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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 public needs.
TO TAX: to impose a financial charge or other levy upon a tax payer by a state or the
functional equivalent of a state.
Amount of tax collected by the taxing authority from the public is always greater than the
amount to be expended for public purpose.
COMPLIANCE COST: resulting difference; which includes labor cost and other expenses
incurred in complying with tax laws and rules.
HYPOTHECATION: levy of a tax for a specified end (e.g. imposing a tax on vehicles to be
used on road construction rehabilitation and maintenance)
TAXATION DEFINED
Governments perspective
Power by which the sovereign, through its
law-making body, raises revenue to defray
the
necessary
expenses
of
the
government.
A way of apportioning the costs of
government among those who in some
measure are privileged to enjoy its benefits
and must bear its burdens.
Taxpayers perspective
Compulsory transfer of money (or goods)
from private individuals, institutions or
groups to the government. It may be
levied upon wealth or income, or in the
form of a surcharge on prices.
Destructive power which interferes with
the personal and property rights of the
people and takes from them a portion of
their property for the support of the
government.
Impact of tax
Person from whom government collects money in first instance.
Refers to liability for the tax.
Avera
Rate
taxed
a co
progr
Incidence of tax
Person who finally bears the bur
Ex. Amount of sales tax paid may be shifted or passed on by the seller to the buyer. What is
transferred is not the liability for the tax, but the tax burden. A seller who is directly and
legally liable for payment of an indirect tax, such as the VAT on goods or services is not
necessarily the person who ultimately bears the burden of the same tax. It is the final
purchaser or consumer of such goods or services who, although not directly and legally
liable for the payment, ultimately bears the burden of the tax.
Economists perspective
Non-penal, yet compulsory transfer of
base
resources Tax
from
theerosion
private to the public
When
components of the tax based are no
sector levied
on traditional
a basis of taxable
predetermined
longer
representative
of specific
the economy at large, this results to
criteria and
without
reference to
demographic changes, relative changes in production, stagnation
benefit received.
or inflationary effects.
Tax pyramiding
When sales taxes are applied t
shifting the tax burden to the ulti
some or all stages of production
borne by the consumer at the po
Tax rate
Neutralastax
Describes burden ration, usually expressed
a percentage, at which
Tax that
does not cause individuals or firms to shift their
a person, property, privileges or occupation
is taxed.
economic choices, such as to choose among different goods,
inputs,
Important distinction when considering
taxlocations
rates isetc.
to distinguish
between marginal rate and effective average rate.
Tax structure that does not change the incentives in the market.
Revenue Neutral
Taxing procedure that allows the
same amount of money despite c
may lower taxes for one group a
revenue to remain unchanged.
e.
which derives its source from the existence of the state whose social contract with its
citizens obliges it to promote public interest and common good.
Full reimbursement (peso for peso basis) is not necessary when the State uses taxation as
an implement of eminent domain.
Ex. Tax deduction does not offer full reimbursement of the senior citizen discount because it
only shaves money off the taxable income resulting to a partial recovery unlike a tax credit
which reduces the tax to be paid by the amount of discount. As such, it does not meet the
definition of just compensation. However, amendment to the law granting senior citizen
discount providing for tax deduction instead credit is not unconstitutional since the State can
impose upon private establishments the burden of partly subsidizing a government program.
REPRICING taxes may be levied to address externalities.
EXTERNALITIES: cost or benefit that is not transmitted through prices and is incurred by a
party who was not involved as either a buyer or seller of the goods or services causing the
cost or benefit.
External cost
Negative externality/cost of an externality
External benefit
Positive/benefit of an externality
4.
Legislative
Legislature lies the discretion to
Power is not granted in the Constitutionit merely constitutes limitations upon a power
which would be impractical without it
SEC 28(3), ART 6 CONSTI. Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, nonprofit cemeteries and all lands, buildings and
improvements, actually, directly and exclusively used for religion, charitable or educational
purposes shall be exempt from taxation.
In case of indirect taxes, shifting of the burden to tax from the seller to the buyer is not
incompatible with the principle that taxes are personal liabilities. When seller passes on the
tax to his buyer, he is only shifting the tax burden, but not the liability, to the buyer as part of
the cost of the goods sold or services rendered.
It is unlimited in rangeit is not subject to any restrictions except in the discretion of the
authority which exercises it. Security against its abuse is to be founded only in the
responsibility of the legislature which imposes the tax on the constituency who pay it.
McCulloch vs. Maryland
HELD: Power to tax involves the power to destroy.
Panhandle vs. Mississippi
HELD: Debunked the ruling in McCullock vs. Maryland where it is held that "power to tax is
not the power to destroy while this court sits. The power to tax may include the power to
destroy if it is used as an implement of the police power in discouraging and in effect
ultimately prohibiting certain things or enterprises inimical to public welfare. But where the
power to tax is used solely for the purpose of raising revenues, modern view is that it cannot
be allowed to confiscate or destroy.
It is imprescriptiblewithout exception, taxes being the lifeblood of the government.
However, statutes may provide for prescriptive periods for the collection of particular kinds
of taxes when government has not by express statutory provision, provided a limitation upon
its right to assess unpaid taxes, such right is imprescriptible.
HELD: The government is not bound by any statute of limitations, unless Congress has
clearly manifested its intention that it should be so bound.
Aspects of taxation
1. Aspects (LAP)
a. Levy2
b. Assessment and Collection3
c. Payment and/or exercise of remedies4
2.
f.
g.
h.
Elasticity.
Simplicity.
Diversity.
Equityevery person should pay to the government depending upon his ability to pay.
Certaintymust not be arbitrary; taxpayer should know in advance how much tax he has to
pay, at what time and in what form.
Conveniencemode and timing must be convenient to tax payers.
Economycost of tax collection should be lower than amount of tax collected.
Productivitytax when levied should produce sufficient revenue to the government.
Elasticitytax system should be fairly elastic so that if at any time the government is in
need of more funds, it should increase its financial resources without incurring any
additional cost of collection.
Simplicitytax system should be fairly simple, plain, and intelligible to the taxpayer.
Diversitysystem should include a large number of taxes which are economical;
government should collect revenue by levying direct and indirect taxes.
2.
HELD: SC allowed legal compensation of tax and debt when the claim of the
estate against the Government has been recognized and amount has already been
appropriate for the purpose of a corresponding law. Both the claim of the
Government for inheritance taxes and the claim of the intestate for services
Tax
Debt
rendered have already become overdue and demandable as well as fully
Due to government in its sovereign capacity
Due to the government in its corporate capacity
liquidated. Compensation takes place by operation of law and both debts are
extinguished to the concurrent amount, this:
Imposts levied by the Government for its support or some special Sum of money due upon contract, express or implied or one
ART 1200. When all requisites mentioned in ART 12795 are present, compensation
purpose, which the government has recognized.
which is evidenced by judgment
takes effect by operation of law and extinguished both debts to the concurrent
amount, even though the creditors and debtors are not aware of the compensation.
However, tax in a broad sense may be a debt, so that interest on estate and inheritance
may be deducted as interest on indebtedness:
Compensation may be applied if these circumstances are present:
a. Tax and debt
1. Both the claim of the Government for inheritance tax and claim for estate for
Tax
Debt
services rendered have already become due, demandable and fully liquidated.
Does not proceed from contract
Generally the result of the contract
2. An amount for the claim of the estate had already been appropriated by the
Obligations created by law and governed by special laws and Obligation created by a contract
Government by virtue of law.
falsification and non-payment of such taxes impose criminal
liabilities
CIR vs. Esso Standard
May be off-set
May not be off-set
May arise out of acts
of private
individuals
Can only be imposed by public authority
HELD:
On the
ground of solution indebiti 6, SC allowed compensation. Obligation to
Can be assigned return money mistakenly paid arises from the moment that payment is made, and not
Cannot be assigned
fromproperty
the time or
theservice
payee admits the obligation to reimburse. Since the money belonging
May be paid in money,
Generally payable in money
Draw
interest
if
stipulated
or
there
is
default
Do not draw interest unless delinquent
b.
c.
d.
Compensation had been the practice in the past can set no valid
precedent. Such practice has no legal basis.
2.
3.
4.
5.
to ESSO was already in the hands of the government, although the latter ha no right
whatever to the amount and indeed was bound to return it, it was neither legally nor
logically possible for ESSO to be considered a debtor of the Government; and whatever
other obligation ESSO might subsequently incur in favor of the Government should
have to be reduced in that sum, in respect of which no interest could be charged.
Republic vs. Ericta and Sampaguita Pictures
HELD: SC upheld the dismissal of complaint to pay the amount for alleged unpaid
taxes and counter claim representing the face value of negotiable certificates of
indebtedness.
3.
It can occur only when the untimely refund claim to be set off against the timely
assessment occurs within the same transaction or tax year. Doctrine can only be
used as a defense to an assessment made during the same transaction or tax
period.
1.
Personal, capitation
or poll
Taxes of a fixed
amount upon all
persons or upon all
persons of a certain
class,
resident
within a specified
territory,
without
regard
to
their
property
or
occupations
in
which they may be
engaged.
Taxes of a specified
amount upon each
person performing a
certain
act
or
engaging
in
a
certain business or
profession is not
poll tax.
Property
Excise or privilege
Charge
imposed
upon performance
of
an
act,
enjoyment of a
privilege
or
engaging in an
occupation.
It is measured by amount
of property owned by the
taxpayer on a given day,
and not on the total
amount owned by him
during the way.
Customs
duties
Charged
upon
commodities
being
imported
or
exported.
However, these do
not
pertain
to
performance of an
activity, at least not
to
extent
of
equating
excise
with
business.taxes.
It is assessed at stated
period
determined
in
advance, collected at
appointed times, enforced
by sale of property and by
imprisonment of person
assessed.
It is a tax in rem and
judgments in proceedings
is one in rem.
2.
Classification of taxes
Subject matter
Purpose
Special or regulatory
Achieve social or economic goals
REGRESSIVE
the amount of
Direct
Imposed and absorbed by same person.
Direct tax
Both the incidence of or
liability for the payment of tax
as well as impact or burden of
tax falls on same person and
cannot be shifted.
Ex.
Franchise
tax:
a
percentage tax imposed on
franchise holders is a direct
liability of the franchise
grantee.
Those that are exacted from the very person ho, it is intended or
desired, should pay them; they are impositions for which a
taxpayer is directly liable on the transaction or business he is
engaged in.
Ex. Income taxtaxes an individuals ability to pay based on his
income or net wealth.
4.
PROGRESSI
whereby the r
Personal tax
Those of a fixed amount
upon all persons of a certain
class within jurisdiction of the
taxing power without regard
to the amount of their
property.
Rate or graduation
Proportional
Fixed rate regardless of tax base.
Implies that
increases.
Indirect
Tax paid by a person other than one whom it is imposed.
Taxes wherein liability for payment of tax falls on one person to
another.
PROPORTIO
portion of the
5. Taxing authority
Illustration
1. VAT is payable by anyNational
person, in the course of trade
Local/municipal
and business. It is applied
Imposed
to each
by Congress
stage of production.
imposed by local legislative bodies
Burden of paying the amount may be shifted on to the
6. ofScope
buyer, transferee or lessee
goods, properties or
services.
General
Specific
2. Contractors taxpayable
by contractor but it is the
Imposed
throughout
the state or civil division for raising revenue Levied for a special purpose for
owner of the building that
shoulders
the burden.
3. Excise taxliability forfor
payment
generalmay
purposes
fall from
on athe
person
ground of general public interests.
politic resting upon the suppositi
other than the one who actually bears the burden.
specially benefited in the increase
7. Basis of amount
Those that are demanded, from or are paid by, one person in the
expectation and intention thatSpecific
he can shift the burden to
Fixed amount by head or number or by some standard of weight or
someone else.
measurement.
Specific expenditures.
Ex. VATsubstantial portion of consumer
Imposes a specific sum by the
head or number or by some
standard
of
weight
or
measurement
and
which
Progressive or graduated
Regressive
requires
no are
assessment
Tax rate and tax base are directly Tax rate and
tax base
inversely
a
listing
and
proportional.
proportional. beyond
classification of the subject to
Excise
Privilege tax laid upon the
manufacture,
sale
or
consumption of commodities
within the country .
Ad valorem (value)
Fixed proportion of value
taxes are assessed an
assessors or appraisers
property.
and regulation)
EXCEPTION: w
be taxed.
