O N
shall be sent personally or through

registered mail
TAX ASSESSMENT- It is the official action of
an officer authorized by law in ascertaining the
amount of tax due under the law from a
taxpayer. This action necessarily involves:
1. the computation of the sum due;
2. giving notice to that effect to the taxpayer;
and
the making, simultaneously with or sometime
after the giving of notice, of a demand upon him
for the payment of the tax deficiency stated.
Assessment
contains
not
only
computation of tax liabilities but also a
demand for payment within a prescribed
period. [CIR vs. PASCOR, 309 SCRA
402]
Instances wherein PAN is NO longer

required:
1. 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;
2. 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;
3. when a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent;
4. when an excise tax due on excisable articles
has not been paid; or
5. when an article locally purchased of
imported by an exempt person, such as, but
not limited to vehicles, capital equipment,
machineries, and spare parts, has been sold,
treated or transferred to non-exempt
persons.
4.Issuance of Formal Assessment
Notice (FAN) and letter of demand
if the taxpayer fails to respond
within 15 days from date of receipt,
he shall be considered in default
in such a case, a formal letter of
demand and FAN shall be issued,
calling for payment of the deficiency
tax liabilities, inclusive of penalties.
Notice of assessment is presumed valid.

If the taxpayer contested such a
determination, the burden of proving
the determination wrong, together with
the corresponding burden of first going
forward with evidence, is on the
taxpayer. [ Cyanamid Philippines, Inc.
vs. CA, 322 SCRA 639]
Q. When is an assessment deemed made?
An assessment is deemed made only
when the collector of internal revenue releases,
mails, or sends such notice to the taxpayer
regardless whether the taxpayer received the
notice within the prescriptive period. [Basilan
Estates, Inc. vs. CIR, 21 SCRA 17]
B. POWER TO COLLECT:
Delinquent Taxpayer
When the self-assessed tax per return filed
on the prescribed date was not paid at all or
was only partially paid, or
The deficiency tax assessed by the BIR

became final and executory.
Deficiency tax
The amount by which the income tax as
determined by the BIR exceeds the amount
shown as tax per return, or
If no amount is shown or if no return is

made, then the amount by which the tax as
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determined by the BIR exceeds the amounts

previously assessed (or collected without
assessment) as a deficiency
DELINQUENCY
Failure to pay the
tax due on the date
fixed by law or
indicated in the
assessment notice
or letter of demand
DEFICIENCY
The amount still due
and collectible from
a taxpayer upon
audit
or
investigation.
1. Filing of administrative protest by

the
taxpayer
against
the
assessment
Within 30 days from receipt of the
FAN
Failure to make such protest would
render
the
assessment
final,
executory and demandable
The
prescriptive
period
for
assessment or collection shall be
suspended.
I N
T A X A T I O N
Distinctions between remedies in the

collection
of
deficiency
tax
and
delinquency tax:
DEFICIENCY
TAX
1. Can immediately
be
collected
administratively
through
the
issuance of the
warrant
of
distraint and levy,
and by judicial
action
DELINQUENCY
TAX
1. Can be collected
also
through
administrative and
judicial remedies
but has to go
through
the
process of filing
the protest against
the assessment by
the taxpayer and
denial of such
protest.
2. The filing of a
civil action for its
collection in the
ordinary court is a
proper remedy
2. The filing of a
civil action at the
ordinary court for
collection may be
the subject of a
motion to dismiss.
In addition, a
petition for review
must be filed with
the CTA within the
30 days to toll the
running of the
prescriptive
period.
2. Submission
of
documentary
evidence and argument
Within 60 days from date of filing of
protest
Failure to submit would render the
assessment final, executory and
demandable
3. Denial of protest
The taxpayer may appeal to the
Court of Tax Appeals (CTA) within
30 days from date of receipt of the
decision
Otherwise, the assessment shall
become
final,
executory
and
demandable
REMEDIES OF THE GOVERNEMNT FOR

NON-PAYMENT OF TAXES
1. Administrative remedies
a. tax lien
b. distraint
(actual
and
constructive)
c. levy
d. sale of property of a delinquent
taxpayer
e. forfeiture of property
f. compromise and abatement
g. penalties and fines
h. suspension
of
business
operations.
2. Inaction of the CIR

Failure to act on the protest within
180 days from date of submission of
the required documents would give
rise to the right of the taxpayer to
appeal
The appeal should be made within
20 days from the lapse of the said
180-day period
Otherwise, the assessment shall
become
final,
executory
and
demandable.
2. Judicial Remedies
a. civil action
b. criminal action
Note: One or all of the remedies may be
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pursued simultaneously in the discretion of

revenue authorities.
Note: Distraint or levy NOT availed of where
the amount of tax involved is NOT MORE than
P100
3. Enforcement of administrative fine
Tax lien
A legal claim or charge on property of the
taxpayer as security for the payment of
some debt or obligation.
I N
T A X A T I O N
Requisites of distraint:
1. the taxpayer must be delinquent (except
in constructive distraint) in the payment of
tax;
2. there must be a subsequent demand for its
payment (assessment);
3. the taxpayer fails to pay the tax at the time
required; and
4. the period within which to assess or collect
the tax has not yet prescribed.
Kinds:
1. Actual distaint
2. Constructive distarint
Accrues when the taxpayer neglects or

refuses to pay his tax liability after demand
with interests, penalties and costs that may
accrue in addition thereto.
1. Actual Distraint
there is taking of possession of the
property from the taxpayer by the
government
resorted to when at the time required for
payment, a person fails to pay his
delinquent tax obligation.
Extent-upon all property and rights to

property belonging to the taxpayer attaches
not only from the time the warrant was
served BUT from the time tax was due and
demandable.
The lien is not valid against any mortgagee,
purchaser, or judgment creditor until notice
of such lien shall have been filed in the
register of deeds of the province or city
where the property is located. But effectivity
against third persons-only when notice of
such lien is filed by the Commissioner in the
Register of Deeds in the province/city where
the property is situated (Sec. 219)
Note: Superior to judgment claim of private
property.
Distraint
The collection of taxes is enforced on the
goods, chattels or effects and other personal
property, including stocks and other
securities, debts, credits and interest and
rights to personal property.
Effected by:
a. leaving a list of the distrained
property, or
b. by service of a warrant of
distraint or garnishment
Procedure
(a) Goods, effects, chattels and other
personal property
1. a copy of an account of the property
distrained, signed by the officer,
shall be left either from the owner or
the person from whom the property
was taken or at the dwelling or place
of business of such person and with
someone of suitable age and
discretion
2. statement of the sum demanded
3. time and place of sale
WHO may effect distraint?

a. Commissioner or his duly authorized
representative if the amount involved is
more than P1,000,000.00
b. Revenue District Officer if the amount
involved is P1,000,000.00 or less than
(b) Stocks and other Securities

1. serving a copy of the warrant upon
the taxpayer AND upon the
president, manager, treasurer or
other responsible officer of the
issuing
corporation,
company,
association
(c) Debts and Credits
1. leaving a copy of the warrant with
the person owing the debts or having
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in his possession such credits or his

agent
2. warrant shall be sufficient authority
to pay the Commissioner the amount
of such debts or credits
(d) Bank accounts (garnishment)
1. serve a warrant of garnishment upon
the taxpayer AND upon the
president, manger, treasurer or
other responsible officer of the bank
2. bank shall turn over to the
Commissioner so much of the bank
accounts as may be sufficient (Sec.
208 NIRC)
refuses to sign:
1. distraining officer shall prepare a list
of the property distrained
2. in the presence of 2 witnesses, leave
a copy in the premises where the
property is located (Sec. 206 NIRC)
ACTUAL
DISTRAINT
Made only on
the property
of
a
delinquent
taxpayer
There
is
taking
of
possession
Note: Report on the Distraint by the

distraining officer must be submitted within 10
days from receipt of the warrant to the Revenue
District Officer and to the Revenue Regional
Director. The order of Distraint may be lifted by
the Commissioner or his representative (Sec.
207 A NIRC)
Effected
by
leaving a list
of distrained
property or by
service of a
warrant
of
distraint
or
garnishment
An immediate
step
for
collection of
taxes
2. Constructive Distraint
the owner is merely prohibited from
disposing of this property
issued even when there is no actual tax
delinquency
availed of when taxpayer is:
a. retiring from any
subject to tax;
business
b. intending to
b.1. leave the Philippines; or
b.2.
remove his
property
therefrom; or
b.3.
hide or conceal his
property; or
c. he performs any act tending to
obstruct the proceedings for
collecting the tax due
Procedure
(a) Require the taxpayer or any person
having control of the property to
1. sign a receipt covering property
distrained
2. obligate himself to preserve the
same intact and unaltered
3. not to dispose of the property in any
manner, without the authority of the
Commissioner
(b) Where taxpayer or person in possession
CONSTRUCTIVE
DISTRAINT
Made on the property
of
any
taxpayer
whether delinquent
or not
The
taxpayer
is
merely
prohibited
from disposing of his
property
Effected by requiring
the taxpayer to sign a
receipt
of
the
property or by the
revenue
officer
preparing
and
leaving a list of such
property
Not necessarily so.
LIEN
Directed against
the
property
subject to the tax
Regardless of
the owner of
the property
DISTRAINT
Need not be
directed against
the
property
subject to the
tax
Property
seized must
be owned by
the taxpayer
Levy
It refers to the act of seizure of real
property in order to enforce the payment
of taxes.
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The requisites for the exercise of the remedy

of levy: same as in the remedy of distraint
sufficient to satisfy the tax due, levy on

real property shall proceed within 30
days after distraint
(e) Report on levy
1. by levying officer
i. submitted within 10 days from
receipt of warrant
ii. submitted to the Commissioner or
his representative
2. by the Revenue Regional Director-consolidated report, as may be
required by the Commissioner
(f) The warrant may be lifted by the
Commissioner or his representative
When: before, simultaneously or after the

distraint of personal property belonging to
the taxpayer
Effected by:
a. writing upon an authenticated
certificate showing:
1. the name of the taxpayer,
2. amounts of the tax and penalty due
3. description of the property upon which
levy is made.
1.
2.
3.
4.
b. written notice of the levy shall be

mailed to or served upon:
the Register of Deeds of the province or
city where the property is located, and
the delinquent taxpayer
if he is absent from the Philippines, to
his agent or the manager of the business
in respect to which the liability arose
if there be none, to the occupant of the
property in question.
Sale of property
In case of distrained property:

c. notification specifying the time and
place of sale and the articles
distrained shall be exhibited
in not less than 2 public places
(one place shall be at the office of
the Mayor)
in the municipality or city where
the distraint is made
Real property may be levied upon

before, simultaneously, or after the
distraint of personal property belonging
to the delinquent.
b. The time of sale shall not be less

than 20 days after notice to the
owner or possessor of the property
and the publication or posting of
such notice
The remedy by distraint and levy may be

repeated if necessary until the full
amount, including all expenses, is
collected.
c. Sale of the property at

public auction to the highest
bidder for cash, or
through
duly
licensed
commodity or stock exchanges, with
the approval of the CIR
Procedure:
(a) internal revenue officer shall prepare a
duly authenticated certificate showing
the name of taxpayer, amounts of tax
and
penalty
due.
Enforceable
throughout the Philippines
(b) officer shall write upon the certificate a
description of the property upon which
levy is made
(c) written notice of levy shall be mailed or
served upon
1. the Register of Deeds where the
property is located and
2. the taxpayer or agent/manager of
the business in respect to the tax
liability or to the occupant of the
property
(d) If personal property of taxpayer is not
In case of levied Property:

a. advertisement of the time and place
of sale of the taxpayers property or
so much thereof as may be necessary
to satisfy the claim within 20 days
after the levy, and it shall cover a
period of at least 30 days
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
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by publication once a week for 3 weeks

in a newspaper of general circulation in
the municipality or city where the
property is located.
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T A X A T I O N
Enforced by:
1. in case of personal property
seizure and
sale or destruction of the property
b. sale at public auction to the highest

bidder
at the main entrance of the municipal
building or city hall, or
on the premises to be sols, as the
officer conducting the proceedings shall
determine and as the notice shall specify
c. disposition of proceeds of sale

In case the proceeds of the sale
exceed the claim (taxes, penalties, and
interest) and cost of the sale, the excess
shall be turned over to the owner of the
property.
Redemption by the taxpayer
Within 1 year from the date of sale, that is, from
the registration of the registration of the deed of
sale. By the taxpayer or anyone for him by
paying the full amount of:
Taxes
Penalties
Interests, and
Costs of sale
Pending redemption of the property
sold, the owner shall:
1. not be deprived of the possession of the
property
2. be entitled to the rents and other income
thereof
2. in case of real property

judgment of condemnation and
sale in a legal action or proceeding,
civil or criminal, as the case may
require
Redemption by the taxpayer
Same as that of redemption in case of
sale
The 1 year period starts from the date of
registration of the declaration of
forfeiture
Compromise and Abatement
A. Compromise a contract whereby the
parties by reciprocal concessions, avoid
litigation or put an end to one already
commenced.
Requisites:
1. the taxpayer must have a tax liability;
2. there must be acceptance (by the
Commissioner or taxpayer as the case may
be) of the offer in the settlement of the
original claim;
3. there must be an offer (by the taxpayer of an
amount to be paid him)
Officers authorized to compromise:
Forfeiture
Effected when:
1. there is no bidder for the real property
in the public sale, or
2. if the amount of the highest bid is
insufficient to pay the taxes, penalties
and costs
1. Commissioner of Internal Revenue is

the only official vested with such power
and discretion;
2. Subordinate officials may preliminarily
enter into compromise. The effects are:
a. acceptance
of an offer of
compromise: not final and may be
reviewed by the Commissioner;
The Register of Deeds concerned shall:

1. Upon registration of the declaration for
forfeiture, transfer the title of the
property to the government
2. Without the necessity of an order from a
competent court
b. rejection
of
an
offer
of
compromise: final and binding
unless revoked or set aside by the
Commissioner.
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A. Compromise of civil cases:

Grounds (civil cases)

a. When a reasonable doubt as to the
validity of the claim against the
taxpayer exists;
b. When the financial position of the
taxpayer demonstrates a clear
inability to pay the assessed tax.
Limitation as to amount of:

1. In case of financial incapacity: 10% of the
basic assessed tax
2. Other cases: 40% of the basic assessed tax
The approval of the Evaluation Board
(composed of the CIR and the Deputy
Commissioners) is required when:
1. The
basic
tax
involved
exceeds
Php1,000,000; or
2. The settlement offered is less than the MCR
Note: The MCR may be less than the
prescribed rates of 10% or 40%, as the case may
be, provided it is approved by the Evaluation
Board
I N
T A X A T I O N
3. after the information is filed with the court:

the Commissioner is no longer
permitted to compromise with or without
the consent of the prosecutor.
Remedies when taxpayer refuses or fails
to abide by a tax compromise:
1. enforce the compromise
a. judicial compromise can be enforced
by mere execution
b. extrajudicial can only be enforced by
court action
2. regard it as rescinded and insists upon
original demand (Art. 2041, NCC)
Compromise Penalty
An amount which the taxpayer pays to
compromise a tax violation
Paid in lieu of criminal prosecution
A taxpayer cannot be compelled to pay a
compromise penalty
If he does not want to pay, the CIR must
institute a criminal action.
B. Abatement cancellation of the tax
liability
Limitation as to coverage:
Grounds:
1. With respect to the liability of the taxpayer

for surcharges as their imposition is
mandatory
2. In cases finally decided by the courts
1. When the tax assessed or any portion

thereof appears to be unjustly or excessively
demanded, or
2. When the administration and collection
costs involved do not justify the collection of
the amount due
B. Compromise in criminal violations:
GEN RULE: the power to compromise and

abate cannot be delegated by the CIR
All, except:
a. those already filed in court
b. those involving fraud.
EXCEPT:
Extent of discretion:
1. before the complaint is filed with the
prosecutors office:
the Commissioner has full discretion to
compromise except those involving fraud;
a. assessments issued by regional offices

involving basic taxes of Php500,000 or less;
and
b. minor criminal violations.
Penalties and fines
2. after the complaint is filed with the

prosecutors
office
but
before
the
information is filed with the court:
the Commissioner can still compromise
provided the prosecutor consented;
Refer to:
1. surcharges
2. deficiency and delinquency interest
3. compromise penalty
T A X A T I O N
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A. Surcharges:
Not really a penalty as used in criminal
law but a civil administrative sanction
designed primarily to:
a. protect the State revenue, and
b. reimburse the government for
the expenses in investigating and
the loss resulting from the
taxpayers fraud.
Penalty of 25% of the amount due for:
1. Failure to file any return and pay the
tax due thereon;
2. Filing a return with the wrong agent
of the BIR, unless otherwise
authorized by the CIR
3. failure to pay the deficiency tax
within the time prescribed for its
payment in the notice of assessment;
4. Failure to pay the full or part of the
tax as shown on the return on or
before the due date
B. Interest:
a. Deficiency interest
20% per annum from the date
prescribed for its payment until the
full payment thereof
b. Delinquency interest
Interest of 20% or the Manila

Reference rate, whichever is higher,
required to be paid in case of failure
to pay:
a. the amount of the tax due on any
return required to be filed;
b. amount of the tax due for which
return is required;
c. the deficiency tax or any
surcharge or interest thereon, on
the date appearing in the notice
and demand of the CIR.
C. Compromise:
Similarities
of
compromise
and
compromise penalty:
1. They both imply mutual agreement.
A
compromise
penalty
cannot be imposed in the
absence of a showing that the
taxpayer consented thereto.
I N
T A X A T I O N
2. The CIR has no power to impose and

collect the compromise penalties in the
absence of a compromise agreement
validly entered into between the
taxpayer and the CIR
COMPROMISE
Definition:
An amount of money
paid by the taxpayer
to settle his civil
liability
for
tax
assessed
COMPROMISE
PENALTY
An amount of money
paid to compromise a
tax violation that he
has committed, which
may be the subject of
criminal prosecution
Basis of amount
paid:
Gross sales or receipts
Basic tax assessed
during the year of the
tax due
Minimum amount
The
limitation Depends on the nature
depends on the legal of the tax violation
grounds used by the and the minimum
taxpayer
amount is generally
not
less
than
Php1,000
Civil Actions actions instituted by the
government to collect internal revenue taxes. It
includes filing by the government with the
probate court claims against the deceased
taxpayer.
Enforced by:
1. filing a civil case for the collection of a sum
of money with the proper regular court (i.e.
MTC or RTC); or
2. filing an answer to the petition for review
filed by the taxpayer with the CTA
A. Civil action filed with the ordinary court.
Resorted to only when tax becomes:
1. delinquent
2. collectible
Collectibility arises when:
a. Self-assessed tax shown in the return
was not paid within the date
prescribe by law;
b. Final assessment is not protested
administratively within 30 days from
date of receipt;
c. Non-compliance with the condition
laid in the approval of protest;
T A X A T I O N
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d. Failure to file a timely appeal to the

CTA on the final decision of the CIR
or his authorized representative on
the disputed assessment.
f.

Defenses precluded by final and

executory assessments:
1. Invalidity or illegality of the
assessment; and
2. Prescription of the governments
right to assess.

Prima facie evidence of a false or
fraudulent return
1. substantial under-declaration of taxable
sales, receipts or income or a substantial
overstatement
of
deduction,
as
determined by the Commissioner
pursuant to the rules an regulations
promulgated by the Secretary of
Finance;
B. Civil action filed with CTA

The fact that no civil action was filed before
the ordinary courts to collect the tax liability
is no ground for claiming that the right to
collect had already prescribed.
The answer filed by the government in the

CTA is tantamount to the filing of a civil
action for collection the regular court and
has the effect of tolling the prescriptive
period. (Hermanos, Inc. vs. CIR, 29 SCRA
552)
Criminal Action
2 Common crimes punishable under the Tax
Code:
1. Attempt to evade or defeat a tax
Any person who willfully attempts in
any manner to evade or defeat any
tax or the payment thereof shall, in
addition to other penalties provided
by law, upon conviction thereof, be
punished.
refund excess taxes withheld

on compensation,
who willfully violates these duties
at the time or times required by law
shall be punished upon conviction
in addition to other penalties
2. failure to report sales, receipts or

income in an amount exceeding 30% of
actual deductions constitutes substantial
overstatement of deductions.
Note:
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. The
approval of the Commissioner required
for the judicial enforcement of tax
liability is not jurisdictional; lack of such
approval merely affects the cause of
action or capacity to sue.
The conviction or acquittal

shall not be a bar to the filing of
a civil suit for the collection of
taxes.
2. Failure to file return, supply correct
and accurate information, pay tax,
withhold and remit tax and refund
excess taxes withheld on compensation
Any person required under the Tax
Code
a. to pay any tax
b. make a return
c. keep any record
d. supply correct and accurate
information
e. withhold or remit taxes
withheld
When the civil action arising out of a tax

delinquency
is
extinguished
by
prescription, it is still possible for such
tax to be collected by criminal action
inasmuch as actions of this kind
prescribe only after the lapse of 5 years
counted from the discovery of the crime.
An assessment is not necessary before a
criminal charge can be filed provided
there is a prima facie showing of a
willful attempt to evade taxes.
REMEDIES OF TAXPAYER
1. administrative
a. before payment
I. protest
II. entering into a compromise.
b. after payment filing of claim
for refund or tax credit within
T A X A T I O N
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two years from date of payment

regardless of any supervening cause.
2. judicial
a. civil action I. appeal to CTA within 30
days from receipt of decision on
the protest or from the lapse of
180 days due to inaction of the
Commissioner;
II. action to contest forfeiture of
chattel; and
III. action for damages
b. criminal action
I. Filing of criminal complaint
against erring BIR official
and employees; and
II. Injunction when the CTA in
its opinion the collection by the
BIR may jeopardize taxpayer.
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a) within 30 days from receipt of decision

denying the protest or
b) 30 days from the lapse of 180 day period
Effect of failure to appeal: the decision shall be
final, executory and demandable
Taxpayers suit.
Requisites:
1. the tax money is being extracted and
spent in violation of specific
Constitutional protections against
abuses of legislative power
2. that public money is being deflected to
any improper purpose
3. that the petitioner seeks to restrain the
respondents from wasting public
funds through enforcement of invalid
or unconstitutional law
Protest of Assessment:
1. File a request for reinvestigation or
reconsideration within 30 days from receipt
of the assessment

request for reinvestigation-a plea
for re-evaluation of an assessment on
the basis of newly discovered or
additional evidence that a taxpayer
intends to present in the reinvestigation.
Involves a question of fact or law or
both.

request for reconsideration-a
plea for re-evaluation of the assessment
on the basis of existing records without
need of additional evidence. Involves a
question of fact or law or both. (Revenue
Regulation No. 12-85)
2. Within 60 days from filing of protest, all
relevant supporting documents should have
been submitted, otherwise, the assessment
shall become FINAL (cannot be appealed).
(Sec. 228 NIRC)
Appeal of Protest to the CTA (Sec. 228 NIRC)
1. Grounds:
a) if the protest is denied in whole or in
part or
b) is not acted upon within 180 days from
submission of documents
2. Appellate Court: Court of Tax Appeals
3. Period to appeal:
However, the Supreme Court has discretion

whether or not to entertain a taxpayers suit
and could brush aside the lack of locus
standi where the issues are transcendental
importance in keeping with the courts duty
to determine that public officers have not
abused the discretion given to them.
TAX REFUND OR TAX CREDIT