8.
Others
Consumption
Imposed on consumable commodities and
services.
Sumptuary
Government levy on goods considered
socially undesirable, most commonly
alcohol and tobacco.
Flat
Charged no matter how much value. It
Non-payment does not make business illegal. However, it may
does not change.
be ground for criminal prosecution, distraint and levy of
properties.
2.
Tax
Emerges from power of taxation of State.
Before commen
May be bargain
Non-payment of
Taxes
Levied on land, persons, property, income, business etc.
Special assessments
Levied on land.
Of general application.
Ordinary tax
Provide the government with revenues needed for the financing
of state affairs.
Special assessment
Finance the improvement of part
the improvement accruing or inu
assessment.
3.
4.
License fee
Emerges from police
Tax power of State.
Enforced proportional contributes from persons and property.
PURPOSE: regulatory to promote public welfare.
Penalty
Punishment for violation of law
violation of tax may give rise to im
to raise revenue.
Amount limited Imposed
to regulationcost
of permit (issuance of license
10
protection).
Government and individuals may impose.
No special or direct benefit is received by
the taxpayer, merely general benefit of
5. Tollpayment or fee exacted by the authorities for some right or privilege
protection except in special instances.
(e.g. passage along a road or over a bridge).
Contracts may not be impaired unless the
Taxes
Toll
taxpayers gave no consideration or in case
Demand of sovereignty for purpose of raising public revenue.
Compensation for the use by one of
of aanothers
property.
government
franchise.
something good.
Imposed by State.
6.
7.
8.
9.
Direct ben
compensa
Contracts
Property o
action.
Interferes
violation
imprisonm
2.
3.
Distinctions
Taxation
For revenue.
Police power
For promotion of general welfare.
Judicial review
1. Courts cannot review the wisdom of or advisability or expediency of a tax
SC is only allowed to settle actual controversies involving rights which are legally
Eminent domain
demandable and enforceable and may not annul an act of the political departments
For public purpose.
simply because the Court feels it is unwise or impractical.
Amount depends on the value of property
needed.
2. Requirements of questioning constitutionality
a. There must be actual controversy falling for exercise of judicial review;
b. Question before Court must be ripe for adjudication;
There is just compensation.
11
c.
d.
e.
A private person is allowed to raise constitutional questions only if he can show that he has
personally suffered some actual or threatened injury as a result of the allegedly illegal
conduct of the government, injury is fairly traceable to the challenged action and injury is
likely to be redressed by a favorable action.
Party must show not only that law or act is invalid butalso that he has imminent danger of
sustaining some direct injury as a result of its enforcement and not merely that he suffers in
some indefinite way.
3.
Taxpayers suit
Citizen and taxpayer suits
Plaintiff in a taxpayers suit
Plaintiff is affected by the expenditure of public funds.
4.
5.
DIRECT INJURY TEST: for a private individual to invoke judicial power in determining the
validity of an executive or legislative action, he must have sustained direct injury and it is not
sufficient that he has general interest common to all members in public.
7 Partys personal and substantial interest in a case such that he has sustained
or will sustain direct injury as a result of the governmental act being challenged;
Right of appearance in a court of justice on a given question; in private suits,
standing is governed by real parties in interest (SEC 2, RULE 3);
REAL PARTY: party who stands to be benefited or injured by the judgment in the
suit or the party entitled to the avails of the suit.
INTEREST: material interest in an issue affected by the decree.
MERE INTEREST: mere interest in the question involved or mere incidental
interest.
12
2.
3.
4.
5.
For taxpayers, there must be a claim of illegal disbursement of public funds or that
tax measure is unconstitutional;
For voters, there must be a showing of obvious interest in the validity of election
law in question;
For concerned citizens, there must be a showing that issues raised are for
transcendental importance which must be settled early; and
For legislators, there must be a claim that official action complained of infringes
upon their prerogatives as legislators.
2.
3.
The power to tax is an inherent power but such power must still be exercised in
accordance with the inherent and constitutional limitations
If there exists conflicting interest between the taxing authorities and taxpayers, it
must be resolved in favor of the real purpose of taxation, which is, promotion of
common good.
2 Kinds of Limitations:
o Constitutional Limitation those provided for in the Constitution
o Inherent Limitations restrictions to the power to tax attached to its
nature
Transcendental importance
Determinants
1. Character of funds or other assets involved in the case;
13
Public service
You cannot use public funds to promote an individuals interest, even if it may
incidentally result to the benefit of the public
Rationale: tax can be levied against one class of individuals in favor of another
class; you can ruin one class while favoring the other
If it is for a private purpose, it is robbery because government takes property of
another and then gives it in favor of another person.
public purpose includes indirect public advantage
o if an individual directly enjoys the tax, it is still valid as long as there is a
link to public purpose
Test to determine existence of Public Purpose
o Duty test if it is the duty of the government to provide such thing
o Promotion of General Welfare Test if proceeds will directly promote
the publics welfare
If purpose of the tax is not stated, it is presumed that it is created for a public
purpose
Examples (presumption of public purpose)
o Pensions of war veterans assurance that a persons patriotism will be
acknowledged and rewarded
o Unemployment relief
o Support for the handicapped
o Care for the aged
o Scholarships for poor but deserving citizens
o Tax on sugar
Oil Price Stabilization Fund oil industry is imbued with public interest,
and a dramatic increase in oil prices will result to economic crisis
The public purpose must exist at the time the law was enacted.
o Government may only use public funds for a public purpose
o The existence of public purpose determines its validity, not the incidental
benefit to the public
14
ii.
iii.
General rule: A state may not tax property lying outside its borders or lay an excise
or privilege tax upon the exercise or enjoyment of a right or privilege derived from
the laws of another state and therein exercised or enjoyed.
Taxation is an act of sovereignty which could only be exercised within states
territorial boundaries.
Taxes are paid for the protection and services provided by the taxing authority
which could not be provided outside the territorial limits of the taxing power.
Situs of taxation: situs is latin term which means situation, location or place.
Determination of situs: (S-NCR-L)
o (S) Subject matter of the tax- Situs may depend on what is being taxed:
excise/privilege, business, occupation, person, act or activity.
o (N) Nature/kind/ classification of the tax- situs may depend on what tax is
being levied: income tax, import duty, sales tax or real property tax.
o (C) Citizenship of the tax payer- situs may depend on which state the taxpayer
is a citizen of, or probably an alien, dual citizen, stateless or refugee.
o
o
(R) Residenxe of the taxpayer- situs may depend on the residence of the
taxpayer: resident, non- resident.
(L) Location of the property- situs may depend on the palce the thing or
property is located: within the Philippines or outside the Philippines.
F. GOVERNMENT EXEMPTION
Always remember that Exemption is the rule and taxation is the exception.
Definition of Terms
o RP (Republic of the Philippines) corporate government entity through
which the functions of government are exercised throughout the
Philippines.
o NG (National Government) entire machinery of the central government
as distinguished from different forms of local government
o GOCC (Government-Owned and Controlled Corporations) any
agency organized as a stock or non-stock corporation
15
G. INTERNATIONAL COMITY
IC (Incorporation Clause)
o The Philippines adopts the generally accepted principles on international
law as part of the law of the land.
o The Philippines adheres to the policy of peace, equality, justice, freedom,
cooperation, and amity with all nations.
The power to tax involves the power to destroy.8 These were the famous words penned by
the great Chief Justice Marshall in 1819. As discussed in the preceding chapters, the power
to tax is the strongest of all the inherent powers of the State. As being unlimited in its range,
the 1987 Constitution has vested this power to the people who pay it, through their
representatives, the Legislature.9 Though the taxing power is characterized as such an
awesome power, it is not unconfined.10
In the previous chapter, we have already discussed that taxing power, although
plenary in nature, is still subject to certain limitations. Some of these limitations are not to be
found in any statute, thus the term inherent limitations. In this chapter, we are now to
discuss the second type of limitations of the taxing power of the State The Constitutional
Limitations on Taxation. The 1987 Philippine Constitution provides the following limitations:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Due process;
Equal protection;
Freedom of speech and of the press;
Non infringement of religious freedom and worship;
Non impairment of contracts;
Non imprisonment for dent or non payment of poll tax;
Appropriations, revenue, and tariff b ills shall originate exclusively originate
from the house of representatives;
Uniformity, equitability, and progressivity of taxation;
Power of Congress to delegate to the President the authority to fix tariff rates,
import and export quotas, etc.;
Veto power of the President;
Tax exemption of properties actually, directly, and exclusively used for
religious, charitable, and educational purposes;
Voting requirement in connection with the legislative grant of tax exemption
Non impairment of the jurisdiction of the Supreme court in tax cases;
Exemption from taxes of the revenues and assets of educational institutions,
including grants, endowments, donations and contributions
DUE PROCESS
No person shall be deprived of life, liberty, or property without due process of law ,
nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III,
1987 Phil. Constitution)
In order that a tax statute may be validly imposed on the people, it must be lawful. In other
words, a tax law passed by the Congress of the Philippines must first be constitutional.
16
Under Section one (1) of the Bill of Rights (Art. III, 1987 Philippine Constitution), the tax law
must undergo due process for it amounts to an individuals property (though minimal) being
deprived from him. The due process clause is a constitutional safeguard of the people from
the government, which is the taxing authority. If so proved that the tax law is violative of this
constitutionally protected right, under the principle of ubi jus ibi remedium, it shall be struck
down. As in the words of Justice Bradley, In judging what is due process of law, respect
must be had to the cause and object of the taking, whether under the taxing power, the
power of eminent domain, or the power of the assessment fir local improvements, or some
of these; and, if found to be suitable or admissible in the special case, it will be adjudged to
be due process of law, but if found arbitrary, oppressive, and unjust, it may be declared to
be not due process of law. 11
Procedural due process, on the other hand refers to the procedural limitations placed on the
manner in which a law is administered, applied or enforced. 13 It is but elementary in
democratic forms of government that laws, especially those which impose a tax obligation
on its citizenry, be exercised in accordance with the prescribed procedure. This is
mandatory. To do otherwise shall give rise to a right which the taxpayer may use to ask the
Courts its succor. The tax collector may be stopped if the taxpayer can demonstrate that the
law has not been observed.14 In a case decided by the Supreme Court, it held that due
process was not observed when the trial court classified certain properties of the Roman
Catholic Church were tax exempt under the 1973 constitution where no court hearing was
conducted thereon.15
a.)
b.)
c.)
d.)
It is good to take note, that although the taxpayer is granted the right to have due
notice and hearing, such is only guaranteed when the tax to be imposed shall substantially
affect him. In other words, when the tax to be imposed by the government is not one which
could be changed by hearing the taxpayer, its absence does not violate the constitutional
safeguard. A persons right to due process is therefore not invaded. However, if such tax
would be in the nature of an ad valorem tax which utilizes the use of assessors to ascertain
the proper value of a taxable item or property, such act is considered as judicial in nature.
Thus, due process is satisfied by giving the opportunity to the taxpayer to be heard
respecting such assessment.17
15 Province of Abra v. Hernando, etc., et al., G.R. No. L 49336, 31 AUG 1981.
16 Bello v. Francisco, 4 SCRA 134; Rodriguez v. Director of Prisons, 47 SCRA 153.
17 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
17
possible.18 As government projects are mainly fueled by the revenue generated by taxes
paid by individual taxpayers, the delay which is normally present in judicial proceedings are
not required in the enforcement of taxes and assessments and are frowned upon.19 No
government could exist if all litigants were permitted to delay the collection of its taxes.20
not, however, require equal treatment of all persons, regardless of their situation. The
Constitutional safeguard merely requires that all persons who are within the ambit of the
statute shall be treated alike, under like circumstances and conditions, both with respect to
the privileges acquired and liabilities imposed.23
The power of the State to classify, in relation to taxation, property and persons to be taxed,
the rates of such taxes, as well as the methods of assessment, valuation, and collection is
unquestioned, but is not absolute.24 Such classification must be based upon real and
substantial differences between the persons, property or privileges, and those not taxed
must bear some reasonable relation to the object or purpose of legislation or to some
permissible governmental policy or legitimate end of governmental action.25Thus, the
equality of taxation rule is not violated if classifications or distinctions made are based on
substantial and reasonable differences.26
GOALS IN DISTRIBUTION
EQUAL PROTECTION
No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III,
1987 Phil. Constitution)
The second (2nd) constitutional limitation is found under the same provision of the 1987
Constitution as the due process clause. Aptly stated, not person shall be denied of the equal
protection of laws. The equal protection clause requires that persons similarly situated
should be treated alike, both as to rights conferred and responsibilities imposed. 22 It does
Two different goals in distribution arise when fairness or equality are looked at, vertical
and horizontal. The latter refers to the fair treatment of tax payers with the like ability to pay.