Grounds:
1. tax is collected erroneously or illegally;
2. penalty is collected without authority;
3. sum collected is excessive
Requisites:
1. claim must be in writing;
2. it must be filed with the Commissioner
within two years (2) after the payment of
the tax or penalty; and
3. Show proof of payment.
Tax credit - a claim for issuance of a tax
credit certificate, showing an amount owing
from the government to the taxpayer which
the latter is legally authorized to credit or
offset against national internal taxes
payable by him, except withholding taxes.
Starting date for counting the 2-year period:
GEN. RULE: from the date of payment,
regardless of any supervening cause that
may arise after payment:
T A X A T I O N
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EXCEPTIONS:
1. Corporate Income tax
Where
a
corporation
paid
quarterly income taxes in any of
the first 3 quarters during the
taxable year but incurs a net loss
during the taxable year, the 2-year
period for the filing of the claim
for refund or credit shall be
counted from the date of the
filing of the annual corporate
ITR.
2. Income tax paid in installments
Where the tax paid had been paid
in installment, the taxes are
deemed paid, for purposes of
determining the commencement
of the 2-year period for filing a
written claim for the refund or
credit therefore on the date the
last installment was paid.
Note: A return filed showing an overpayment
shall be considered as a written claim for credit
or refund.
REFUND
CREDIT
There is actual The
reimbursable
reimbursement of mount
is
applied
the tax
against the sum that
may
be
due
of
collectible from the
taxpayer
I N
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4. provisions on prescriptions, being remedial

in nature should be liberally interpreted to
carry out its intent.
Prescriptive period for the ASSESSMENT
of taxes:
GENERAL RULE: three years after the date
the return is due or filed, whichever is later.
EXCEPTIONS:
1. failure to file a return: ten (10) years from
the date of the discovery of the omission to
file the return;
2. false or fraudulent return with intent to
evade the tax: ten (10) years from the date
of the discovery of the falsity or fraud;
3. agreement in writing: to the extension (not
reduction) of the period to assess between
the Commissioner and the taxpayer before
the expiration of the three year period.
NB: the extended period agreed upon can
further be extended by a subsequent
written agreement made before the
expiration of the extended period
previously agreed upon.
4. waiver or renunciation of the original three
(3) year limitation, signed by the taxpayer.
FALSE
RETURN
it
merely
implies
a
decision
from
the truth or fact
whether
intentional
or
not
PRESCRIPTION:
Purpose:
Prescription
periods
are
designed to secure the taxpayers against
unreasonable investigation after the lapse of
the period prescribed. They are also beneficial
to the government because tax officers will be
obliged to act promptly.
FRAUDULENT
RETURN
- It is intentional
and deceitful with
the aim of evading
the correct tax due.
Prescriptive period for the COLLECTION

of taxes:
General Rules:
1. when the tax law itself is silent on
prescription, tax is imprescriptible;
2. when no return is required, tax is
imprescriptible;
3. defense of prescription is waivable; and
Five (5) years - from assessment or within

period for collection agreed upon in writing
before expiration of the five-year period.
Ten (10) years - without assessment in case
of false or fraudulent return with intern to
evade or failure to file return.
T A X A T I O N
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Grounds for suspension of the running of

prescriptive period for assessment and
collection:
1. when the Commissioner is prohibited
from making the assessment or beginning
the distraint or levy or proceeding in court,
and for sixty days thereafter;
2. when the taxpayer requests for a
reconsideration which is granted by the
Commissioner;
3. when the taxpayer cannot be located in
the address given by him in the return,
unless he informs the Commissioner of any
change in his address;
4.
when the warrant of distraint or levy is
duly served, and no property is located;
and
5.
when the taxpayer is out of the
Philippines.
Requisites of a tax return for purposes of
starting the running of the period of limitation:
the return is valid - it has complied
substantially with the requirements of the
law; and
the return is appropriate it is a return
for the particular tax is required by law.
I N
T A X A T I O N
The prescriptive period starts to run from

the filing of the original return, if the same
is sufficiently complete to enable the CIR to
intelligently determine the proper amount
of tax to be assessed.
However, where the amended return is
substantially different from the original, the
right to assess is counted from the filing of
the amended return.
Prescriptive period for the filing of
CRIMINAL ACTION:
five (5) years from the day of the
commission of the violation, and if not
known, from the discovery thereof and the
institution of judicial proceedings for its
investigation and punishment.
Grounds for interruption of the period:
1. When proceedings are instituted against the
guilty persons
Begin to run again if the proceedings are
dismissed for reasons not constituting
jeopardy
2. offender is absent from the Philippines
Note: A defective tax return is the same as if

no return was filed at all.
Retroactivity of BIR Rulings
Amended return
General Rule: Prospective.
Allowed when:
Exceptions:
1. the amendment is made within 3 years from

the date of filing the original return; and
1. Where the taxpayer deliberately misstates

or omits material facts from his return or
any document required of him by the BIR;
2. Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; and
3. Where the taxpayer acted in bad faith.
2. no notice of audit or investigation of such

return has, in the meantime, been actually
served upon the taxpayer.
Effect on prescription:
T A X A T I O N
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T A X A T I O N
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BUREAU OF CUSTOMS (BOC)
TARIFF AND CUSTOMS CODE

TARIFF custom duties, toll of tribute
payable upon merchandise to the government.
CUSTOM DUTIES which are assessed at the
at the prescribed tariff rates which are likely
imposed for both revenue raising and for
regulatory purposes. It is the name given to
taxes on the importation and exportation of
commodities, the tariff or tax assessed upon
merchandise imported from, or exported to, a
foreign country.[ Garcia vs. Executive Sec., G.R.
no. 101273, July 3, 1992]
N.B: Customs duties and tariffs are
synonymous with one another. They both refer
to the taxes imposed on imported or exported
wares, articles, or merchandise.
Purposes of tariffs:
1. Revenue tariffs those whose rates are
relatively low so that goods may be readily
imported and duties may be easily collected.
2. Protective tariffs those whose rates are
relatively high to keep certain imports out of
the domestic market or to raise domestic
price on certain imports so that they may be
manufactured profitably at domestically;
3. Bargaining tariffs those whose schedules
include rates designed primarily for
bargaining purposes or which contain some
general provision for the imposition of
higher duties upon products of countries
whose tariff policies are considered
unsatisfactory or unfair.
Scope of Tariff and Custom Laws
Include not only the provisions of the
Tariff and Custom Code (TCC) and regulations
pursuant thereto, but all other laws and
regulations that are subject to the Bureau of
Customs (BOC) or otherwise within its
jurisdiction. As to the scope, Tariff and Custom
laws extend not only to the provisions of the
TCC but to all other laws as well the
enforcement of which is entrusted to the BOC.
DUTIES, POWERS AND JURISDICTION

OF THE BOC
1. The assessment and collection of the lawful
revenues from imported articles and all
other dues, fees, charges, fines, and
penalties accruing under the tariff and
customs laws.
2. The prevention and the suspension of
smuggling and other frauds upon the
customs
3. The supervision and control over the
entrance and clearance of vessels and
aircraft engaged in foreign commerce.
4. The enforcement of tariff and custom laws
and all other laws, rules and regulations
relating to tariff and custom administration.
5. The supervision and control over the
handling of foreign mails arriving in the
Philippines, for the purpose of the collection
of the lawful duty on the dutiable articles
thus impoprted and the prevention of
smuggling through the medium of such
mails.
6. Supervision and control over all import and
export cargoes, landed or stored in piers,
airport, terminal facilities, including
container yards and freight stations, for the
protection of government revenue.
7. Exclusive original jurisdiction over seizure
and forfeiture cases under the tariff and
custom laws.
ARTICLES
SUBJECT
TO
CUSTOM
DUTIES
Articles, when imported from any
foreign country into the Philippines, shall be
subject to duty upon each importation, even
though
previously
exported
from
the
Philippines, EXCEPT as otherwise specifically
provided for in this Code or in other laws. [SEC.
100, TOC]
MERCHANDISE- the Revised Administrative
Code defines merchandise, when used with
reference to importation or exportation, to
include goods, wares and in, general anything
that nay be the subject or exportation. Checks,
money orders and dollar bills properly within
the concept of merchandise as used in Revised
Administrative
Code,
are
merchandise.
[Bastida vs. CIR]
T A X A T I O N
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Kinds of Goods/Merchandise
7.
1. Articles subject to duty ( Dutiable Goods)

2. Prohibited importation
3. Conditionally-free importations
8.
DUTIABLE GOODS [Code:

NPA-VMH-FAT-WE-MAMO]
AFP-CPP9.
1. Animals and animals product

2. Animal or vegetable Fats; oil and their
cleavage products
3. Prepared foodstuffs; beverarages, spirits
and vinegar; tobacco and manufactured
tobacco
4. Products of Chemical or allied industries
5. Plastic and rubber articles
6. Pulp or wood;
7. Natural or cultural stones
8. Plaster, cements and other related articles
9. Arms and ammunitions
10. Vegetable products
11. Mineral products
12. Hides ( skin, fur, leather)
13. Footwear, headgear, etc.
14. Aircraft, vessels, vehicles and all other mode
of transportation
15. Textile and textile products
16. Wood and related articles
17. Electrical and mechanical machineries
18. Metals
19. Artworks, antique
20. Manufactured/miscellaneous articles
21. Optical products, medical and surgical
products [SEC. 104, Title 1, TCC]
PROHIBITED IMPORATTIONS
HOT-DOG-TAMAD]
1.
2.
3.
4.
5.
6.
[Code:
Heroine, marijuana and other dangerous

drugs, narcotics and pharmaceutical
products EXCEPT when made by the
government designed for medical purpose.
Opium
pipes
and
other
drugs
paraphernalia
Written or printed materials containing any
matter advocating of inciting Treason,
sedition, rebellion materials.
Dynamite, ammunition and other explosive
weapons EXCEPT when authorized by law
Written or printed articles involving
Obscene or immoral character
Gambling Devices
10.
11.
Lottery and sweepstakes Tickets EXCEPT

those authorized by the Philippine
Government
Articles, instruments, drugs and substances
designed and intended to produce unlawful
Abortion and printed materials promoting
unlawful abortion
Articles made of precious Metal but actual
fineness of quality not indicated
other Articles (P.D. 34)
Any Adulterated or misbranded drug in
violation of the Food and Drugs Act.(SEC.
102,TCC)
Note: All the above merchandise/goods cannot

be brought in or out of the Philippines.
CONDITIONALLY-FREE IMPORTATION
[Code: PSST-BAR-FEW-PERA-SAM-CPPVICE]
1. Professional instruments and implements
2. Sea store supplies to the vessel or aircraft
3. Salvage articles recovered from an
abandoned vessel
4. Trailer chassis by a shipping company
5. Books
6. Aquatic products
7. Relief organization and articles used for
relief operations
8. Film production by foreign media or movie
outfit
9. Equipment used in salvaging vessels
10. Wearing apparels
11. Personal and household effects
12. importation for the use of foreign
Embassies
13. Receptacles, containers holders and other
similar boxes
14. Animals, EXCEPT race horse
15. Samples of any kind
16. Articles for repair, re-conditioning for
export
17. Mining equipment and tools
18. Cost of repair made abroad upon a vessel
registered in the Philippines
19. articles which are previously exported but
returned in the Philippines
20. Prizes, medals, trophies, badges and other
thing bestowed as an award
21. Vessels spare part of foreign vessel and
aircraft
22. articles which are Imported subsequently in
the Philippines
23. Ccoffin, caskets
T A X A T I O N
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24. Exhibition, competition articles for display
2. legal weight
3. net weight
Note: These articles which are exempt from

import duties upon compliance with the
formalities prescribed in or with regulations
promulgated by the Commissioner of Customs
with the approval of the Sec. of Finance.
KINDS OF SPECIAL CUSTOM DUTIES

1. Dumping Duty imposed upon foreign
products with value lower than their fair market
value to the detriment of local products.
Classification of Custom Duties