It prohibits the discrimination on the grounds such as race, gender, occupation, etc. 27 Stated
differently, those similarly situated shall be similarly taxed.28 Meanwhile, the former refers to
the relative tax burden of tax paying units with different abilities to pay. Vertical equity seeks
to tax in a proportional or progressive way.29
26 Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book
Store.
27 Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
28 See AICPA Guiding Principles for Tax Equity and Fairness (2007), p. 3.
18
Aside from the aforementioned goals, it has been recommended that the following
dimensions be considered in determining tax equity and fairness
a.)
b.)
c.)
d.)
e.)
Exchange Equity and Fairness Taxpayers must, over the long run, receive
the appropriate value for the taxes they pay;
Process Equity and Fairness Taxpayers have a voice within the tax system,
are given due process and are treated with respect by the tax administrators;
Time Related Equity and Fairness Taxes are not unduly distorted when
income or wealth levels fluctuate over time;
Inter Group Equity and Fairness No group of taxpayers is favored to the
detriment of another without good cause; and,
Compliance Equity and Fairness All tax payers pay what they owe on a
timely basis.30
There are four (4) primary reasons why freedom of expression, which encompasses
speech, the press, assembly and petition, is essential to a free society. First, the self
expression of an individual enables him to realize his full potential as a human being.
Second, enlightened judgment is possible if one considers all the facts and ideas and tests
ones own against it. It is vital to the attainment and advancement of knowledge. Third, it is
necessary to our system of governance. Democratic Societies development and
advancement is largely dependent on how well informed its citizenry is for if it would be
otherwise, the result would be tyranny and oppression. Lastly, it serves as a safeguard
system of the public, developing a system of checks and balances against the possible
corrupt practices of the State.33
The provision of the constitution necessarily includes the liberty of the press which
is principally, although not exclusively, immunity from prior restraint and/or subsequent
censorship.34 To discuss further, it is not the censorship of the press per se which is the evil
sought to be prevented. It refers to any action of the government by means of which it might
prevent such free and general discussion of public matters as seems absolutely essential to
prepare the people for an intelligent exercise of their rights as citizens.35
CURTAILMENT OF FREEDOM
Briefly put, immunity is granted to the press so as to help promote and develop an informed
citizenry. They exist as a vital source of public information. It sheds more light on the public
and business affairs of the nation than any other instrumentality of publicity. Public opinion,
as the most potent of all restraints against the corrupt actions and practices of the
government, is afforded protection by nothing less than the constitution itself. A free press
stands as one of the great interpreters between the government and the people. To treat it
otherwise, as to subject it to taxes, would amount to suppression and abridgement of
publicity results to the curtailment of press freedom and freedom of speech and of
expression.36
It has been held though that although granted immunity from certain taxes, they
can still be subject to general taxes. However, taxes that may still be validly imposed upon
them must be fair, reasonable, and just, and in accordance with the persons right to the
equal protection of laws. It must not be used as a tool to abridge the freedom of press under
the guise of valid tax, as when it is exercised by the state arbitrarily and capriciously,
singling out the press from other businesses or if such taxes are imposed only on a select
few press members. In such case, the Supreme Court has acknowledged the potential for
abuse is present in differential taxation of the press.37
The non establishment clause, in general, merely prohibits the State, or any of its
instrumentalities and political subdivisions, from setting up a church. Necessarily, it includes
prohibitions such as:
a.)
b.)
c.)
d.)
The State cannot pass a law which aid nor discriminate a religion;
It cannot force a person, nor influence him, to join, remain, or to leave a
church or religious sect;
It cannot, openly or secretively, participate in the affairs of any religion or
church; and,
No tax in any amount, large or small, can be levied to support any religious
activities or institutions, whatever they may be called, or whatever form they
may adopt to teach or practice religion.39
RELIGIOUS FREEDOM
REQUISITES FOR CONSTITUTIONALITY
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 free exercise of civil or political rights (Sec 5, Art. III,
1987 Philippine Constitution)
In accordance with the above stated provision, our Constitution and laws provide an
exemption from taxation properties which are devoted exclusively for religious purposes.
This grant of immunity of the fundamental law of the land and other tax laws were made to
further realize the declared principle of the State which is The Separation of the Church and
the State.38
The wall of separation that must be maintained between church and state is a blurred,
distinct, and variable barrier depending upon the circumstances of a particular
relationship.40 The case of Lemon v. Kurtzman 41 enunciated in a three part test to assess
whether a law violates the Establishment clause:
1.)
2.)
3.)
If any of these questions are answered in the negative, then the law becomes
unconstitutional as it violates the Establishment Clause
37 Robert M. Howie, Leathers v. Medlock: The Supreme Court Changes Course on Taxing
the Press, 49 Wash. & Lee L. Rev. 1053 (1992), citing Minneapolis Tribune Co. v. Minnesota
Commissioner of Revenue, 460 U.S. 575 (1983)
38 Sec. 6, Art II, 1987 Philippine Constitution
The Free Exercise clause, on the other hand, withdraws from the legislative power, state
and federal, the extortion of any restraint on the free exercise of religion. It bars
governmental regulation of religious beliefs as such, prohibiting the misuse of secular
governmental programs to impede the observance of one or all religions even though the
burden may be characterized as being only indirect.42
20
RELIGIOUS GROUPS ARE EXEMPT TO PAY TAXES
Generally, religious groups, sects, and like organizations are exempt from paying taxes like
Income tax, license fees, and similar taxes as it imposes a burden on the free exercise of
religion. Albeit, like the press, religious groups may still be subject to general taxes
depending upon the circumstances.
The obligation of a contract is impaired when its terms or conditions are changed
by law or by a party without the consent of the other, thereby weakening the
position or rights of the latter.
RULES:
When the exemption is bilaterally agreed upon between the government and the
taxpayer it cannot be withdrawn without violating the non-impairment clause.
B.
When it is unilaterally granted by law, and the same is withdrawn by virtue of another
law no violation.
C.
When the exemption is granted under a franchise it may be withdrawn at any time
thus, not a violation of the non-impairment of contracts
A.
Note: A latter statute may revoke exemption from taxation provided for in a franchise
because the Constitution provides that a franchise is subject to amendment, alteration or
repeal. [Sec. 11 Art. XII]
Case Reference
OPOSA vs. FACTORAN
A lawful tax on a new subject or an increased tax on an old one, does not interfere
with a contract or impairs its obligation.
The constitutional guarantee of the non-impairment clause can only invoked in the
grant of tax exemption.
RULES:
1.
2.
3.
42 See Dizon, citing Sherbert v. Verner 374 U.S. 398, 402 (1963), Braunfeld v. Brown, 366
A later statute may revoke exemption from taxation provided for in a franchise
because the Constitution provides that a franchise is subject to amendment,
alteration or repeal.
If the exemption was granted for valuable consideration and it is granted on the
basis of a contract.
cannot be revoked
If the exemption is granted by virtue of a contract, wherein the government enters
into a contract with a private corporation
cannot be revoked unilaterally by the government
If the basis of the tax exemption is a franchise granted by Congress and under the
franchise or the tax exemption is given to a particular holder or person
can be unilaterally revoked by the government (Congress)
21
The Constitution simply means that the initiative for the filing of bills must come
from the House of Representatives, on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the
local needs and problems.
It is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives, because a bill originating in
the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole, and a distinct bill may be produced.
The Constitution does not also prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, as long as action by the Senate
is withheld until receipt of said bill. [Tolentino v. Secretary of Finance]
Presidential power to grant reprieves, commutations and pardons and remit fines and
forfeitures after conviction (ART. VII, SEC. 19, 1987 CONSTITUTION)
Due Process
Taxpayer may not be
deprived
of
life,
liberty or property
without due process
of law. Notice must,
therefore, be given in
case of failure to pay
taxes
Equal Protection
Taxpayers shall be treated
alike under like circumstances
and conditions both in the
privileges
conferred
and
liabilities imposed.
Uniformity
Taxable articles, or kinds
of property of the same
class, shall be taxed at
the same rate. There
should therefore, be no
direct double taxation
22
Poll tax is a tax of fixed amount imposed on residents within a specific territory
regardless of citizenship, business or profession. Example is community tax.
Community tax Cities or municipalities may levy a community tax in accordance
with the provisions of this article. 156 RA 7160.
Section 157. Individuals Liable to Community Tax. - (18) or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive working days, or who
is engaged in business or occupation, or who owns real property with an aggregate
assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to
file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an
annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of
income regardless of whether from business, exercise of profession or from property which
in no case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the
total property owned by them and the total gross receipts or earnings derived by them.
Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how
created or organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in
accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines
owned by it during the preceding year based on the valuation used for the payment of real
property tax under existing laws, found in the assessment rolls of the city or municipality
where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it
from its business in the Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the
purpose of the additional tax, be considered as part of the gross receipts or earnings of said
corporation.
Section 159. Exemptions. - The following are exempt from the community tax:
(2) (50%) shall accrue to the barangay where the tax is collected.
The rule of taxation shall be uniform and equitable (Sec.28 (1), Art. III, 1987
Constitution).
The tax is uniform when it operates with the same force and effect in every
place where the subject of it is found. "Uniformity" means all property
belonging to the same class shall be taxed alike. It does not signify an
intrinsic, but simply a geographic, uniformity (Churchill & Tait vs. Conception,
34 Phil. 969). Uniformity does not require the same treatment; it simply
requires reasonable basis for classification.
The concept of equality in taxation requires that the apportionment of the tax
burden be more or less just in the light of the taxpayers ability to shoulder the
tax burden and if warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayers ability to pay.
23
The concept of uniformity in taxation implies that all taxable articles or properties of
the same class shall be taxed at the same rate. It requires the uniform application
and operation, without discrimination, of the tax in every place where the subject of
the tax is found. It does not, however, require absolute identity or equality under all
circumstances, but subject to reasonable classification.
The concept of equity in taxation requires that the apportionment of the tax burden be, more
or less, just in the light of the taxpayers ability to shoulder the tax burden and, if
warranted, on the basis of the benefits received from the government. Its
cornerstone is the taxpayers ability to pay.
there is equality and uniformity in taxation if all articles or kinds of property of the
same class are taxed at the same rate. Thus, it was held in that case, that "the fact
that some places of amusement are not taxed while others, such cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other
kinds of amusements or places of amusement are taxed, is not argument at all
against the equality and uniformity of tax imposition."
The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation.
Case References
Tolentino v. Sec. of Finance, supra,
Equity and uniformity in taxation means that all the taxable articles or kinds of
properties of the same class be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation.
To satisfy this requirement, it is enough that the statute or ordinance applies
equally to all persons, firms, and corporations placed in a similar situation.
It is inherent in the power to tax that the state be free to select the subjects of
taxation & it has been repeatedly held that the inequalities which result from a
singling out of 1 particular class for taxation or exception infringe no constitutional
limitation.
it was said there is equality and uniformity in taxation if all articles or kinds of
property of the same class are taxed at the same rate.
The owners of boarding stables for race horses and, for that matter, the race horse
owners themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other kinds of
horses are taxed less or not at all, considering that equity in taxation is generally
conceived in terms of ability to pay in relation to the benefits received by the
taxpayer and by the public from the business or property taxed.
Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution.
Equity in taxation is generally conceived in terms of liability to pay in relation to the
benefits received by the taxpayer and by the public from the business or property
taxed.
PEPSI-COLA BOTTLING
CO.
OF
THE
PHILS.,
INC.
vs.
CITY OF
BUTUAN
FACTS: The ordinance imposes taxes for every case of soft drinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the agents and/or
consignees by outside dealers or any person or company having its actual business
outside the City.
ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?
HELD: Yes. The tax levied is discriminatory.
Even if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by
"agents or consignees" of outside dealers would be subject to the tax. Sales by
local dealers, not acting for or on behalf of other merchants, regardless of the
volume of their sales, and even if the same exceeded those made by said agents
or consignees of producers or merchants established outside the City of Butuan,
would be exempt from the disputed tax.
24
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the
authority to classify the objects of taxation.
The classification made in the exercise of this authority, to be valid, must, however,
be reasonable and this requirement is not deemed satisfied unless:
o
(3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and
(4) the classification applies equally to all those who belong to the same
class.
25
NOTE: The prevailing rule now is that the term exclusively does not cover incidental use.
What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized.
c.) Exemption from other taxes
1997 NIRC states that the organizations below shall not be taxed with respect to
income received by them:
Nonstock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong to or inures to the benefit
of any member, organizer, officer or any specific person.
NOTE: The income of whatever kind and nature from any of their properties, real or
personal or from any of their activities for profit regardless of the disposition made of such
income shall be subject to tax.
Thus, being a non-stock and non-profit corporation does not by itself completely
exempt an institution from tax. An institution cannot use its corporate form to prevent its
profitable activities from being taxed.
In cases of gifts or donations:
Donations in favor of religious and charitable institutions are generally not
subject to tax provided, however, that not more than 30% of the said bequest, devise, or
legacy or transfer shall be used for administration purposes.
d.) Non-Violation of the Establishment Clause
Walz vs Tax Commission of City of New York
The grant of tax exemption is not sponsorship of the organizations because the
government does not transfer part of its revenue to churches but simply abstains from
demanding that the churches support the State. Instead, the tax exemption creates a more
minimal and remote involvement between church and state, far less than taxation of
churches would entail, and it restricts the fiscal relationship between them, thus tending to
complement and reinforce the desired separation insulating each from the other.
26
VAT so as long as the rentals paid by concessionaire are actually, directly and
exclusively used for educational purposes.
Importation of books, films, slides and other educational materials and equipment
such as computers to be actually, directly and exclusively used for educational purposes are
LIKEWISE EXEMPT from customs duties, provided guidelines under DO 137-87 are
observed.
Interest income from Philippine currency bank deposits and yield from deposit
substitute instruments used actually, directly exclusively are likewise exempt from 20% final
withholding tax subject to certain requirements.
c.) Taxability of Proprietary Educational Institutions
A Proprietary educational institution is any private school maintained and
administered by private individuals or groups with an issued permit to operate from the
Department of Education, Culture and Sports (DECS), or the Commission on Higher
Education (CHED), or the Technical Education and Skills Development Authority (TESDA),
as the case may be, in accordance with existing laws and regulations.
Proprietary educational institutions, including those cooperatively owned, may
likewise be entitled to such exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment. The presence of the word
may indicates only permissiveness, which means the Congress has the discretion to grant
exemptions. These institutions, at present, are not exempt from income tax but only
subject to a special lower rate.
Preferential Tax on Income and Predominance Test
Proprietary educational institutions and hospitals which are non-profit shall pay a
tax of ten percent (10%) on their taxable income. If the gross income from unrelated trade,
business or other activity exceeds fifty percent (50%) of the total gross income derived by
such educational institutions or hospitals from all sources, the thirty (30%) normal income
tax shall be imposed on the entire taxable income. The term 'unrelated trade, business or
other activity' means any trade, business or other activity, the conduct of which is not
substantially related to the exercise or performance by such educational institution or
hospital of its primary purpose or function.
Illustration:
X Educational Institution earned a net income of 300 million pesos, 150 million of
which came from unrelated activities. On that note, 10% tax shall be imposed on the 300
million. But, if 151 million came from unrelated activities, 30% tax shall be imposed on the
300 million.
27
income is reinvested in property, equipment or facilities used for services to paying and nonpaying patients, then it cannot be said that the income is "devoted or used altogether to the
charitable object which it is intended to achieve." The income is plowed back to the
corporation not entirely for charitable purposes, but for profit as well.
Government Educational Institutions
Government educational institutions, like the University of the Philippines,
are likewise exempted from taxes with respect to revenues derived pursuant to
its educational purpose and revenues actually, directly and exclusively used
therefor. Conversely, income from trade, business or other activity which is not
related to their educational purposes or functions shall be subject to internal
revenue taxes when the same is not actually, directly, exclusively used for
the intended purpose/s.
NOTE: These jurisdictions are concurrent with the Regional Trial Courts; thus, the petition
should generally be filed with the RTC following the hierarchy of courts. However, questions
on tax laws are usually filed direct with the Supreme Court as these are imporessed with
paramount public interest. It is also provided under Sec. 30, Art VI of the Constitution that
no law shall be passed increasing the appellate jurisdiction of the Supreme Court without
its advice and concurrence.
The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
This is based on the theory that, elected as they are from the districts, the
members of the House of Representatives can be expected to be more sensitive to
the local needs and problems.
NOTE: It is not the law but the revenue bill which must originate exclusively in the House
of Representatives. The bill may undergo such extensive changes that the result may be a
rewriting of the whole. The Senate may not only concur with amendments but also propose
amendments.
Tax Exemption
o Definition :
28
it is a grant of immunity,
express or implied,
in whole or in part
As to Source:
1. Constitutional
2. Statutory
3. Treaty/Executive Agreements
4. Contractual (for a consideration)
As to Manner of Grant:
1. Express
o Verbally/oral
o In writing/ statutes
2. Implied
o Manifested by conduct
o Considering the totality of circumstances
As to Scope
1. Total/full/All-in/All the way
o Relates to the whole/entire tax
2. Partial/1st-base lang
o Affects only a portion
Tax Exemption
Refers to a statutory exception from the payment of
taxes; whereas
Exclusion
Refers to the Total absence/ or want/ or lack of taxation
in a particular circumstance
o example:
Exemption
Refers to removal from taxation of a particular class or
item; whereas
Deduction
Refers to the reduction of taxable items
by way of subtraction of other items.
o example:
29
Exemption of individuals
- certain classes of individual may be granted tax exemption within the tax
system which depends on multiple criteria.
Exemptions of Organizations
3.
4.
Exemptions of Income
Includes:
Exemption of Property
Reciprocal Exemptions
o Some tax jurisdictions allow tax exemptions Subject to Reciprocity
o States may enter into a bilateral agreement which provides for certain tax
exemptions this stipulation is common in:
tax treaties
30
It is NOT PRESUMED.
Burden of Proof:
2.
3.
It is a PERSONAL Privilege:
4.
5.
6.
7.
The exemptions of SE proceeds from the law, and not the other
way around. The tail does not wag the dog. (John Hay vs. Lim
(2005))
8.
9.
31
Withdrawal of Exemption
1. Exemption may be withdrawn at the pleasure of the taxing authority.
Examples:
If the exemption is based on the constitution:
o It may be withdrawn only by an amendment to
the Constitution.
If the exemption is granted by a special law
o it cannot be withdrawn by a regulation,
o It cannot be withdrawn by a general law:
32
1.
2.
If the buyer is not so smart and he pays taxes despite the fact
that the transaction is exempt
REFUNDS
1. Definition
NATURE:CONSTRUCTION; EVIDENCE
The person on whom the tax is imposed by law, and who paid
the same even if he shifts the burden to another.
2. The person who shoulders the burden (indirect tax = part of the purchase
price) has no cause of action against the taxing authority.
TAX AMNESTY
1. Definition
33
And to give tax evaders and other fuckers, who wish to relent
and are willing to reform, a chance to do so, to become part of
the new society with a clean slate. (CIR vs. Botelho corp)
3 General Characteristics of a Typical Amnesty
I.
Short lived (2-3 months)
II.
Voluntary (participation is up to them)
III.
Waiver of fines and penalties but not the principal amount of taxes
that are due.(unless if the amnesty law provides otherwise)
3.
But also by bringing them old bitch fucks into the tax
system for the long run.
4.
Strictissimi juris
5.
Basis: lifeblood
EXCEPTION
Republic vs IAC(1991)
6.
7.
8.
34
5.
6.
7.
8.
9.
Tax Shifting:
o It is the transfer of the burden of tax by the original payer (impact) to
another (incidence)
Kinds of shifting
i.
Forward s. when the burden is transferred from a factor of
production thru the factors of distribution until it finally settles on
the ultimate purchaser/consumer. (example : seller increase
price of beer)
ii.
Backward s. when the burden is transferred from the
consumer thru the factors of distribution to the factors of
production (example: seller doesnt increase the price of beer
but reduces the price in materials)
iii.
Onward s. when the tax is shifted 2 or more times either
forward or backward.
Tax Capitalization/amortization
- Circumstance where the purchaser of a taxable object, by cutting
down the purchase price, discounts all the taxes which he may
be called to pay upon in the future.
- By depreciating the capital value to a sum equal to the
capitalized value of the tax (1/5 = 20%)
Tax Transformation
In a situation where the producer upon whom the tax is imposed fearing
that the consumers would not opt to buy his shit if he adds the tax to the
price
- The producer pays the tax; and
- endeavors to recoup himself by improving/transforming his process of
production to make it more cost effective.
- The loss due is TRANSFORMED to a gain.
Resort to TAX Haven/ secrecy jurisdiction
- Definition
Liechtenstein
Panama
Bahamas
Transfer Mispricing
o Happens when transfer pricing is ABUSED.
- Unitary Taxation
o Related to Transfer Pricing
-
35
Tax Deferral
o Paying taxes in the future for income earned in the current year
o Some bitches leave their profits offshore untaxed they dont have to pay
shit unless they repatriate said income to their home base
Tax Shelter
o It is a sexy device used by a taxpayer to reduce or defer payment of
taxes; or any financial investment made in order to acquire expenses,
depreciation allowances, etc, or to defer income so as to reduce ones
income tax.
o It includes investment or deposits in accounts that are not heavily taxed
and shit (example long term deposits); and investing in real estate to avail
Tax Avoidance/Loophole
o A tax saving device within the means sanctioned by law
o Should be used in good faith and at arms length.
o
To get around/avoid the spirit of the law and the will of the legislature,
WITHOUT ACTUALLY BREAKING THE LAW
o It is the lessening of tax liabilities thru maximizations of deductions
exclusion and exemptions and the minimization of income by legal
means.
Criminal activity
36
and
reasonable
37
Tax credit
Tax Credit vs Tax Deduction
o Tax Credit
Examples
Withheld taxes, payments of estimated tax, and
investment tax credits
o Tax Deductions
Examples
Double Taxation
Double Taxation
o Definition
Taxing twice the same subject matter -done by the same taxing
authority, within the same taxing district, for the same purpose, in
the same taxing period.
o No constitutional prohibition
38
General Rule:
o Double taxation should not be permitted
unless the legislature has authority to impose
it.
However
o Since the taxing power is exclusively a
legislative function, and since it is absolute
and unlimited: it is generally held that there is
nothing to prevent the imposition of more than
one tax on the same subject matter, in the
absence of an express or implied
constitutional prohibition xxx such is a matter
within the discretion of the legislature.
2.
3.
4.
5.
39
1st method
2nd method
o The STATE OF SOURCE is given a full or
limited right to tax together with the STATE OF
RESIDENCE
40
Mandatory which means that the security of the citizens or which are
designed to ensure equality of taxation or certainty as to the nature and
amount of each persons tax.
o Failure to follow renders invalid the act or proceeding to which it
relates.
Directory it is for the information or direction of officers or to secure
methodical and systematic modes of proceedings
o Failure to follow makes the act merely irregular
Laws The National Internal Revenue Law; Local Tax Law; and Tariff and
Customs Code.
3.
Case Law these are the decisions of the Supreme Court which form part of
the law of the land.
4.
41
1.
2.
are rulings, opinions and interpretations of the Commissioner of Internal Revenue with
respect to the provisions of the Tax Code and other tax laws, as applied to a specific
set of facts, with or without established precedents, and which the Commissioner may
issue from time to time for the purpose of providing taxpayers guidance on the tax
consequences in specific situations. BIR Rulings, therefore, cannot contravene duly
issued RMRs; otherwise, the Rulings are null and void ab initio
BIR Rulings
are official positions of the Bureau to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.
2.
The imposition of tax, in case of doubt, is construed strictly against the government
and liberally in favor of the taxpayer.
3.
Tax laws shall not be interpreted to extend their provisions by implication beyond
the clear import of the language used or to enlarge their scope not particularly
specified.
In case of conflict, Special Tax laws shall prevail over General Tax statutes.
42
1.
Ubi Lex non distinguit neck now distinguire debemos (When the law does not
distinguish neither should we.)
2.
American jurisprudence has persuasive effect on the interpretation of our own tax
laws.