1. Ordinary or Regular Custom duty- imposed
and collected merely as a source of revenue .
a. Ad Valorem- the duty is based on the
market value or price of the imported
article.
b. Specific- the duty is based on the weight
or volume of the imported article.
2. Special Custom duties- imposed and collected
in addition to ordinary customs duties
usually to protect local industries against
foreign competition.
Rate: difference between the actual price

and the normal value of the article.
Imposing authority: Special Committee on
Anti-Dumping composed of the Sec. of
Finance as chairman; members: Sec. of DTI,
and either the Sec. of Agriculture if the
article in question is agricultural product or
the Sec. of Labor if non-agricultural
product.
Basis of Dutiable Value
2. Countervailing Duty imposed upon

foreign goods enjoying subsidy thus allowing
them to sell at lower prices to the detriment of
local products similarly situated.
The dutiable value of the imported

article subject to an ad valorem of duty shall be
transaction value.
Rate: equivalent to the bounty, subsidy or

subvention
Imposing authority: Sec. Of Finance
TRANSACTION VALUE- is the price actually

paid or payable for the goods when sold for
export to the Philippines.
3. Marking Duty- imposed upon those not

properly marked as to place of origin of the
goods.
It is adjusted by adding certain expenses

to the extent that they are incurred by the buyer
but are not included in the price actually paid or
payable for the imported goods, the value of the
materials, components, parts and items
incorporated in the imported goods; amount of
royalties and license fees; cost of transport;
loading, unloading and handling charges; and
the cost of the insurance.
Rate: 5% ad valorem of articles

Imposing authority: Commissioner
Custom
Sequence in Determination of Value

1.
2.
3.
4.
5.
6.
transaction value
transaction value of identical goods
transaction value of similar goods
deductive value
computed value
other reasonable means or fallback value
of
4. Discriminatory Duty- imposed upon

goods coming from countries that discriminate
against Philippine products.
Rate: any amount not exceeding 100% ad
valorem of the subject articles
Imposing authority: president of the
Philippines
DRAWBACK
Basis for dutiable weight for specific

custom duties
It is a device resorted to for enabling a

commodity affected by taxes to be exported and
sold in foreign markets upon the same terms as
if it not been taxed at all. It may be full or
partial.
1. gross weight
T A X A T I O N
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OTHER CUSTOMS FEES, DUES, OR

CHARGES PAYABLE
1. Harbor Fees- are imposed on vessels entering
into or departing from a port of entry of the
Philippines.
2. Wharfage dues- are assessed against the
cargo of a vessel engaged in foreign or
coastwise trade, based on the quantity
weight or measure received and/or
discharged by such vessel.
3. Berthing dues- are assessed against a vessel
for mooring or berthing at a pier, wharf, or
river at any port in the Philippines.
4. Storage dues- are assessed on articles for
storage in customs premises, cargo shed.
5. Arrastre dues- are imposed on all imported
and exported articles and baggage of
passenger for their handling, receiving, and
custody.
6. Tonnage dues- are paid by the owner, agent,
operator or master of a vessel engaged in
foreign trade based on the net tonnage of
the vessel or weight of the articles
discharged or laden.
7. Other fees- charged and collected for services
rendered and documents issued by the BOC.
IMPORTATION UNDER TCC
Who are authorized to make import
entry?
1. The importer being holder of
the bill of lading;
2. A customs broker acting under
authority of the holder of the
bill; or A person duly
empowered to act as agent or
attorney-in-fact.
Liability for Custom Duties
GEN. RULE: All importations exportations of
goods are subject to custom duties. (Sec. 105,
TCC)
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agreements, or obligations with foreign

countries.
3. International organization pursuant to
agreement and special law
4. Exemption granted by the President of the
Philippines upon recommendation of NEDA.
Liability of importers for duties
The Code provides that all articles
imported into the Philippines shall be held to be
the property of the person to whom the same
are consigned: and the holder of the bill of
lading duly endorse by the consignee thereof
therein named, or if consigned to order by the
consignor, shall be deemed the consignee
thereof. The under writers of abandoned
articles and the salvors of articles saved from a
wreck at sea, along a coast, or in any area of the
Philippines, maybe regarded as the consignees [
Section 1203, Tariff and Custom Code]
Unless otherwise relieved by laws or
regulation, the liability for duties, taxes, fees,
and other charges attaching on importation
constitutes a personal debt due to the importer
of the government which can be discharged only
by payment of said duties and charge.
It also constitutes a lien upon the articles
imported which maybe enforced while such
articles are in custody or subject to the control
of the government.
Government importations
All importations by the government for
its own use or that of its own subordinates
branches or instrumentalities or corporations,
agencies or instrumentalities owned or
controlled by the government shall be subject to
the duties, taxes , fees and charges provided in
the Tariff and Customs Code.[Section 1205,
Tariff and Customs Code]
When importation begins and deemed
terminated
EXCEPTIONS:
Importation begins when carrying

vessel or aircraft enters the jurisdiction of the
Philippines with an intent to unload.
1. Exemption under the TCC

2. Exemptions granted government agencies or
GOCCs with existing contracts, commitments,
Importation terminates upon payment

of the duties and other charges due upon the
articles, or secured to be paid, at the port of
T A X A T I O N
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entry ant the legal permit for withdrawal shall

have been granted.
for a period of at least one (1) year;

or
3. Filipino overseas worker; or
4. former Filipino citizen and his
family who had been naturalized in a
foreign country and comes or
returns to the Philippines
In the case of articles that are free of

duties, taxes and other charges, importation is
deemed terminated from the time they havelegally left the jurisdiction of the customs.
Import Entry
A declaration to the BOC showing the
description, value, tariff classification and other
particulars of the imported article to enable the
customs authorities to determine the correct
customs duties and internal revenue taxes due
on the importation.
Abandonment
It is the renunciation by an importer of
all his interest in the property rights in the
imported article. It may be express or implied.

The term family shall mean the
spouse and children of the balikbayan
who are not balikbayan in their own
right traveling with the latter to the
Philippines.
FLEXIBLE TARIFF CLAUSE
Authority of the President to adjust the
tariff rates prescribed under the Tariff and
Customs Code, which is the enabling law that
made effective the delegation of the taxing
power to the President under the Constitution.
Smuggling or Unlawful Importation

Any person who shall fraudulently
import or bring into the Philippines, or assist In
doing so, any article, contrary to law, or shall
receive, conceal, buy, sell, or in any manner
facilitate the transportation, concealment, or
sale of such article after importations, knowing
the same to have been imported contrary to law,
shall be guilty of smuggling. (sec. 3601 TCC)
Fraudulent Practices (Criminal Offense)
against Custom Revenues under Sec.
3602
3.
Entry of imported articles by
means of any false or fraudulent invoice.
4.
Entry of goods at less than the
true weight or measure.
5.
Filling of any false or fraudulent
entry for the payment of drawbacks or refund of
duties.
Returning residents

For the purpose of conditionally
free importation of personal and household
effects, they are nationals who have stayed in a
foreign country for a period of at least six (6)
months.
BALIKBAYAN

for the purpose of tax-free
purchase at Philippine Duty-free shops, he must
be:
2. Filipino citizen who has been
continuously out of the Philippines
1. The Congress may, by law, authorize

the President to fix within specified
limits and subject to such limitations
and restrictions as it may impose:
a. tariff rates, import and export
quotas, tonnage and wharfage
dues; and
b. other duties or imports within
the framework of the national
development program of the
government (Art. VI, Sec. 28(2),
Constitution)
Sec. 401, TCC: In the interest of national
economy, general welfare and/or national
security, the President upon recommendation
of the NEDA, is empowered:
1.
to increase, reduce, or remove
existing protective rates of import duty,
provided that the increase should not be higher
than 100% ad valorem;
2.
to establish import quota or to
ban imports of any commodity; and
3.
to impose additional duty on all
imports not exceeding 10% ad valorem.
LIMITATIONS TO FLEXIBLE TARIFF
CLAUSE
1.
Conduct
by
the
Tariff
Commission of an investigation in a public
hearing.
T A X A T I O N
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The commission shall also hear the

views and recommendations of any
government
office,
agency
or
instrumentality concerned.
The commission shall submit their
findings and recommendations to the
NEDA within 30 days after the
termination of the public hearing. The
NEDA
thereafter
submits
the
recommendation to the President.
2.
The power of the President to
increase or decrease the rates of import duty
within the abovementioned limits fixed in the
Code shall include the modification in the form
of duty.
In such case the corresponding ad
valorem or specific equivalents of the duty with
respect to the imports from the principal
competing foreign country for the most recent
representative period shall be used as bases.
(Sec. 401, TCC)
THE TARIFF COMMISIONS (TC)
FUNCTIONS
COMMISSION
OF
THE
TARIFF
A. The Commission shall investigate:

1. the administration of and the fiscal and
industrial effects of the countrys tariff
and customs laws;
2. the relations between the rates of duty
on raw materials and finished or partly
finished goods;
3. the effects of ad valorem and specific
duties and of compound specific and ad
valorem duties;
4. all questions relative to the arrangement
of schedules and classifications of
articles under the tariff laws;
5. the tariff relations between the
Philippines and foreign countries,
commercial treaties, etc.;
6. the volume of importation compared
with
domestic
production
and
consumption;
7. conditions, causes, and effects relating
to competition of foreign industries with
those of the Philippines;
8. in general, to investigate the operation
of customs and tariff laws and to submit
report of its investigation; and
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9. the
nature,
composition,
and
classification of articles for customs
revenue and other related purposes
which shall be furnished to NEDA,
Board of Investments, Central Bank, and
Sec. of Finance.
B. Administrative assistance to the President
and Congress (Sec. 506, TCC)
TAX REMEDIES UNDER THE TARIFF
AND CUSTOMS CODE (TCC)
TAX REMEDIES OF THE GOVERNMENT
A. ADMINISTRATIVE
1. Tax Lien (sec. 1204 TCC)
attaches on the goods, regardless of
ownership, while still in the custody or
control of the Government
Availed of when the importation is
neither prohibited nor improperly made.
2. Administrative Fines and Forfeitures
applied when the importation is
unlawful and it may be exercised even
where the articles are not or no longer in
customs
custody
.UNLESS
the
importation is merely attempted in
which case it may be effected only while
the goods are still within the Customs
jurisdiction or in the hands of a person
who is aware thereof. (sec. 2531 and
2530 TCC)
Under Sec. 2530 (a), TCC in order to
warrant forfeiture, it is not necessary
that the vessel or aircraft must itself
carry
the
contraband.
The
complementary if collateral use of there
Cessna plane for smuggling operation is
sufficient for it to be deemed to have
been used in smuggling. [Llamado vs.
Commissioner of Customs, G.R. no. L28809, may 16, 1983]
3.
Reduction
of
Custom
Duties/
Compromise
Subject to approval of Sec. of Finance
(sec. 709, 2316 TCC)
4. Seizure, search, arrest (sec. 2205, 2210,
2211 TCC)
B. JUDICIAL
T A X A T I O N
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The CTA empowers to issue injunction,

it would appear that an importer may
appeal without first paying the duties,
such as in seizure, but not in protest
cases.
This remedy is normally availed of when the tax

lien is lost by the release of the goods.
Civil action (se. 1204 TCC)
Criminal Action
TAX REMEDIES OF THE TAXPAYER
A. ADMINISTRATIVE
1. Protest
Any importer or interested party if
dissatisfied with published value within
15 days from date of publication or
within 5 days from the date of importer
is entitled to refund if payment is
rendered erroneous or illegal by events
occurring after the payment.
Taxpayer within 15 days from
assessment. (sec. 2308,2210 TCC)
Note: Payment under protest is necessary.
2. Refund
A written claim for refund may be
submitted by the importer in abatement
cases on missing packages, deficiencies
in the contents of packages or shortages
before arrival of the goods in the
Philippines, articles, lost or destroyed
after such arrival, dead or injured
animals, and for manifest clerical errors;
and
Drawback cases where the goods are reexported (sec. 1701-1708 TCC)
3. Settlement of any seizure by payment
of fine or redemption
But this shall not be allowed in any case
where
importation
is
absolutely
prohibited or the release would contrary
to law, or when there is an actual and
intentional fraud (sec. 2307 TCC).
2. Action to question the legality of seizure

3. Abandonment
failure to file an import entry within 30
days from the discharge of goods or
having filed an entry fails to claim
within 15 days but it shall not be so
effective until so declared by the
collector. (sec. 1801 as amended by RA
7651)
REMEDIES IN THE BUREAU OF
CUSTOMS (BOC)
A. CUSTOM PROTEST CASES
These are cases which deal solely with
liability for custom duties, fees, and other
charges.
Note: Before filing a protest, there must first be
a payment under protest.
Requirements for making a Protest
1. must be in writing
2. must point out the particular decision or
ruling of the Collector of Customs to
which exception is taken or objection
made
3. must state the grounds relied upon for
relief
4. must be limited to the subject matter of
a single adjustment
5. must be filed when the amount claimed
is paid or within 15 days after the
payment
6. protest must furnish samples of goods
under protest when required.
4. Appeal
Within 15 days to the Commissioner
after notification by Collector of his
decision (sec. 2313 TCC).
B. JUDICIAL
1. Appeal
Within 30 days from receipt of decision
of the Commissioner or Secretary of
Finance to the division of the CTA (sec.
2403 TCC, sec. 7 RA 1125, as amended
by sec. 9 RA 9282)
T A X A T I O N
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PROCEDURES in CUSTOMS PROTEST

The collector acting within his jurisdiction
shall cause the imported goods to be
entered at the custom house.
The collector shall assess, liquidate, and

collect the duties thereon, OR detain the
said goods if the party; liable does not
pay the same.
The party adversely affected may file a

written protest on his foregoing liability
with the Collector within 15 days after
paying the liquidated amount.
Hearing within 15 days from receipt of

the duty presented protest. Upon
termination of the hearing, the Collector
shall decide on the same within 30 days.
Decision is adverse to the

PROTESTANT
Decision is adverse to the

GOVERNMENT
Appeal with the

Commissioner within 15
days from notice
Automatic review by the

commissioner
Appeal with the CTA

division within 30 days
from notice
Automatic review by the Sec. of

Finance.
Note: if within 30 days from
receipt of the record of the case
by the Com. Or the Sec. of
Finance And no decision is
rendered by either of them the
decision under review shall
become final and executory.
Appeal with the

CTA En Banc
If
the
decision
of
the
Commissioner or Sec. of
Finance
adverse
to
the
protestant he may appeal to the
CTA and SC under the same
procedure on the other side.
Appeal by certiorari
with the Supreme
Court within 15 days
from notice.
T A X A T I O N
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B. SEIZURE AND FORFEITURE CASES

These refer to the matters involving smuggling.
It is administrative and civil in nature and is
directed against the res or imported articles
and entails a determination of the legality of
importation.
Note: These are action in rem.
Smuggling or Unlawful Importation
Any person who shall fraudulently
import or bring into the Philippines, or assist In
doing so, any article, contrary to law, or shall
receive, conceal, buy, sell, or in any manner
facilitate the transportation, concealment, or
sale of such article after importations, knowing
the same to have been imported contrary to law,
shall be guilty of smuggling (sec. 3601 TCC).
Note: anything that was used for smuggling
is subject to confiscation. [Lladoc vs. Com of
Custom, R.R. L-28809, May 16, 1983]
EXCEPT Common carriers that are not
privately chartered cannot be confiscated.
Note: Mere possession of the article in
question is liable UNLESS defendant could
explain that his possession is lawful to the
satisfaction of the court (sec. 3601,TCC)
Note: Payment of the tax due after
apprehension is not a valid defences.
[Rodriguez vs. CA, G.R. no. 115218,
September 18, 1995]
Port of Entry
A domestic port open to both foreign
and coastwise trade including airport of entry
(sec. 3514, TCC).
All articles imported into the Philippines

whether subject to duty or not shall be
entered through a customhouse at a port of
entry.
Three meanings of term ENTRY

1. documents filed at the custom house
2. submission and acceptance of the
documents
3. procedure of passing the goods through the
custom house. [ Rodriguez vs. CA, G.R. no.
115218, September 18, 1995]
I N
T A X A T I O N
Right of Custom
Seizure and Arrest
Officers
to
Effect
1. May seize any vessel, aircraft, cargo, article,

animal or other movable property when the
same is subject to forfeiture or liable for any
time as imposed under TCC, rules and
regulation.
2. May exercise only in conformity with the
laws and TCC.(sec. 2205 TCC)
Articles
subject
to
Seizures
and
Forfeitures [Code: FEU-UE-UM-UP-BIR]
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Fraudulent removal of cargoes

Excessive sea store
Undeclared cargoes
Unlawful use of aircraft or vessel EXCEPT if
there is Certificate of Public Convenience
and Necessity
Excessive cargoes
Unlawful transfer of cargoes
Money used to bribe
Unauthorized removal of goods
Prohibited articles
Beast, actually used for the consequence
that is subject of forfeiture
Instruments used in the loading or
unloading of goods subject of forfeiture
Receptacles, boxes used to conceal good
subject of forfeiture (sec. 2530,TCC)
Article NOT subject to Forfeiture or

Seizure
The forfeiture of vessel or aircraft or
seizure of articles shall not be effected if it is
established that the owner thereof or his agent
in charge of the means of conveyance used as
aforesaid has no knowledge of a participation in
the unlawful act. In other words, no
forfeiture or seizure in the absence of
prima facie evidence.
HOWEVER, that a prima facie presumption
shall exist against the vessel, vehicle or aircraft
under any of the following circumstances:
1. if the conveyance has been used for
smuggling at least twice before;
2. if the owner is not in the business for which
the conveyance is generally used; and
3. if the owner is financially not in a position
to own such conveyance.
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DOCTRINE
OF
PRIMARY
JURISDICTION OVER SEIZURE AND
FORFEITURE CASES
The prevailing doctrine is that the exclusive
jurisdiction in seizure and forfeiture cases
vested in the collector of customs precludes
a regular court from assuming cognizance of
such matter.
It is the settled rule that the BOC acquires
exclusive jurisdiction over imported goods,
for the purpose of enforcement of the
customs laws, form the moment the goods
actually in its possession or control, even if
no warrant of seizure or detention had
previously been issued by the Collector of
Custom in connection with seizure and
forfeiture proceedings.
Thus, the RTC do not have jurisdiction over
seizure
and
forfeiture
proceedings
conducted by the BOC. Even if a Custom
seizure is illegal, exclusive jurisdiction still
belongs to the BOC. [Jao vs. CA, G.R. no.
104604,October 6, 1995]
DOCTRINE OF HOT PURSUIT
Requisites:
1. Over Vessels
a. an act is done in Philippine water which
constitutes a violation of the TCC
b. a pursuit of such vessel began within the
jurisdictional waters which may continue
beyond the maritime zone and the vessel
may be seized on the high seas.
I N
T A X A T I O N
2.
a.
b.
c.
Over Imported Articles

there is a violation of TCC
they may be pursued in the Philippines
with the jurisdiction over them at any place
therein for the enforcement of the law. (2nd
par. Sec. 603,TCC).
Jurisdiction of the BOC

The BOC has the right of supervision
and police authority over all seas within the
jurisdiction of the Philippines and over all
coasts, ports, harbours, bays, rivers and inland
waters whether navigable from the sea or not.
(sec. 603,TCC).
Note: In Assali vs. Commissioner, 27SCRA312,
the SC held as a valid the interception and
seizure of a vessel on the high seas, saying that
the authority of a nation within its territory is
absolute and exclusive. The power to secure
itself from injury may certainly be exercised
beyond the limits of its territory.
Places where searches and seizures may
be conducted
1. Right of police officer to entered
enclosure
WITHOUT
a
warrant,
EXCEPT a dwelling house
2. Search with dwelling house must be
with proper warrant
3. right to search vehicles or aircrafts and
person or articles conveyed therein
4. Right to search vehicles, beast and
person
5. Search of person arriving from foreign
countries.
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PROCEDURE IN SEIZURE AND FORFEITURE CASES
Warrant for detention of property

shall be issued by the collector.
Report of seizure to
Commissioner and Chairman,
Commission on Audit
Notification to owner or
importer or to unknown owner.
Note: If the owner or

importer desires to secure to
release of the property for
legitimate use, the collector
may surrender it upon the
filling of a sufficient BOND,
in an amount fixed by him,
conditioned for the payment
of the appraised value of the
article and or any fine,
expenses and cost which may
be adjudged in the case.
PROVIDED, articles which
are prohibited by law shall
NOT be released under bond.
Formal Hearing
District collector renders

his decisions
If against the
importer he may
appeal
If against the
government it may
appeal
SETTLEMENT OF FORFEITURE CASES

GEN. RULE: Settlement of cases by payment
of fine or redemption of forfeited property is
allowed.
Since criminal proceeding are actions in

personam while the latter is action in rem.
Note: Burden of proof in seizure or forfeiture
case is on the claimant. (sec. 2535, TCC)
EXCEPTIONS:
MANIFEST
1. the importation is absolutely prohibited or

2. the surrender of the property to the person
offering to redeem would be contrary to law
or
3. when there is fraud. (sec. 2307,TCC)
Manifest in coastwise trade for cargo

and passengers transported from one place to
another are required when one or both of such
places are a port of entry (sec.906,TCC).
Note: Acquittal in criminal charged is not a res

judicata in seizure or forfeiture proceedings.
Manifest is not only required to imported

goods. It is also required for articles found
on vessels or aircraft engaged in coastwise
trade.
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Whether the act of smuggling is established

or not under the principle of res ipsa
loquitur. It is enough that the cargo was
unmanifested and that there was no
showing that payment of duties thereon had
been made for it to be subject to forfeiture.
Thus, unmanifested cargo is subject to
forfeiture.
B. SURCHARGE
To overcharge or to charge again as in
an accounting between parties.
Articles Subject to Surcharge [Code:
DEMI]
1. Failure to pay Duties (sec. 2501,TCC)
2. Failure or refusal of a party to submit
evidence (sec. 2504,TCC)
3. Misclassification, misdeclaration or under
evaluation of article
4. Failure to submit or supply invoice
(sec.2502,TCC)
D. FINES
Subject to Fines [Code: BRUCE]
1. Breach of a
2. Failure to supply or manifest requirements
provided by law (sec. 2521, TCC)
3. Unlawful loading and unloading of cargoes
(Secs. 2524, 2517,TCC)
4. Failure to produce all the crew members
5. Failure to exhibit the documents related to
the vessel (Secs. 2519,2507,2508-2514,
TCC)
I N
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FUNDAMENTAL PRINCIPLES (SEC. 130,

LGC)
The fundamental principles governing the
exercise of the taxing and other revenue-raising
powers of LGUs are:
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 shall inure solely to
the benefit of 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.
LOCAL TAXING AUTHORITY
The power to tax is exercised by the
Sanggunian of the LGU concerned through an
appropriate ordinance. (Sec. 132, LGC)
POWER TO ADJUST LOCAL TAX RATE (SEC.
191, LGC)
LOCAL TAXATION
Adjustment of the tax rates as

prescribed herein should not be oftener than
once every five (5) years, and in no case shall
such adjustment exceed 10% of the rates fixed
under the LGC.
Power to Create Sources of Revenue

Each local government unit has the power to:
1. create its own sources of revenue and
2. levy taxes, fees, and charges subject to the
provisions herein, consistent with the basic
policy of local autonomy. (Sec. 129)
POWER TO GRANT TAX EXEMPTIONS

(SEC. 192, LGC)
Such taxes, fees, and charges shall accrue

exclusively to the local government units.
LGU may, through ordinances duly

approved, grant tax exemptions, incentives or
reliefs under such terms and conditions, as
they may deem necessary.
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National Government, its agencies and