3.
4.
Estoppel, generally, does not apply to the government. The state cannot be bound by
the errors or mistakes of its agents in the interpretation or execution of tax laws.
5.
6.
Words and phrases used in tax statutes shall be given their plain, ordinary and usual
meaning absent special circumstances indicating an intent to use such words or
phrases in a different light.
7.
Administrative regulations, issued for the proper implementation and in accordance with
tax laws shall have the same force and effect as the law itself. The sheer impossibility
and impracticality of Congress having to fill-in every minute detail in the statute makes it
necessary for administrative agencies to acquire the power to issue subordinate
legislations. To be valid however, the following requisites are imperative:
Must be reasonable
Note: If Congress subsequently re-enacts a tax law using the meaning given to it by the
administrative agency, the re-enactment effectively confirms that the administrative
interpretation was correct.
Legislative Rules vs. Interpretative Rules
Legislative Rules
Interpretative Rules
Have the force and effect of law Merely advisory Courts can exercise
Courts must decide in accordance with their power to interpret these rules, i.e.,
these rules, even if they do not agree with these are subject to judicial determination of
the underlying policy
whether correct or not
Are
coupled
noncompliance
with
sanctions
Rationale: Essentially statutes also, hence, Rationale: Merely provide internal guidelines
hearing and notice requirements apply
for more effective admin implementation
43
CATEGORIES:
It has been argued that oversight violates separation of powers because implementation
(i.e., post-legislation) is already within the domain of the executive department.
Scrutiny
Congressional
Investigation
Legislative Supervision
Passive oversight
Active oversight
Active oversight
More
thorough Continuing
and
informed
solicitation of information awareness. Implies constant
from
the
agencies legislative guidance, e.g., through
concerned
a legislative committee especially
assigned to an area of admin
activity.
The SC has ruled that oversight is not in itself unconstitutional, and may in fact enhance
separation of powers because it prevents too much authority from lodging in the executive
department. I.e., integral to checks and balances.
But it qualified this holding to scrutiny and investigation only; in particular, (a) scrutiny
over appropriations, budget, confirmation, and (b) investigation in aid of legislation as
provided in Art. VI. Any action or step beyond that will undermine the separation of powers
guaranteed by the Constitution. Legislative vetoes fall in this class.
Legislative Veto
This is a form of legislative supervision exercised through veto provisions included in
enacted laws. Through veto provisions, Congress gives itself authority to approve or
disapprove the implementing rules and regulations promulgated by the executive before
they take effect.
Arguments For
Inquires
into
past Inquires
into
past Examination of current activity,
administrative activities to administrative activities i.e., exercise of legislative
influence future acts
to influence future acts
authority
Arguments Against
CONSTITUTIONALITY
44
2. External sources
Internal Revenue Allotment (IRA)
Special laws
45
Grants
Aids and borrowings
Equitable
Income tax, except when levied on banks and other financial institutions
Documentary stamp tax
Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa
[AGILE]
4. Customs duties, registrations fees of vessels, and wharfage on wharves, tonnage
dues, all other kinds of customs fees
5. Goods carried into or out of, or passing through territorial jurisdictions of LGUs
6. Agricultural and aquatic products
7. Business enterprises certified to by the Board of Investments as pioneer or nonpioneer for a period of six (6) and four (4) years, respectively from the date of
registration;
8. Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;
9. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided in the LGC;
10. Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in the LGC;
11. Taxes on premiums paid by way of reinsurance or retrocession;
12. 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;
13. Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided;
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under Republic Act No. 6810 "Magna Carta for
Countryside and Barangay Business Enterprises (Kalakalan 20)" and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) "Cooperatives Code of
the Philippines"
15. Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
[VP-PRECIPITANCES]
Income Tax
tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business
LGU cannot impose tax on income, except in case of banks and other financial
institutions
gross receipts
from interest, commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property, profit from exchange or sale of
property, insurance premium
Interest and Dividend Incomes
any tax imposed on interest or dividends received by non-bank and non-financial
institutions assume the nature of income tax
banks and other financial institutions derive such gross receipts in the ordinary
course of their business as financial institutions
for non-bank and non-financial institutions, interest and dividend incomes are
merely passive investment income
nature of ordinary business income
tax imposed thereon the nature of ordinary business tax
Documentary Stamp Tax
tax on documents, instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto
imposed on the privilege of conducting a particular business or transaction and not
on the business or transaction itself
46
the law taxes the document because of the transaction so that the tax becomes
due and payable at the time the transaction is had or accomplished
cannot be imposed by the LGU pursuant to the LGC, presumably to avoid indirect
duplicate taxation
47
however, LGU may impose business tax on any business not exceeding two
percent (2%) of gross sales or receipts of the preceding calendar year
Tax on Premiums
Reinsurance is a contract by which an insurer procures a third person to ensure
him against loss or liability by reason of original insurance
retrocession is the practice of one reinsurance company essentially insuring
another reinsurance company by accepting business that the other company had
agreed to underwrite
tax on insurance premiums is not included in the prohibition
only receipts of insurance premiums may be taxed by the LGU
Motor Vehicle Registration
except tricycles
a motor vehicle is any vehicle propelled by any power other than muscular power
using the public roads excluding road rollers, trolley cars, street-sweepers,
sprinklers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and
cranes if not used on public roads, vehicles which run only on rails or tracks,
tractors, trailers, and traction engines of all kinds used exclusively for agricultural
purposes
Power over Tricycles
under Section 458[a][3][VI], the power to regulate their operation and to grant
franchises for the operation thereof
must not have had the effect of withdrawing the express power of LTO to cause the
registration of all motor vehicles and the issuance of licenses for the driving thereof
Registration and Licenses not Included
delegated powers to LGUs pertain to the franchising and regulatory powers
exercised by the Land Transportation Franchising and Regulatory Board ("LTFRB")
and not registration of motor vehicles and issuance of licenses for the driving
thereof
motor vehicles "used or operated on or upon any public highway"
Export Products
Philippine products actually exported
foreign products are not covered by the limitation
prohibition pertains to the exported products, while business tax, to the business
exporting itself
Countryside and Barangay Business Enterprises and Cooperatives
48
National Government
exemption does not include government-owned or controlled corporations
Power to prescribe penalties for violation of tax ordinance
sanggunian is authorized to prescribe fines subject to the following limitations:
o in no case shall fines be less than Php1,000.00 nor more than
Php5,000.00;
o Nor shall the imprisonment be less than one (1) month nor more than six
(6) months
sangguaniang barangay prescribe a fine of not less than One hundred pesos
(Php100.00) nor more than One thousand pesos (Php1,000.00)
Adjustment of Rates of Tax
subject to the following limitations:
o not oftener than once every five (5) years
o in no case shall such adjustment exceed ten percent (10%) of the rates
fixed under the Local Government Code
EXCEMPTION FROM LOCAL TAXES
Grant of Tax Exemptions
grant tax exemptions, incentives or reliefs
tax exemptions are conferred through, non-transferable tax exemption certificate
does not apply to regulatory fees because they are levied under the police power
of the LGU
Guidelines
grant of tax exemptions or tax reliefs:
o may be granted in cases of natural calamities, civil disturbance, general
failure of crops, or adverse economic conditions
o through an ordinance
o exemption or relief granted to a type or kind of business shall apply to all
business similarly situated
o only during the next calendar year for a period not exceeding 12 months
as may be provided in the ordinance
o shared revenues, the exemption or relief shall only extend to the LGU
granting
grant of tax incentives
o same shall be granted only to new investments in the locality and the
ordinance
o grant shall be for a definite period of not exceeding one (1) calendar year
o grant shall be by ordinance passed prior to the 1st day of January of any
year
o any grant to a type or kind of business shall apply to all business similarly
situated
Withdrawal of Tax Exemption Privileges
Section 193
tax exemptions or incentives granted to, or presently enjoyed by all persons are
hereby withdrawn upon the effectivity of this Code
General Withdrawal
the taxpayer has the heavy burden of proving exemption
The later general law prevails
the rule that a special law must prevail over the provisions of a later general law
does not apply as the legislative purpose to withdraw tax privileges enjoyed under
existing laws or charters is apparent from the express provisions of Sections 137
and 193 of the LGC
The exemption is limited to three entities
local water districts
cooperatives duly registered under Republic Act No. 6938
non-stock and non-profit hospitals and educational institutions
49
Approval of Ordinance
ordinance enacted by the sangguniang panlalawigan, sangguaniang panlungsod,
sangguniang bayan presented to the provincial governor or city or municipal mayor
ordinances enacted by the sangguaniang barangay signed by the punong
barangay
affix his signature on each and every page
veto it and return the same with his objections
sangguanian concerned may override the veto of the local chief executive by twothirds (2/3) vote of all its members, making the ordinance or resolution effective for
all legal intents and purposes
veto shall be communicated by the local chief executive concerned to the
sanggunian within fifteen (15) days in the case of a province, ten (10) days in the
case of a city or a municipality; otherwise, the ordinance shall be deemed
approved as if he had signed it
Publication and Dissemination
published and disseminated
within ten (10) days after their approval, certified true copies of all provincial, city,
municipal tax ordinances or published in full for three (3) consecutive days in a
newspaper of local circulation
at least two (2) conspicuous and publicly accessible places
barangay tax ordinances furnished the respective local treasurers for public
dissemination
if the tax ordinance or revenue measure contains penal provisions, the gist of such
tax ordinance or revenue measure published in a newspaper of general circulation
within the province where the sanggunian concerned belongs
shall be considered as falling at the beginning of the next ensuing quarter the
taxes, fees, or charges, due to accrue therefrom
Purpose of Publication
a condition precedent to the effectivity and enforceability of an ordinance to inform
the public of its contents before rights are affected by the same
50
Review of Ordinance. The Secretary of justice reviews the validity of the tax ordinance or
revenue measure.
On appeal, the constotutionality or legality of tax ordinances or revenue maesures may be
raised within 30 days form the effectivity thereof to the Secretary of justice who shal render
a decision within 60 days from the date of receipt of the appeal.
NOTE: The appeal has no effect of suspending the effectivity of the ordinance and the
accrul of the payment of the tax, fee or charge levied therein.
If the Secretary of Justice did not act on the appeal or after the lapse of 60 days, the
aggrieved party may file an appropriate proceedings with a court of competent jurisdiction.
Power of Supervision. The review power of the Secretary of Justice of tax measures
enacted by the local government unit to determine if the officials performed their function in
accordance with law, the same is an act of mere supervision, not control.
Power of RTC Judge. An RTC judge has the authority to pass upon the validity of a city tax
ordinance even after its validity had been contested by the Secretary of Justice and a
decision rendered thereon by said official.
Applicable case: San Miguel Corporation v. Avelino, GR No. L-39699, March 14, 1979
Facts: A city demanded from a taxpayer the payment a specific tax, but the latter contested
that the ordinance was illegal or void. The taxpayer went to the Secretary of Justice who
rendered the opinion that it is of doubtful validity. However, a suit for collection was filed by
the city where it squarely put in issue the validity of such ordinance, thus contesting the
opinion of the Secretary of Justice. The taxpayer moved to dismiss the case on the ground
of lack of jurisdiction. The Supreme Court held the issue on this manner.
NOTE: These three separate periods are clearly given for compliance as a prerequisite
before seeking redress in a competent court. This is MANDATORY.
Purpose: To prevent delay as well as enhance the orderly and speedy discharge of judicial
functions. Consequently, any delay in implementing tax measures would be to the detriment
of the public. It is for this reason that protests over tax ordinances are required to be done
within certain time frames.
Suspended or Disapproved Ordinance.
A suspended or disapproved tax ordinance or revenue measure cannot be enforced. If
enforced despite due notice of disapproval or suspension, the same is sufficient ground for
administrative discilinary action against the local officials and emloyees responsible thereof.
Reserved/Residual Taxing Power.
The LGUs exercise the power to levy taxes, fees,charges on any base or subject not
otherwise specifically provided in the LGC or taxed under the provisions of the NIRC, as
amended, or other applicable laws PROVIDED THAT:
1. The taxes, fees, or charges shall not be unjust, excessive,
oppressive, confiscatory, or contrary to the declared national policy;
2. A prior public hearing was conducted for that purpose.
NOTE: The exercise of such residual/reserved taxing power mustobserve and conform to
the inherent and constitutional limitations, common limitations, fundamental principles and
the procedures under the LGC.
Principle of the Pre-emption/Exclusionary Doctrine and Concurrent Power
Mandatory Periods
Under the LGC, a dissatisfied taxpayer who questions the validity or legality of a tax
ordinance must file his appeal to the Secretary of Justice within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for
the aggrieved party to go to court. But if the Secretary does not act thereon after the lapse
of 60 days, a party could already proceed to court to seek relief.
A decision is rendered--- 30 days to appeal to the Secretary of Justice.
Another 30 days to go to court after the appeal is decided upon by the Secretary.
In case of inaction of the Secretary or after the lapse of 60 days, the aggrieved party may
go directly to the court to seek relief.
Pre-emption- refers to the instance where the national government elects to tax a particular
area, impliedly withholding from the local government the delegated power to tax the same
field. This doctrine primarily rests upon the intention of the Congress.
The pre-emption will not apply if there is express grant of autority (i.e allow municipal
corporations to cover fields of taxation it already occupies).
Pre-emption applies to the following taxes (hence, may not be levied by the LGU):
Taxes levied under the NIRC; taxes, fees imposed under the TCC; taxes charge under
special laws.
NOTE: Pre-emption does not apply between or among LGUs. They may tax the same
subject as long as it is within their jurisdiction. In this case, there exists concureent taxing
power where the power is shared by both the national and local government. The power
51
may also be exercised simultaneously within the same territory and in relation to the same
subject.
SITUS OF LOCAL TAXATION
General Rule: An LGU has tax jurisdiction over tax subjects within its territory.
EXCEPTION: Issues which the LGU has authority arise (meaning there is a question
whether the LGU has authority to tax or not) when a business enterprise operates in several
jurisdictions as when the principal office, branch, factory, etc. are situated in different LGUs.
(Meaning, business decisions are made in the principal business while the implementation
is carried out through the business units.)
To address this issue, the LGC provides for rules on situs to ensure that each of the LGU
gets a rightful share in the collection.
Definitions:
Principal Office- the head or main office of the bisiness appearing in the pertinent
documents submitted to the SEC or DTI or other appropriate agencies, as the case may be.
MEANING, the city or municipalityspecificially mentioned in the in the AOI of official
registration papers as being the official address of said principal office sahll be considered
the situe thereof.
NOTE: In case of relocation of the the principal office to another city or municipality, it shall
be the duty of the owner, operator or manager of the business to give due noticeof such
transfer to the local chief executive (mayor) of the cities or munics concerned within 15 days
after such transfer is effected.
Branch or Sales Office- a fixed place in a locality which conducts operations of the
business as an extension of the principal office. Example- warehouses which accept
orders and/or issue sales invoises independent of a branch with sales office are considered
as sales offices.
NOTE: Offices used as display areas of the products are not wihtin the purview of branch or
sales office.
Warehouse- a building utilized for the storage of products for sale and from which goods
are withdrawn for delivery to customers or dealers or by persons acting in behalf of the
business.
SALES ALLOCATION. Recording of sales shall be governed by the following rules:
1.
Sales made in a locality where there is a branch or sales office or warehouse shall
be recorded in said branch and the tax shall be payable to the city or munic where
the same is located.
2.
In cases where there is no such branch, the sale shall ne recorded in the principal
office along with the sales made by the principal office and the tax shall accrue to
the city or munic where said principal office is located.
3.
In case where there is a factory project office or plantation in the pursuit of the
business, 30 per cent of all sales recorded in the principal office shall be taxable by
the city or munic where the principal office is located and 70 per cent of all sales
recorded in the principal office shall be taxable in the principal office where the
factory projecto office or plantation is located.
NOTE: LGUs where only experimental farms are located shall not be entitled to the sales
allocation.
A.) In case of a plantation located in a locality other than that where the factory is
locadted, the 70 per cent sales allocation shall be divided as follows:
a.) 60 per cent to the city or munic where the factory is located
b.) 40 per cent to the city or munic where the plantation is located
B.) In case where there are 2 or more factories, plants located in different localities,
the 70 per cent sales allocation shall be prorated among the localities where such
factories or plants are located in proportion to their respective volumes of
production during the period for which the tax is due.
C.) The foregoing sales allocation shall be applied irrespective of whether or not slaes
are made in the locality where the factory or plantation is located.
D.) In case of manufacturersor producers which engage the services of an
independent contractor to manufacture or produce some of their products, these
rules on situs of taxation shall apply except that the factory or plant and warehouse
of the contractor utilized for the production and storae of the manufacturers
products shall be considered as the factory or plant or warehouse of the
manufacturer.
Port of Loading. The city or munic where the port of loading is located shall not levy and
collect the tax impossable on business and occupation UNLESS the exporter maintains in
said city or municipality its prinicpal office.
Situs of Excise Tax. The situs of an excise tax depends upon the place in which the act is
performed or occupation engaged in. it does not depend on the domicile of the person
52
subject to the excise tax nor upon the physical location of the property but depends upon
the place in which the act is performed or occupation engaged in.
Situs of Sale. The place of the consummation of the sale determines the situs. An LGU can
validly tax the sales to customers outside of its territory as long as the orders were booked
and paid for in the companys branch office in the city.
SPECIFIC TAXES THAT MAY BE LEVIED BY LGUs
Taxing Powers of Provinces
The province may levy only the following taxes, fees and charges:
1.
Taxes on transfer of Real Property Ownership at rate not more than 50
per cent of 1 per cent of total consideration;
2.
Franchise tax- at a rate not exceeding 50 per cent of 1 per cent of the
gross receipts for the preceeding calendar year;
3.
Tax on Sand, gravel and other Resources- at a rate not more than 10 per
cent of fair market value;
4.
Tax on business of Printing and Publication- at a rate not exceeding 50
per cent of 1 per cent;
5.
Professional Tax- at a rate not more than 300 pesos annually.
6.
Amusement Tax- at a rate not more than 10 per cent of gross receipts
from admission fees;
7.
Annual fixed tax for every Delivery truck or van of manufacturers in
certain products- at a rate not exceeding 500 pesos annually.
[PD FRAPS]
Taxes on transfer of Real Property Ownership. Taxes on the sale, donation, barter or on
any other mode of transferring ownership or title of real property at rate not more than 50
per cent of 1 per cent of total consideration involed in the acquisition of property or their fair
market value in case the monetary consideration involved in the transfer is not substantial,
whicever is higher.
Exemption. The sale, transfer or any disporition of real property pursuant to RA No. 6657
(The Comprehensive Agrarian Reform Law of 1998). Also, socialize housing for the benefit
of the underprivileged and homeless is exempt from transfer tax. Also, the change in
ownership of the corporation will not trigger the tax on transfer of real property. Moreover,
the subsequent registration of title to the land in the name of condominium corporation is not
subject to transfer tax.
NOTE: Transfers without monetary consideration such as donations, braters and succesion
are taxbale. What is being taxed is the exercise of privilege to transfer or convey a property.
The determining factor is whether or not there is indeed a transfer of ownership or title over
the real property.
The acquisition for official use of embassies, consulates or diplomats is exempted from
transfer tax under the generally accepted principles of international laws.
Tax on business of Printing and Publication. Tax on the business of persons engaged in
the printing of and publication of books, cards, posters, leaflets, etc. at a rate not exceeding
50 per cent of 1 per cent of the gross annual receipts for the preceeding calendar year. In
case of a newly started business, it shall not exceed the 1/20 of 1 per cent of the capital
investment.
Exemption: the recepts from the printing of books or other reading materials prescribed by
the DepEd as school texts or references.
Franchise Tax. Tax on the business enjoying franchise at a rate not exceeding 50 per cent
of 1 per cent of the gross receipts for the preceeding calendar year based ont eh incoming
receipt realized within its territorial jurisdiction. In case of a newly started business, it shall
not exceed the 1/20 of 1 per cent of the capital investment. In the succeeding year, the tax
shall be based on the gross receipts for the preceeding claendar year.
Franchise- a right or privilege, affected with public interest which is conferred upon private
persons or corporations, under such terms and conditions as the government may impose
in the interest of public welfare, security and safety.
Franchise tax- tax on the privilege of transacting business in the state and exercising
ccorporate franchise by the State. It is a concurrent power simultaneously exercised by
national and local governments. Aside form national franchise tax, the franchisee is still
liable to pay a local franchise tax, unless it is expressly and unequivocally exemtped from
the payment thereof.
Territorial Limits. Provinces should impose the franchsie tax on businesses whitin its
territorial jurisdiciton, thus excluding the territorial limits of any city located therein.
Tax on Sand, gravel and other Resources. Levy and collect at a rate not more than 10
per cent of fair market value in the locality per cubic mter of ordinary stones, sand, gravel
and other os similar nature as defined in the NIRC extracted from public lands or from the
beds of seas, lakesm streams, creeks and other public waterswithin its territorial jurisdiction.
The proceeds on the tax shall be distributed as follows:
Component city or municipality where the sand, gravel, etc are extracted 30 per cent
Barangay where the sand, gravel, etc. are extracted- 40 per cent
53
NOTE: The permit to extract shall be issued exclusively by the provincial governor.
The Regalian doctrine does not apply because tax a burdens and are construed strictissimi
juris against the government.
The authority to impose taxes on such nature belongs to the province and not to the
municipalitywhere they are found.
Professional Tax. Annul professiznal tax on each person engaged in the exercise or
practice of a profession requiring government examination at such amount and resaonable
classification as the sangguniang panlalawigan may determine but shall in no case exceed
300 pesos.
Where to pay? It shall be paid to the province where he practices his profession or where he
maintains his principals in case he practices his profession in several places. However, such
person who has paid the corresponding professional tax shall be entitled to practice his
profession in any part of the Philippines without being subject to any other national or local
tax, license, or fee for the practice for such profession.
It is the duty of the employer to require the payment of his employees profesional tax on his
profession beofre employment and annually thereafter. It shall be payable annuall or on or
before the 31st day of January.
NOTE: Professionals exclusively employed in the government shall be exempt from the
payment of this tax.
Those covered professionals are those who only passed the bar examination or any board
or other examinations conducted by the PRC.
Amusement Tax. Provinces may levy tan amusement taxt to be collected from the
proprietors, lesees or operatoers of theathers, cinemas, concert halls, boxing stadiaand
other places of amusements at a rate not more than 10 per cent of gross receipts from
admission fees.
Amusment is a pleasurable diversion and entertainment. It is synonymous to relaxation,
pastime or fun.
EXEMPTION: The holding of operas, concerts, dramas, paintings, flower shows, musical
programs, literay and oratorical presentations except pop rock or similar concerts shall be
expemt from the payment of the tax.
The proceeds from the amusment taxt shall be shared equally by the province and the
municipality where such amusement places are located.
Amusement not covered by amusment tax:
1. Professional basketball games
2. Resorts, swimming pools, bath houses, hot springs and tourist spots
NOTE: LGUs cannot impose amusement tax pursuant to the principle of pre-emption.
Annual fixed tax for every Delivery truck or van of manufacturers in certain products.
Annual fixed tax for every truck, van or any vehicle used by manufactures, producer,
wholesalers, dealers, etc in the delivery or distribution of distilled spirits, fermented liquors,
soft drinks, cigars, etc wihtin the province at a rate not exceeding 500 pesos annually.
Taxing Powers of Municipalities
Municipalities may levy taxes, fees and charges not otherwise levied by the province.
Tax on business. See Section 143 of the LGC.
NOTE: SERVICE is not an article of commerce. The word article refers to such material or
corporeal things as goods or physical property, which is distinguished from service which is
intangible product.
Taxing Powers of Cities
There are three classifications of cities provided in the Local Government Code, namely, (1)
highly urbanized city, which is a city of at least 200,000 inhabitants AND an income of at
least 50 million pesos at 1991 prices; (2) component city, which is a city which that does not
meet the criteria for highly urbanized cities; and (3) independent component city, which is a
component city whose charter prohibits its inhabitants from voting in the provincial elections.
Among local government units, the city has the widest scope of taxing. Section 151 of the
Local Government Code states:
[A] city may levy the taxes, fees, and charges which the province or municipality
may impose The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes.
From that provision, a city covers the scope of taxing of either a municipality or a province. It
is also authorized to collect a higher tax rate, i.e. 50% of the maximum rates allowed for the
province or municipality. (Insight) The reason why a city is provided a much wider scope
and a greater power is that cities are generally the centers of commerce, transportation,
religion, education, finance, and culture of a certain province or locality. Being centers of
such activities, cities need more revenues to fund its many activities and projects that are
involved in the mentioned activities.