Instrumentalities, and local government
units.
RESIDUAL TAXING POWERS OF THE

LGU (SEC. 186, LGC)
To levy taxes, fees, or charges on any
base or subject NOT:
a. specifically enumerated in LGC
b. taxed under the provisions of the NIRC
c. other applicable laws.
Limitations of the Residual Power:
a. constitutional limitations on taxing power
b. common limitation prescribed in Sec. 133,
LGC
c. fundamental principles governing the
exercise of the taxing power of the LGUs
prescribed under Sec. 130 LGC
d. the ordinance levying such residual taxes
shall not be enacted without any prior
public hearing conducted for the purpose
and
e. the principle of preemption.
PRINCIPLE
OF
PREEMPTION
EXCLUSIONARY DOCTRINE
OR
Where the National Government elects

to tax a particular area, it impliedly withholds
from the local government the delegated power
to tax the same field. This doctrine rest on the
intention of the Congress.
3. Taxes, fees, or charges, on Countryside and

Barangay
Business
Enterprises
and
cooperatives duly registered under R.A.
6810 and R.A. 6938 (Cooperative Code of
the Philippines);
4. Taxes, fees, or other charges on Philippine
products actually exported, except as
otherwise provided;
5. Taxes on premiums paid by way or
reinsurance or retrocession;
6. 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 the Code;
7. 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;
8. Taxes, fees or charges on agricultural and
aquatic products when sold by marginal
farmers or fishermen;
Excluded imposition:
9. Documentary stamp tax;
a. taxes which are levied under the NIRC,
unless otherwise provided by LGC;
b. taxes which are imposed under the Tariff
and Customs code
c. taxes imposition of which contravenes
existing governmental policies or which
violates the fundamental principles of
taxation
d. taxes and other charges imposed under
special law.
LIMITATION
ON
LOCAL
POWER (SEC. 133,LGC)
10. Estate Tax, inheritance, gifts, legacies and

other acquisitions mortis causa, except as
otherwise provided;
11. 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,
TAXING
1. 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;
2. Taxes, fees or charges of any kind on the
12. Percentage or VAT on sales, barters or

exchanges or similar transactions on goods
or services except as otherwise provided;
13. Income tax, except on banks and other
financial institutions;
14. Taxes on business enterprises certified to by
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the Board of Investments as pioneer or nonpioneer for a period of 6 and 4 years,

respectively from the date of registration;
printing and/or publication of books, cards,

posters, leaflets, handbills, certificates, receipts,
pamphlets, and others of similar nature.
15. Excise taxes on articles enumerated under

the national Internal Revenue Code, as
amended, and taxes, fees or charges on
petroleum products.
Rate: Not exceeding 50% of 1% of the gross

annual receipts for the preceding calendar year
OTHER IMPOSITIONS THAT THE LGU

MAY LEVY
a.
b.
c.
d.
provinces
municipalities
cities
barangays
Exceptions: Newly started business, the

tax shall not exceed 1/20 of 1% of the capital
investment. School texts or references,
prescribed by the DECS shall be exempt from
the tax.
3. Franchise Tax. Notwithstanding any
exemption granted by any law or other special
law, the province may impose a tax on
businesses enjoying a franchise.
PROVINCES
1. tax on transfer of real property
2. tax on business of printing and
publication
3. franchise tax
4. tax on sand gravel and other quarry
resources extracted from public land
5. professional tax
6. amusement tax
7. annual fixed tax for delivery truck or van
manufacturers
or
producers,
wholesalers of, dealer, or retailers in,
certain products.
1. Tax on Transfer of Real Property
Ownership. The province may impose a tax
on the sale, donation, barter, or on any other
mode of transferring ownership or title of real
property.
Rate: Not more than 50% of the 1% of the
total consideration or of the fair market value,
whichever is higher
Exception: Sale, transfer or other
disposition of real property pursuant to R.A.
No. 6657 (CARL).
Note: It shall be the duty of the seller,
donor, transferor or administrator to pay the
tax imposed within 60 days from the date of the
execution of the deed or from the date of the
decedent's death
2. Tax on Business of Printing and
Publication. The province may impose a tax
on the business of persons engaged in the
Rate: Not exceeding 50% of 1% of the gross

annual receipts for the preceding calendar year,
within its territorial jurisdiction.
Exceptions: Newly started business, the
tax shall not exceed 1/20 of 1% of the capital
investment.
4. Tax on Sand, Gravel and Other
Quarry Resources. The province may levy
and collect taxes 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.
Rate: Not more than 10% of fair market
value in the locality
Note: The permit to extract resources shall
be issued exclusively by the provincial governor,
pursuant to the ordinance of the sangguniang
panlalawigan. Proceeds distributed as follows:
Province -30% Component City or Municipality
where the quarry resources are extracted - 30%
Barangay where the quarry resources are
extracted - 40%.
5. Professional Tax. The province may
levy an annual professional tax on each person
engaged in the exercise or practice of his
profession requiring government examination.
To be paid 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.
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Rate: At such amount and reasonable

classification as the sangguniang panlalawigan
may determine but shall in no case exceed
P300.00.
outlets, or consumers, whether directly or

indirectly, within the province.
Exception:
Professionals
exclusively
employed in the government shall be exempt
from the payment of this tax.
MUNICIPALITIES (SEC. 143 LGC)
Note: To be paid to the province where

he/she practices his/her profession or where
he/she maintains principal office in case the
practice is in several places provided, after
payment he/she shall be entitled to practice
his/her profession in any part of the
Philippines. W/out being subjected to any other
national or local tax, license, or fee for the
practice of the profession.
6. Amusement Tax. The province may
levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing
stadium, and other places of amusement
Rate: Not more than 30% of the gross
receipts from admission fees.
Exception: The holding of operas,
concerts, dramas, recitals, painting and art
exhibitions, flower shows, musical programs,
literary and oratorical presentations, except
pop, rock, or similar concerts shall be exempt.
Note: Sangguniang panlalawigan may
prescribe the time, manner, terms and
conditions for the payment of tax. In case of
fraud or failure to pay, the sangguniang
panlalawigan may impose surcharges, interest
and penalties. The proceeds from the
amusement tax shall be shared equally by the
province and the municipality where such
amusement places are located.
7. Annual Fixed Tax for Every
Delivery Truck or Van of Manufacturers
or Producers, Wholesalers of, Dealers,
or Retailers in, Certain Products. The
province may levy an annual fixed tax for every
truck or any vehicle used by manufacturers,
producers, wholesalers, dealers or retailers in
the delivery of distilled spirits, soft drinks,
cigars and cigarettes, and other products as may
be determined by the sanggunian, to sales
Rate: Amount not exceeding P500.00.
The municipality may impose taxes on

the following business:
a. On manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers,
and compounders of liquors, distilled
spirits, and wines or manufacturers of any
article of commerce of whatever kind or
nature.
b. On wholesalers, distributors, or dealers in
any article of commerce of whatever kind or
nature.
c. On exporters, and on manufacturers,
millers,
producers,
wholesalers,
distributors, dealers or retailers of the
essential commodities
d. On retailers
e. On contractors and other independent
contractors
f. On banks and other financial institutions,
g. On peddlers engaged in the sale of any
merchandise or article of commerce
h. On any business, which the sanggunian
concerned may deem proper to tax. For
businesses subject to the excise, valueadded or percentage tax, the tax rate shall
not exceed 2% of gross sales of the
preceding calendar year.
Note: Rates of Tax within the Metropolitan
Manila Area shall not exceed by 50% the
maximum rates prescribed for a-h. (Sec. 144
LGC)
The tax is payable for every separate or distinct
establishment or place where business is
conducted. (Sec. 146 LGC)
Municipal non-revenue fees and chargesThe municipality may impose and collect such
reasonable fees and charges on business and
occupation except professional taxes reserved
for provinces. (Sec 147 LGC)
Municipalities shall have the exclusive authority
to grant fishery privileges in the municipal
waters. The sanggunian may:
a. Grant fishery privileges to erect fish corrals,
oysters, or other aquatic beds or bangus fry
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areas
1. Duly registered organizations and
cooperatives of marginal fishermen
shall have the preferential right;
2. The sanggunian may require a public
bidding pursuant to an ordinance for
the grant of such privilege;
3. Absent of such orgs. and coops or
their failure to exercise their
preferential right, other parties may
participate in the public bidding
b. Grant the privilege to gather, take or catch
bangus fry, prawn fry or fry of other species
and fish from the municipal waters by nets
or other fishing gears to marginal fishermen
free of rental or fee
c. Issue licenses for the operation of fishing
vessels of three (3) tons or less. (Sec. 149)
I N
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In case there is no branch or sales outlet

in the city or municipality where the sale made,
the sale shall be recorded in the principal office
and the taxes due shall accrue and be paid to
such city or municipality.
The following sales allocation for sales
recorded in the principal office of businesses
with factories, project offices, plants, and
plantations:
a. 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. 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.
CITIES (SEC. 151,LGC)

The city may levy the taxes and other
charges which the province or municipalities
may impose. The tax rates that the city may levy
may exceed the maximum rates allowed for the
province or municipality by not more than 50%
except the rates of professional and amusement
taxes.
Where the plantation located at a place

other than the place where the factory is
located, the above mentioned 70% shall be
divided as follows:
60% to the city or municipality where the
factory is located; and
40% to the city or municipality where the
plantation is located.
BARANGAYS (SEC. 152, LGC)

The barangay may levy the following
taxes:
a. taxes on stores or retailers with fixed
business establishments with the gross
sales for the preceding calendar year of
P50,000 or less ( for barangay in the
cities) and P30,000 or less (barangays
in municipalities)
b. services or charges
c. barangay clearance
d. other fees and charges.
SITUS OF
150,LGC)
LOCAL
TAXATION
Where there are 2 or more factories,

project offices, plants, or plantations located in
different localities, the above mentioned 70%
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.
COMMUNITY TAX
Cities or municipalities may levy a community
tax (Sec. 156)
(SEC.
A. Individuals Liable to Community Tax:
For purposes of collection of the taxes

under Section 143 (tax on business), businesses
maintaining or operating branch or sales outlet
elsewhere shall record the sale in the branch or
sales outlet making the sale or transaction, and
the tax thereon shall accrue and shall be paid to
the municipality where such branch or sales
outlet is located.
1. Inhabitant of the Philippines

2. Eighteen years of age or over
3. Regularly employed on a wage or salary
basis for at least 30 consecutive working
days during any calendar year,
4. or who is engaged in business or
occupation,
5. or who owns real property with an
aggregate assessed value of P1, 000.00
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A I D
or more,
6. or who is required by law to file an
income tax return
Tax rate: P5.00 and an annual additional tax
of P1.00 for every P1, 000.00 of income
regardless of whether from business, exercise of
profession or from property which in no case
shall exceed P5, 000.00.
I N
T A X A T I O N
A community tax certificate may also be issued

to any person or corporation not subject to the
community tax upon payment of P1.00. (Sec.
162,LGC)
Sec. 163, LGC Presentation of Community
Tax Certificate On Certain Occasions Individual
a. When an individual subject to the
community tax acknowledges any
document before a notary public,
b. takes the oath of office upon election or
appointment to any position in the
government service;
c. receives any license, certificate or permit
from any public authority; pays any tax
or fee;
d. receives any money from any public
fund;
e. transacts other official business; or
f. receives any salary or wage from any
person or corporation.
In the case of husband and wife, the tax

imposed shall be based upon the total property
owned by them and the total gross receipts or
earnings derived by them. (Sec. 157)
B. Juridical Personalities (Sec. 158, LGC)
Every corporation, no matter how created or
organized, whether domestic or resident
foreign, engaged in or doing business in the
Philippines is also liable to pay an annual
community tax.
Tax rate: P500.00 and an annual additional
tax, which shall exceed P10, 000.00 in
accordance with the following schedule:
a. 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 - P2.00;
and
b. For every P5, 000.00 of gross receipts
derived by it from its business in the
Philippines during the preceding year P2.00.
EXEMPT FROM COMMUNITY TAX
1. Diplomatic and consular representatives;
and
2. Transient visitors when their stay does not
exceed 3 months.
Place of Payment - place of residence of the
individual, or in the place where the principal
office of the juridical entity is located. (Sec. 160)
Time for Payment - accrues on the 1st day of
Jan. of each year which shall be paid not later
than the last day of Feb. of each year
Penalties for Delinquency. - An interest of
24% per annum from the due date until it is
paid shall be added on the amount due.
The community tax certificate shall not be

required in the registration of a voter.
Corporation
a. receives any license, certificate, or
permit from any public authority,
b. pays any tax or fee,
c. receives money from public funds, or
d. transacts other official business.
The city or municipal treasurer deputizes the
barangay treasurer to collect the community tax
in their respective jurisdictions.
The proceeds of the community tax actually and
directly collected by the city or municipal
treasurer shall accrue entirely to the general
fund of the city or municipality concerned.
Proceeds of the community tax collected
through the barangay treasurers shall be
apportioned as follows: (Sec. 164)
50% accrues to the general fund of the city or
municipality concerned; and
50% accrues to the barangay where the tax is
collected.
T A X A T I O N
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II. TAX REMEDIES UNDER THE LOCAL