The provision above is the general scope of taxation for cities. In addition to such general
scope, cities may also levy and collect a percentage tax on any business not provided in the
list of specific businesses a municipality may taxed on, at rates not exceeding three percent
(3%) of the gross sales or receipts of the preceding calendar year. Moreover, cities may
collect a professional tax at a rate of 300.00 Pesos per calendar year per professional, and
an amusement tax on paid admission at a rate not exceeding 10% of the gross receipts
from admission fees. Lastly, highly urbanized cities has a share of 60%, of the proceeds of
54
the tax on sand, gravel, and other quarry resources extracted from within the boundaries of
the city.
The taxes, fees and charges levied and collected by highly urbanized and independent
component cities shall accrue to them. The provinces do not have a share as such cities are
fiscally and politically independent from the province
Under Sections 153-155 of the Local Government Code, any local government unit may
collect the following:
1.
2.
Toll Fees or Charges for the use of any public road, pier, or wharf,
waterway, bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned.
3.
2.
3.
4.
[BROS-CAR]
Common Revenue-Raising Powers of Local Government Units
[SToP]
Toll fees may not be collected from the following classes of people: (1) Members of the PNP
and AFP who are on mission; (2) post office personnel delivering mail; (3) physicallyhandicapped individuals; and (4) disabled individuals who are at least 65 years old. Toll fees
may also not be collected when public safety and welfare so require.
Community Tax
A community tax, or a residence tax (certificate), is a form of identification, which has its
origins from the Spanish period. (Insight) The English term community tax certificate is a
euphemism of the Spanish word cdula (sedula in Tagalog), which has a strongly negative
connotation due to the events that took place during the Philippine Revolution, particularly
when the revolutionaries cried Punitin and sedula!43 at Pugadlawin as a sign of protest and
revolt against the Spaniards who had been taxing the Filipinos heavily for centuries.
Although it has been a traditional form of identification for centuries, for notarial purposes,
however, it is no longer valid.
Individuals who are liable for community tax are inhabitants of legal age who:
1. Is engaged in business or occupation; or
2. Is required by law to file an income tax return; or
3. Owns real property with an aggregate assessed value of 1,000 pesos or
more; or
4. Has been regularly employed on a wage or salary basis for at least 30
consecutive working days.
[BROS]
2.
They shall pay an annual community tax of five pesos and an addition tax of one peso for
every one thousand pesos of income, which in no case shall exceed 5,000 pesos.
As for juridical persons, every corporation no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an
annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which,
in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following
schedule:
1. For every Five thousand pesos (P5,000.00) worth of real property in the
Philippines owned by it during the preceding year based on the valuation
used for the payment of real property tax under existing laws, found in the
assessment rolls of the city or municipality where the real property is
situated - Two pesos (P2.00); and
2.
There are only two kinds of persons who are exempt from paying the community tax, and
they are:
1. Diplomatic and consular representatives, for reasons of international
comity; and
2. Transient visitors when their stay in the Philippines does not exceed three
months, which is often the period granted to tourists arriving in the
country. (Insight) As the community tax certificate is a residence
certificate, it is illogical to impose such to transient visitors for the simple
reason that they do not intend to reside here.
Since a community tax certificate is a form of identification, it is required to be presented on
certain occasions when an individual or juridical person transacts with the State, particularly:
1.
When, through its authorized officers, any corporation receives any license,
certificate, or permit from any public authority, pays any tax or fee, receives
money from public funds, or transacts other official business.
For voters registration purposes however, the individual is not required to present such
community tax. (Insight) The reason is that the State, and no less other than the
Constitution, recognizes the sanctity of the right of an individual to vote. It is an exercise of
civil rights that enjoys a higher privilege over the States need to have a system of
identifying its citizens. The State has means, other than requirement of presentation of the
community tax certificate, to identify a registrant.
Collection of Local Taxes
Generally, the tax period is the calendar year. The taxes may be paid in quarterly
installments. (Insight) Such manner of payment is for the benefit of the taxpayer. This is
also consistent with the prevailing Filipino culture that favors small payments so as not to
feel the impact of spending a big amount in one transaction to pay his or her taxes.
As for accrual, it is on the first day of January, or New Years Day. Payment should be made
within twenty days from the date of accrual of the tax, that is until January 20, or for
installments, until April 20, for the second quarter; until July 20, for the third; and until
October 20, for the last.
The Sanggunian, however, may extend the time for payment without imposing any
surcharges or penalties, but only for a period not to exceed six months.
If payment is not made within the allotted time, a surcharge not exceeding 25%, and an
interest not exceeding 2%, may be imposed. Interest shall, however, stop from accruing at
the end of the 36th month.
It is the treasurer of the local government unit (i.e. the barangay, municipal, city, or
provincial treasurer) or his duly authorized deputy who shall collect the taxes, fees and other
charges. Such treasurer has the power to examine the books of accounts and pertinent
records of any natural or juridical person for the purpose of ascertaining, assessing and
collecting the correct amount of tax.
Remedies for Collection of Revenues
There are two major remedies for the collection of revenues, and they are (1) the imposition
of a local governments lien and the (2) availing of civil remedies.
A local governments lien, which is superior to all liens, charges or encumbrances in favor of
any person, enforceable by appropriate administrative or judicial action, is imposed to any
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property or rights therein, which includes property used in business, occupation, practice of
profession or calling, or exercise of privilege, for the payment of local taxes, fees, charges
and other revenues. The lien may only be extinguished upon full payment of the delinquent
local taxes fees and charges including related surcharges and interest.
Civil remedies may either be an administrative action through the distraint of personal,
including incorporeal, property, and the levy upon real property and interest in or rights to
real property, or a judicial action.
For distraint of personal property, the procedure is as follows:
1. Seizure
2. Accounting of distrained goods;
3. Publication;
4. Release upon payment before sale;
5. Sale;
6. Disposition of proceeds
[Sisa And Pepe Rizal Shall Die]44
In seizure, upon failure to pay a tax within the required time, the LGU treasurer or his deputy
shall send a written notice to the delinquent taxpayer. After sending the notice, the treasurer
then shall proceed to seizure proper and before doing so, he shall issue a duly
authenticated certificate based upon the records of his office showing the fact of
delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate
shall serve as sufficient warrant for the distraint of personal property, subject to the
taxpayer's right to claim exemption under the provisions of existing laws. He may thereafter
seize or confiscate any personal property belonging to that person or any personal property
subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in question.
Distrained personal property shall be sold at public auction in the manner hereon provided
for.
Right after seizing, the officer executing the distraint shall make an accounting and issue a
copy of such to the owner, to the person who had possession of the property seized or to
someone of suitable age and discretion who is found at the residence or place of business
of the person whose property is seized.
A notice of sale shall be posted at three public and conspicuous places and such notice
shall be published.
If, however, before the consummation of the said sale, the person whose property has been
seized, pays up his delinquent taxes, charges or fees, the property so seized may be
released.
During the sale, the property shall be awarded to the highest bidder for cash. If the property
remains unsold for a period of 120 days from the day of distraint, the property shall be
considered sold to the LGU for the amount of the assessment made by the Committee on
Appraisals.
Finally, the proceeds shall be disposed by applying it to satisfy the tax, and to the penalties,
interests and surcharges that accrued because of the delinquency. Also it shall be applied to
the expenses of the sale.
If the proceeds are not sufficient, another distraint may be effected.
For levy on real property, it may be done before, simultaneously or after distraint of personal
property. The procedure may be best demonstrated by the following:
Duly Authenticated Certificate
Such certificate shall be issued by the local treasurer for the purpose of
identifying the delinquent taxpayer, his unpaid taxes, and the fees,
charges or penalties.
Notice of levy
1.
2.
3.
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Just like distraint, levy may be repeated once or several times as long as the full amount
Advertisement
due has not been extinguished.
Within 30 days after levy, the LGU treasurer shall advertise for at least 30 days the sale or auction
Althoughofeither
the may be exercised several times, the law provides certain exemptions from
property levied.
distraint or levy. (Insight) Such exemptions are provided in order for the delinquent
taxpayers dignity be recognized and that he be afforded his human rights to a decent living,
to health, to exercise his profession, and to survival. Furthermore, it is intended by the law
that the delinquent taxpayer be left with sufficient properties so that he could recover from
his financial woes.
Staying of Sale
Sale
The following are the exempted properties:
At any time before the date of the sale,
The sale shall proceed if the taxpayer fails to stay
the taxpayer may stay the proceedings
the sale through payment
(a)
Provisions, including crops, actually provided for individual or family
by paying the taxes, fees charges,
use sufficient for four (4) months;
penalties and interests.
(b)
Household furniture and utensils necessary for housekeeping and
used for that purpose by the delinquent taxpayer, such as he may
select, of a value not exceeding Ten thousand pesos (P10,000.00);
(c)
One fishing boat and net, not exceeding the total value of Ten
thousand pesos (P10,000.00), by the lawful use of which a fisherman
Post-Sale Incidentals
earns his livelihood;
(d)
Any material or article forming part of a house or improvement of any
1. Within 30 days after the sale, a report shall be made and delivered to
real property.
the sanggunian.
(e)
His necessary clothing, and that of all his family;
2. A certificate of sale shall be issued to the purchaser
(f)
The professional libraries of doctors, engineers, lawyers and judges;
3. Any excess of the proceeds shall be turned over to the owner.
(g)
One (1) horse, cow, carabao, or other beast of burden, such as the
delinquent taxpayer may select, and necessarily used by him in his
ordinary occupation;
(h)
Implements and tools necessarily used by the delinquent taxpayer in
his trade or employment;
Redemption
Final Deed to Purchaser
Within one year from the sale,
delinquent taxpayer has the right
redeem the property upon payment of
taxes, etc. plus an interest of 2%
month on the purchase price.
the
to
the
per
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Tax
Collection
Activity
Period of assessment,
in general
Period
Mode
Period of assessment
when fraud is involved
Period to collect
10 years, from
discovery of fraud
5 years, from the
date of assessment
For declaratory relief, the same procedure as stated in the 1997 Rules of Court shall apply.
Finally, for injunction, this may be availed by a taxpayer when he wishes to enjoin the
collection of a local tax.The issuance of a writ of injunction is prohibited if the subject matter
is a national internal revenue tax. The requisites of the issuance of a writ of injunction are:
(1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent
and paramount necessity for the writ to prevent serious damage. Although the two requisites
may be present, the judge has the ultimate discretion to issue such writ. It is not a matter of
right especially that writs of injunction against local taxes are frowned upon.
Sources:
The Local Government Code of the Philippines (Republic Act No. 7160)
Efren Vincent Dizon, Taxation Law Compendium, Volume 1 (2013).
CHAPTER 7: REAL PROPERTY TAX
A. Definitions and Taxing Authority
PROPERTY TAX are taxes assessed on all property or on all property of a certain class
located within a certain territory on a specified date in proportion to its value, or in
accordance with some other reasonable method of apportionment. It is ordinary measured
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by amount of property on a given day and not on total amount owned by him during the
year.
REAL PROPERTY TAX (RPT) is the most important and ideal source or of revenue for local
governments. It is the largest contributor to the total own-source revenues of LGUs, and
remains to be the most reliable income source where local governments can raise an
overwhelming share of their own-source tax revenues.
Basis of Real Property Tax: A Real estate tax is a direct tax on the ownership of lands and
buildings or other improvements thereon, not specially exempted, and is payable regardless
of whether the property is used or not, although the value may vary in accordance with such
factor.
Taxing real property on the basis of ACTUAL USE, even if user is not the owner; ACTUAL
USE refers to purpose for which the property is principally and predominantly utilized by the
person in possession. Same policy was adopted in the Local Government Code.
NATURE OF REAL PROPERTY TAX
1. Usually single or indivisible, although land and building or improvements erected
are assessed separately, except when land and building belong to separate
owners
2. Fixed proportion of assessed value and requires intervention of assessors
3. Collected or payable at appointed times; constitutes as a lien on and is
enforceable against property subject to tax and not by imprisonment
4. Tax in rem against realty
Note: RPT being an ad valorem tax, cannot be treated as local tax
REAL ESTATE includes all land within the district by which the tax is levied and all rights
and interests in such land, and all buildings and other structures affixed to the land, are the
property of the tenant and may be removed by him at the termination of the lease. When
there are separate owners of land, separate assessments of property of each shall be
made.