GOVERNMENT CODE
A. Tax Remedies of Local Government
Units
1. Impose penalties (surcharges and
penalty interest) in case of delinquency;
2. Avail local governments liens;
3. Administrative action through distraint
of goods, chattels and other personal
property; and
4. By judicial action.
Civil remedies for collection
2.
3.
4.
5.
6.
tax lien;
distraint;
levy;
civil action;
purchase of property by LGUs for want
of bidder; property distrained not
disposed within 120 days from date of
distraint considered sold to the LGU.
Note: Either of these remedies or all may be

pursued concurrently or simultaneously at the
discretion of the local government unit
concerned.
Tax lien- Local taxes constitute a lien, superior
to all liens, charges or encumbrances in favor of
any person, enforceable by appropriate
administrative of judicial action, not only upon
any property or rights therein which may be the
subject of the lien but also upon property used
in business, occupation, practice of profession
or calling, or exercise of privilege with respect
to which the lien is imposed
I N
T A X A T I O N
Prescriptive Periods under the LGC:

1. Assessment of Local Taxes
General rule five years (5) from the
date they became due.
Exception: When there is fraud or
intent to evade the payment of taxes,
fees, or charges ten (10) years from
discovery of the fraud or intent to evade
the payment.
2. Collection of Local taxes:
Five (5) years from the date of
assessment by administrative or judicial
action.
Interruption of the period of prescription:

1. The treasurer is legally prevented from
making the assessment or collection of
the tax;
2. The
taxpayer
requests
for
a
reinvestigation and executes a waiver in
writing before the expiration of the
period within which to assess or collect;
and
3. The taxpayer is out of the country or
otherwise cannot be located.
B. Remedies of the Taxpayer under the

LGC
A. ADMINISTRATIVE
Prior to assessment:
1.
Administrative appeal to the
Secretary of Justice; and
2.
Action for declaratory relief
Judicial action
civil action only; it precludes a criminal
case as a proper remedy for collection of
delinquent local taxes.
The treasurer of the concerned Local
Government Unit shall file the
collection case.
The CTA has co jurisdiction over the tax
collection cases of the LGU
After an assessment:
1.
Protest of the assessment
within 60 days from receipt of
assessment. Payment under protest
is not necessary.; or
2.
Action for refund within 2
years from payment of tax to local
revenue taxes the supervening cause
applies in local taxation because the
period for the filling of claims for
refund is counted not necessarily
from the date of payment but from
the date the taxpayer is entitled to a
refund or credit.
3.
Right of redemption- 1 year
from the date of sale or forfeiture.
(SEC. 179, LGC)
T A X A T I O N
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B.JUDICIAL
appeal
within 60 days from assessment of
provincial, city or municipal assessor
to Local Board of Assessment
Appeals;
within 30 days from receipt of
decision of LBAA to Central Board
of Assessment Appeals;
a.
in case of denial of refund or credit,

appeal to the Board of Assessment
Appeals as in a protest case
I N
T A X A T I O N
Payment and subsequent refund or tax

credit within two (2) years from payment of
tax to local treasurer.
Right of redemption one (1) year from the
date of sale or from the date of forfeiture.
Action for declaratory relief injunction
if irreparable damage would be caused to the
taxpayer and no adequate remedy is available.
REAL PROPERTY TAXATION
CHARACTERISTIC OF REAL PROPERTY
TAX
b. court action appeal of CBAAs
decision to the Supreme Court by

certiorari;
c.
suit assailing validity of tax,

recovery or refund of taxes
paid;
1. Direct tax on the ownership of real property

2. Ad Valorem tax. The value is based on the
tax base
3. Proportion - the tax is calculated on the basis
of a certain percentage of the value assessed
4. Indivisible single obligation
5. Local Tax
d. suit to declare invalidity of tax
in
PROPERTIES LIABLE UNDER REAL

PROPERTY TAX
suit assailing the validity of tax

sale
According to the Local Government Code, Real

Property liable for Real Prop tax is:
1. Land,
2. Buildings
3. Machinery and
4.
Other improvements not otherwise
exempted under said code (Sec 232, LGC)
due
to
irregularity
assessment and collection;
e.
Appeal to the Secretary of Justice:

Any question on the constitutionality or
legality of tax ordinances may be raised on

appeal within 30 days from the effectivity
thereof
To the Secretary of Justice
Who shall render a decision within 60
days from date of receipt of appeal

Such
appeal shall not suspend the

effectivity of the ordinance, as well as the
accrual and payment of the tax
In case of adverse decision or inaction by
Note: Although the term real property has not

been expressly defined in the LGC, early
decisions of the Supreme Court in Mindanao
Bus Co. v City Assessor of Cagayan de Oro, 6
SCRA `97; Board of Assessment Appeals v
Meralco, 119 PHIL 328; Manila Electric Co. v
Board of Assessment Appeals, 10 SCRA 68
seem to suggest that Art 415 of the Civil Code
could also be controlling.
CLASSIFICATION
OF
LAND
purposes of assessment Sec 218 (a)
the Secretary of Justice, the aggrieved

party may file appropriate proceedings
with a court of competent jurisdiction.
Protest within 60 days from receipt of
assessment. Payment under protest not
necessary.
1.
2.
3.
4.
5.
6.
7.
for
Commercial
Agricultural
Residential
Mineral
Industrial
Timberland
Special
T A X A T I O N
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SPECIAL CLASSES OF REAL PROPERTY

(sec 216, LGC)
1. Hospitals
2. Cultural and scientific purposes
3. owned and used by local water districts
4. GOCCs rendering essential public
services in the supply and distribution of
water and/or generation or transmission
of electric power.
PROPERTIES EXEMPT FROM TAXES
(Sec. 234)
1. owned by the Republic of the Philippines or
its political subdivisions
Except: when beneficial use has been
granted to a taxable person
2. Charitable
institutions,
churches,
parsonages, and convents thereto, mosques,
non-profit or religious cemeteries, buildings
and improvements actually directly and
exclusively used for religious, charitable or
educational purposes.
3. Machinery
and
Equipment
actually,
directly, and exclusively used by local Water
districts and GOCCs engaged in the supply
and distribution of water and/or generation
and transmission of electric power
4. Real property owned by duly registered
Cooperatives under RA 6938
5. Machinery & equipment for pollution
control and Environment protection
Exemptions previously granted, (not falling
within the above enumeration) are withdrawn.
FUNDAMENTAL
PRINCIPLES
IN
Assessment REAL PROP TAXES (Art
198)
1. Current and fair market value is the basis of
appraisal
2. Uniformity in classification in each local govt
unit should be observed
3. Actual use of the property should be the basis
of classification
4. appraisal, assessment, levy and collection
should not be let to any private person.
5. equitable appraisal and assessment
PROCEDURE:
STEP 1 - DECLARATION
PROPERTY
OF
I N
T A X A T I O N
1. Declared by Owner or Administrator

(Sec 202-203)
If newly acquired property files with assessor within 60 DAYS from
date of transfer a SWORN statement
containing FMV and description of
property
If improvement on real property
file w/in 60 DAYS upon completion or
occupation (whichever is earlier)
SWORN statement containing FMV and
description of property
2. Declared by Provincial / City /
Municipal Assessor (Sec 204)
only when the person under Sec 202
refuses or fails to make the declaration within
the prescribed time
No oath is required
IF FILING FOR EXEMPTION (Sec 206)
person claiming exemptions must file
with assessor sufficient documentary evidence
to support claim within 30 days from the date
of DECLARATION of property
If required evidence is not submitted
within 30 days, the property will be listed as
taxable in the roll.
If proven to be tax-exempt, property will
be dropped from the roll
Note: IF PROPERTY DECLARED FOR THE
FIRST TIME (Sec. 222)
If declared for 1st time, real property
shall be assessed for back taxes for not more
than 10 yrs prior to the date of initial
assessment taxes shall be computed on the
basis of applicable schedule of values in force
during the corresponding periods
STEP 2: LISTING OF REAL PROPERTY
IN THE ASSESSMENTROLLS
(Sec 205, 207)
All declaration shall be kept and filed
under a uniform classification system to be
established by the provincial, city or municipal
assessor.
REAL
T A X A T I O N
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STEP 3: APPRAISAL AND VALUATION

OF REAL PROPERY
(Sec 212-214, 224-225)
Determining Fair Market Value
A. Land
1. Assessor of the province, city, and
municipalities gives summons to owners of
affected properties
2. Assessor prepares a schedule of FMV
for different classes of properties
3. Sanggunian enacts an ordinance
4. the schedule of FMV is published or
posted
B. Machinery
1. For Brand New machinery: FMV is
acquisition cost
2. In all other cases: FMV = Remaining
eco. life X Replacement
Estimated Eco. Life
Cost
STEP 4: DETERMINE ASSESSED VALUE
(Sec 218)
Procedure
1. take the schedule of FMV
2.
Assessed value = FMV
X
Assessment level
3. Tax = Assessed value X Tax rate
STEP 5: PAYMENT AND COLLECTION
OF TAX
Period: January 1 of every year (Sec 246)
tax shall constitute as superior lien (Sec 246)
HOW?
a. basic real prop tax in 4 equal
installments (Mar 31, June 30,Sept. 30, Dec. 31)
b. special levy - governed by ordinance
Note: INTEREST for LATE PAYMENT
- two percent (2%) each month on unpaid
amt. until the delinquent amt is paid.
- provided in no case shall the total interest
exceed thirty-six (36) months
Note:
FOR ADVANCE and PROMPT
PAYMENT
a) advance payment -discount not exceeding
20% of annual tax (Sec 251, LGC)
b) prompt payment -discount not exceeding
10% of annual tax due (Art 342 IRR)
I N
T A X A T I O N
WHO COLLECTS? The provincial, city,

municipal or barangay treasurer within which
to collect. (Sec 270).
PERIOD:
a. within five (5) yrs from the date they
become due
b. within ten (10) yrs. from discovery of fraud,
in case there is fraud or intent to evade
PRESCRIPTION SHALL BE SUSPENDED
when: (Sec 270, LGC)
1. local treasurer is legally prevented to collect
tax
2. the owner of prop requests for reinvestigation
and writes a waiver before expiration of
period to collect
3. the owner of the prop is out of the country or
cannot be located
REMEDIES
TAXATION
IN
REAL
PROPERTY
A. REMEDIES OF TAXPAYER
1. PAYMENT UNDER PROTEST (Sec 252)
- file protest with prov, city, or mun.
treasurer concerned
- indicate amount contested
- annotate on tax receipt paid under
protest
- Within 30 days, confirm protest in
writing stating grounds therefor
- treasurer shall decide protest within 60
days
Note: No protest shall be entertained unless
THE TAX IS FIRST PAID.
IF PROTEST DECIDED IN FAVOR of
taxpayer, amount may either be
a. refunded or
b. applied as tax credit
IF DENIED or NOT DECIDED WITHIN
60 DAYS BY TREASURER,
a. taxpayer may appeal to board of
assessment appeal or
b. avail of remedies under Ch 3 title
2 Book II (Local Board of Assessment Appeals
and Central Board of Assessment Appeals)
2. REFUND IN CASE OF EXCESSIVE
COLLECTION (Sec 253)
T A X A T I O N
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File a written claim for refund within two

(2) years from date taxpayer is entitled
thereto
B. REMEDIES OF GOVERNMENT
Remedies may be enforced either
through administrative or judicial action or
both, alternative or simultaneously. Use or
non-use of one remedy shall not be a bar
against the other (Sec 258)
1. ADMINISTRATIVE
A. Levy on Real property (Sec 258 and
259)
B. Sale of Real Property (Sec 260)
C. Local Governments Lien (Sec 256)
D. Further Distraint or Levy (Sec 265)
2. JUDICIAL (Sec 266)-civil action filed by
the local treasurer within 5 yrs. from due
date
C. CONDONATION and REMISSION
The PRESIDENT may remit or reduce
real prop tax in any province, city,
municipalities if he deems that PUBLIC
INTEREST so requires (Sec 277)
THE SANGGUNIAN concerned may
CONDONE or REDUCE the tax in cases where
a. there is a general failure of crops
b. substantial decrease in the price of
products
c. calamity (Sec 276)
I N
T A X A T I O N
Within 30 days
CTA EN BANC
Within 15 days
SUPREME COURT
COURT OF TAX APPEALS (R.A. 9282approved March 30, 2004)

COMPOSITION
Presiding Justice and 5 Associate
Justices
May sit en banc or in two divisions, each
division consisting of 3 justices. He
presiding justice and the most senior
associate justice shall serve as chairmen
of the two divisions.
POWERS of the Court of Tax Appeal
1.
2.
3.
4.
5.
6.
7.
by an ordinance - passed before Jan 1 of any

year and upon recommendation of the Local
Disaster Coordinating Council
APPEALS
TAXATION
IN
REAL
PROPERTY
8.
9.
10.
OWNER OR PERSON WITH

INTEREST
Files within 60 days
1. Written Petition under Oath
2. With Supporting Documents
LEGAL
DISTRAINT OF PERSONAL PROPERTY

AND LEVY OF REAL PROPERTY
Within 60 days
LOCAL BOARD OF ASSESSMENT APPEALS
(LBAA should decide win 120 DAYS from
receipt of petition)
Within 30 days
CENTRAL
BOARD
APPEALS
OF
to administer oaths;
to receive evidence;
to summon witness by subpoena;
to inquire production of papers or
documents by subpoena duces tecum;
to punish contempt;
to promulgate rules and regulations
for the conduct of its business;
to assess damage against appellant if
appeal to CTA is found to be frivolous or
dilatory;
to suspend the collection of tax
pending appeal; and
to render decisions on case brought
before it.
to issue order authorizing distrait of
personal property and levy of real personal
property.
ASSESSMENT
Upon the issuance of any ruling, order

or decision by the CTA favorable to the national
government, the CTA shall issue an order
authorizing the BIR, through the commissioner:
1. to seize and distrait any goods, chattels, or
effects and personal property, including
stocks and other securities, debts, credits,
T A X A T I O N
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bank accounts, and interest in and rights to

personal property and/or
2. levy the real property of such persons in
sufficient quantity to satisfy the tax or
charge together with any increment thereto
incident to delinquency.
The remedy shall no be exclusive and shall not
preclude the court from availing of other means
under the Rules of Court.
him automatically for review from

decisions of the Commissioner of
Customs which are adverse to the
government;
7. decisions of the Secretary of Trade
and Industry, in the case of nonagricultural
products,
and
the
Secretary of Agriculture in the case
of agricultural products, involving
dumping ad countervailing duties
JURISDICTION OF THE CTA

A. EXCLUSIVE APPELATE
JURISDICTION TO REVIEW BY APPEAL
B. JURISDICTION OVER CRIMINAL

CASES
1. 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
and
BOC.HOWEVER, offenses
a) where the principal amount of
taxes and fees, exclusive of
charges and penalties, claimed is
less than 1 million pesos, or
1. decision or inaction of the CIR in2. a) disputed assessment; refunds of

internal revenue taxes, fees and other
charges; penalties imposed in relation
thereto; and
b) other matters arising under the
NIRC; or other law or part of law
administered by BIR.
3. Decisions, order or resolution of
the RTCs in local tax cases originally
decided or resolved by them in the
exercise of their original or appellate
jurisdiction.
b) where there is no specified

amount claimed
shall be tried by the regular courts
and the jurisdiction of the CTA
shall be appellate.
4. decisions of Commissioner of
Customs in a. cases involving liability from
customs duties, fees and other
money
charges;
seizures,
detention or release of property
affected; fines, forfeitures and
other penalties imposed in
relation thereto; and
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,
b. other matters arising under the
Customs Law or other laws or

part of laws administered by the
BOC.
5. 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
LBAA;
6. decisions of the Secretary of
Finance on customs cases elevated to
and no right to reserve the filing of

such civil action separately from the
criminal action shall be recognized.
2. Exclusive appellate jurisdiction in
criminal offenses:
a) over
appeals
from
the
judgments, resolutions or orders
of the RTC in tax cases
originally decided by them;
T A X A T I O N
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b) over petitions for review of

the judgments, resolutions
or orders of the RTC in the
exercise of their appellate
jurisdiction over tax cases
originally decided by the MTC.
for under Rule 42 of Rules on Civil

Procedure
Decision, ruling or inaction of
the CIR, Commissioner of
Customs, Sec. of Finance, Sec. of
Trade and Industry or Sec. of
Agriculture or the RTC this
appeal shall be heard by a
DIVISION of the CTA.
Within 30 days from the receipt
of the decision or ruling from the
expiration of the period fixed by
law for the official concerned to
act, in case of inaction.
A party adversely affected by a
ruling, order of a division of the
CTA may file a motion for
reconsideration or new trial
before the same Division.
2. By filling a petition for review under a
procedure analogous to that provided
for under Rule 43 of Rules on Civil
Procedure
Decision, ruling or inaction of
the Central Board of Assessment
and the RTC in the exercise of its
appellate jurisdiction this appeal
shall be heard by a CTA EN
BANC.
A party adversely affected by a
resolution of a Division of the
CTA
on
a
motion
for
reconsideration or new trial, may
file a petition for review with the
CTA En Banc.
3. Petition for Review on Certiorari may be
filled by a party adverse affected by a
decision or ruling of the CTA En Banc,
through a verified petition before the
Supreme Court, pursuant to Rule 45 of the
Rules on Civil Procedure.
C. JURISDICTION OVER TAX

COLLECTION CASES
1. Exclusive original jurisdiction in
tax collection cases involving final and
executory assessments for taxes,
fees, charges and penalties. Collection
where the principal amount of taxes and
fees, exclusive of charges and penalties,
claimed is less than 1 million pesos
shall be tried by the proper MTC and
RTC;
2. Exclusive appellate jurisdiction in
tax collection cases -a) over
appeals
from
the
of the RTC in tax collection cases
originally decided by them;
b) over petitions for review of the
of the RTC in the exercise of
their appellate jurisdiction over
tax collection cases originally
decided by the MTC.
APPEAL
WHO MAY APPEAL?
Any party adversely affected by a
decision, ruling or inaction of the CIR,
Commissioner of Customs, Sec. of Finance, Sec.
of Trade and Industry or Sec. of Agriculture or
the RTC, may file an appeal with the CTA:
1. within 30 days after receipt of such
decisions or
2. After the expiration of the period fixed
by law for action referred to in Section
7(a) R.A. 9282, in which case the
inaction shall be deemed a denial.
GEN. RULE: New issues cannot be raised for

the first time on appeal.
EXCEPTIONS:
1. defense of prescription
REASON:
this is a statutory right
(Visayan Land Transport vs. Collector)
MODES OF APPEAL
1. By filling a petition for review under a
procedure analogous to that provided
2. errors of administrative officials

REASON: State can never be in estoppel
and Lifeblood Theory (CIR vs. Procter
T A X A T I O N
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and
Gamble
Manufacturing Corp.)
A I D
I N
T A X A T I O N
Philippines,
NOTE: However, this was reversed by the SC

in the case of Commissioner vs. Procter and
Gamble, G.R. no. 66838, Dec. 2, 1991
Resolution, held that in the absence of
explicit statutory provisions to the
contrary, the government must follow
the same rules of procedure which bind
private parties.
Collection of taxes may be SUSPENDED
pending appeal to the CTA
GEN. RULE: No appeal taken to the CTA shall
suspend the payment, levy or distrait, and/or
sale of any property of the taxpayer.
EXCEPTIONS:
1. there must be a showing that collection
of the tax may jeopardize the
interest of the government and/or
taxpayer;
2. deposit of the amount claimed or file a
surety bond for not more that double the
amount of tax with the Court when
required; and
3. showing by taxpayer that appeal is not
frivolous or dilatory.
CAN THE CTA ENJOIN COLLECTION OF
TAXES?
Sec. 11 of R.A. 1125 as amended by Sec. 9 of R.A.
9282 grants CTA power to suspend collection of
tax if such collection works to serious prejudice
of either taxpayer or government.
HOWEVER, Sec. 218 of NIRC provides
no court any grant injunction to restrain
collection of any tax, fee, charge imposed by the
Tax code.
Note: The provision in Tax Code refers to
courts OTHER THAN the CTA. [Blaquera vs.
Rodriguez, G.R. no. L-11295, March 29, 1958]
Note: Appeal to the CTA does not automatically
suspend collection UNLESS CTA issues
suspension order at any stage of proceedings.
oOo
T A X A T I O N
Page 107 of 107

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MEMORY AID

CBO OVER-ALL CHAIRPERSON: Evangeline Co

Atty. Bernard Bandonell

Tariff and Customs Code

Court of Tax Appeals

It has the right to compel all persons and

Although the power to tax is almost

inherent attribute of sovereignty

The power of taxation is an incident of

[Churchill and Tait vs. Concepcion, 34 Phil.

11. Freedom of religion ((Art. III, Sec. 5)

Being attribute of sovereignty, its

a. Levying/Imposition of the tax. This is

Due Process Clause (Art. III, Sec. 1)

b. Assessment and Collection. This is

SCOPE OF THE LEGISLATIVE POWER

Taxation shall only be exercised on persons,

a. Subjects or Objects of Taxation.

Corollary to the sole power to tax is the sole

b. Administrative Feasibility. The tax law

runs contrary to the principle of

Equally applies to taxpayers.. meaning, they

Rule that taxes are personal to the

c. Theoretical Justice. The tax law or

GEN. RULE: Taxes are personal to the

Rule of taxation must be uniform and

Q. Will a violation of these principles

1. Stockholders may be held liable for unpaid

TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND IMPOSOTIONS

To raise government fund

The imposition of a charge on all property in a

TAX as distinguished from DEBT

May not be a subject of compensation or

May be a subject of compensation or set-off

Draws interest if stipulated or delayed

Taxes are not debts because a tax does not

3. The government and the taxpayers are not

d. That the assessment and collection be

a. the thing to be furthered by the

a. It is comprehensive. It covers persons,

NOTE: Incidental advantage to the public or

A. This is a legislative prerogative. The power to

b. It is unlimited. The power to impose

It is the purpose which determines the

Q. When must public purpose exist?

A. "It must exist at the time the tax proceeds

LIMITATIONS ON THE TAXING POWER

2. International Comity - principle of

Thus, if a tax law violates certain

Taxation is for public purpose when:

adopts the generally accepted principles of

The territoriality rule does not merely relate

3. Non-delegation of taxing power

Rules Observed in Fixing Tax Situs

Suppose this provision does not exist,

b. Authority of the President, under the

MOBILIA SEQUUNTUR PERSONAM

Although a mere fiction of law, without

Whether Congress likes it or not, it can't

Actual or business situs [Wells Fargo v. CIR]

4. Territoriality or situs of taxation

b.2.1. franchise exercised in the Philippines;

b.2.3 shares, obligation, bonds issued by

d. EXCISE TAX- Where the act is performed