IMMOVABLE PROPERTY (ART 415)
ART 415: The following are immovable property
1. Lands, buildings, roads and constructions of all kinds adhered to soil
2. Trees, plants and growing fruits, while attached to land or form an integral part of
an immovable
3.
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LGUS WITH POWER TO IMPOSE REAL PROPERTY TAXfollowing may levy an annual
ad valorem on real property not specifically exempted
1. Provinces
2. Cities
3. Municipalities within Metro Manila
B. Fundamental principles, exempt properties and classification of property
FUNDAMENTAL PRINCIPLES
1. Real property shall be appraised at its current and fair market value.
2. Real property shall be classified for assessment purposes on the basis of its actual
use.
3. Real property shall be assessed on the basis of a uniform classification within each
LGU.
4. Appraisal and assessment of real property shall be equitable.
EXEMPT PROPERTIES
1. All RP owned by Republic or any of its political subdivisions
a. EXCEPTION: when the beneficial use has been granted to a taxable
person
2. Charitable institutions, churches, parsonages or convents appurtenant to and all
lands, buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes
3. All machinery and equipment that are 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. All real property owned by registered cooperatives in RA 6938
5. Machinery and equipment exclusively used for pollution control and environmental
protection
Ownership exemptions
Character exemptions
Usage exemptions
On basis of ownership;
Owned by
1. Republic
2. Province
3. City
4. Municipality
5. Barangay
6. Registered
cooperatives
On basis of their
character
1. Charitable
institutions
2. Houses
and
temples
of
prayer
3. Non-profit or
religious
cemeteries
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There must be express language in the law empowering local governments to tax national
government instrumentalities.
SEC 133 LGC unless otherwise provided
DOCTRINE OF EXEMPTION OF NATIONAL GOVERNMENT FROM LOCAL TAX
emanates from SUPREMACY OF NATIONAL GOVERNMENT
SEC 234 LGC--- government property being used by a taxable person or entity is subject to
tax
Real property, although owned by the Republic, is not devoted to public use or public
service but to private gain of taxable person.
EXCEPTION: when national government are subject to any kind of tax by local
governments.
Exception to the exemption applies only to real estate tax and not to any other tax.
Title of government property
1. In the name of Republic
2. In the name of agencies or instrumentalities
a. Republic may grant beneficial use of its real property to any agency or
instrumentality when real property is transferred to it even as Republic
remains the owner.
Tax liability of beneficial usecorresponding liability for payment devolves on taxable
beneficial user and not the government.
Property over which government has right to useif the government has right to use the
property, the same may be exempted from realty tax
RECLAIMED AREASforeshore and submerged areas belong to the public domain and
are inalienable unless reclaimed, classified as alienable lands upon to disposition and
further declared no longer needed for public service.
Ownership remains with the State unless it is withdrawn by law or presidential proclamation
from public use.
Even if alienable lands of public domain were transferred to Philippine Reclamation
Authority and issued land patents or certificates of title, it did not automatically made such
lands private. Reclaimed lands being leased or sold by PRA are not private lands. Only
when qualified private parties acquire these lands will the lands become private lands.
EMBASSIESART 23 Vienna Convention of Diplomatic Relations: sending state and head
of mission shall be exempt from all national, regional or municipal dues and taxes in respect
of premises of mission, whether owned or leased.
2.
Partial exemption is possible if only a part of the property is used for exempted purpose.
Real properties, although owned by taxable persons, which are actually, directly and
exclusively being used by an exempt entity for religious, charitable or educational purposes,
are exempted from payment of real property tax
3. All machinery and equipment that are 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.
To qualify for exemption, use must be devoted to supply and distribution of water or
generation and transmission of electric power. Machinery must be actually, directly and
exclusively used for such purpose.
Contractual exemptioncontractual assumption of the obligation to pay real property tax is
not sufficient to make one compellable to pay taxes due. It must be supplemented by an
interest that the party assuming the liability has on the property tax.
Thus, where vendee assumed liability for taxes, vendee is liable because he acquired use
and possession of the property, even though title remained with the vendor pending full
payment of the purchase price in a contract of conditional sale.
Liability is prospective and does not cover delinquent taxes. This is because of the principle
that user of the property bears the tax. He cannot assume where he has no possession.
Assumption of tax by an exempt entitytax exempt entity may not validly assume the tax in
a contract with a taxable beneficial user with the intention of indirectly extending the
formers exemption to the latter. Such does not bind the LGU, a 3 rd party not privy to the
agreement and the beneficial user remains to be liable. Realty tax is directly chargeable to
the beneficial user.
4.
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i.
Purposes of cooperative
1. Encourage thrift and savings mobilization among members
2. Generate funds and extend credit to members for productive and provident
purposes
3. Encourage among members systematic production and marketing
4. Provide goods and services and other requirements to members
5. Develop expertise and skills among its members
6. Acquire lands and provide housing benefits for members
7. Insure against losses of members
8. Promote and advance the economic, social and educational status of members
9. Establish, own, lease or operate cooperative banks, cooperative wholesale and
retail complexes
10. Coordinate and facilitate activities of cooperatives
11. Advocate cause of cooperative movements
12. Ensure viability of cooperatives through utilization of new technologies
13. Encourage and promote self-help
14. Undertake any and all other activities for effective implementation of Cooperative
Code
Tax Treatment of cooperativeduly registered cooperatives which do not transact any
business with non-members or the general public shall not subject to any taxes and fees
imposed under internal revenue laws.
Cooperatives transacting business with both members and nonmembers shall not be
subjected to tax on their transaction with members. Transactions of members with the
cooperative shall not be subject to any taxes and fees, final taxes on members deposits
and documentary tax.
Tax exemptions of cooperatives dealing with nonmembers
1. Cooperatives with accumulated reserves an undivided net savings of not more
than 10M shall be exempt from all national and local taxes.
a. Such cooperatives shall be exempt from customs duties, advance sales
or compensating taxes on their importation of machinery, equipment and
spare parts and which are not available locally
b. All tax free importations shall not be sold nor the beneficial ownership be
transfer to any person until after 5 years, otherwise cooperative and
transferee shall be solidarily liable to pay twice the amount of imposed tax
2.
ii.
3.
b.
c.
d.
5.
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transactions is considered by
taking into account valid sales
data accumulated from among
various sources stated in LGC
appraising man-made
such as buildings and ot
based on such data as
labor costs to reproduce
of the improvement
No rigid rule
C. Rates of Levy, Penalties and Condonation
UNIFORM RATE OF BASIC REAL PROPERTY TAX
1. Province: not exceeding 1% of the assessed value of real property
2. City or municipality within Metro Manila Area: not exceeding 2% of the assessed
value of real property
Local Government Unit authorized to collect real estate tax on properties:
1. Within its territorial jurisdiction; and
2. Unquestionably within its geographical boundaries.
In case of BOUNDARY DISPUTE between two local governments, while the case is
pending:
1. if the taxpayer already paid real property tax in one unit, no liability to pay in the
other unit
Zoningcity or municipality within Metropolitan Manila Area, through their sanggunian, shall
2. if he has yet to pay, deposit due real property taxes in an escrow account with a
have the power to classify lands in accordance with their zoning ordinances
government bank.
Tax declarations are not conclusive. It only enables the assessor to identify it for
No public hearing shall be required before the enactment of a local tax ordinance levying
assessment levels. It does not bind the provincial/city assessor, for appraisal and
the basic real property tax.
assessment are based on actual use irrespective of any previous assessment or taxpayers
SPECIAL LEVIES ON REAL PROPERTY
valuation which is based on a taxpayers declaration.
1. Additional levy for the Educational Fund
Incidental and reasonably necessary use- classification of property as special is not limited
2. Additional Ad Valorem tax in idle lands
to property actually indispensable but to facilities that are incidental to and reasonable
3. Special levy by local government units, through a tax ordinance describing with
necessary for the accomplishment of its purpose
reasonable accuracy the:
Approaches in determining fair market valueassessor uses any or all in analyzing data
a. Nature
b. Extent
gathered to arrive at the estimate fair market value to be included in the ordinance
c. Location of the public works projects or improvements to be undertaken
containing the schedule of fair market values.
d. State of the estimated cost thereof
e. Specify the metes and bounds by monuments and lines; and
f. The number of annual installments for the payment of the special levy
1. Sales analysis or market data 2. Income capitalization approach
3. Replacement or reproduction cost
which in no case shall be less than 5 nor more than 10 years.
approach
approach
*The Sanggunian concerned shall conduct a public hearing before the enactment
Price paid in actual market Value of an income producing Factual approach used exclusively
of aninordinance imposing a special levy.
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4.
Socialized Housing Tax: additional 0.5% tax in the assessed value of all lands in
urban areas in excess of Php 50, 000.00
LISTING IN THE ASSESSMENT ROLL: real property shall be listed, valued and assessed
in the name of the owner or administrator, or anyone having interest in the property
APPRAISAL OF REAL PROPERTY: at the current and fair market value prevailing in the
locality where the property is situated
Schedules of Fair Market Value:
1. Published in a newspaper of general circulation in the province, city or municipality;
or in the absence thereof
2. Posted in the provincial capitol, city or municipal hall and in 2 other conspicuous
public places therein
ASSESSMENT: the assessment levels to be applied to the fair market value of real property
to determine its assessed value shall be fixed by ordinances of the sangguniang
panglalawigan, sangguniang panglungsod or sangguniang bayan of a munipality at the
rates not exceeding those provided in Section 218 of the Local Government Code.
*General revision of real property assessments shall be undertaken by the assessor
within 2 years after the effectivity of the Local Government Code and every 3 years
thereafter.
E. Duties of Certain Local Officials, Private Individuals, and Entities
Registrar of Deeds
Failure to provide such certificate: ROD will refuse the registration of the
document.
Officials Issuing Building Permits or Certificates of Registration of Machinery
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Geodetic Engineers
To furnish free of charge the assessor of the province, city, municipality (PCM)
where the land is located with a white or blue print copy of each of all
approved original or subdivision plans or maps of surveys within 30 days from
receipt of such plans from Lands Management Bureau (LMB), Land
Registration Authority (LRA) or the Housing and Land Use Regulatory Board
(HLURB).
Registrar of Deeds and Notaries Public
To furnish the provincial, city, or municipal (PCM) assessors with copies of all
contracts selling, transferring, or otherwise conveying, leasing, or mortgaging
real property received by or acknowledged before them.
Insurance Companies to Furnish Information
By filing a petition under oath in the form prescribed for the purpose.
Together with the copies of the tax declarations and such affidavits or
documents submitted in support of the appeal
Motion for Reconsideration is not allowed
Motion for reconsideration is not allowed by the procedure to be filed by the
property owner to the local assessor.
Notice of appeal is the last action which gives the owner of the property the right
to appeal to the Local Board of Assessment Appeals (LBAA).
Whenever the local assessor sends a notice to the owner or lawful possessor of
the real property, the assessor shall no longer have jurisdiction to entertain any
request or readjustment.
Where should the taxpayer go? The aggrieved party may bring his appeal to
the LBAA as provided by law.
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Hearing Officers
- shall be appointed by the Central Board of Assessment Appeals pursuant to the
civil service laws, rules, and regulations.
- shall serve for 6 years, without reappointment until their successors have been
appointed and qualified.
Fact-Finding Function
CBAAs authority is not limited to the exercise of its appellate jurisdiction.
Why? Because the Supreme Court, in the exercise of its extraordinary jurisdiction,
may also designate it as a court appointed fact-finding commission to assist the
court in factual decisions raised in certain actions such as prohibition.
Barangay Treasurer
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Collection by Municipalities
Real property tax is a provincial imposition
But the collection of which is delegated to the component municipalities through
their respective Municipal Treasurers who shall issue official receipts for payments
received and recorded in the reports of collections and deposits and in the cash
books.
Conversion of Municipality to City
1. The remittance of the share of the mother Province from the basic real property
taxes is a statutory obligation of the component municipalities which are only deputized
to collect real property tax.
2. A component municipality that has been converted into a city remains obligated to
remit the share of the mother province from any real property tax due before its
conversion, but were paid and collected thereafter.
3. A newly converted city that has not enacted its own real property tax ordinance, but
collects real property tax using the real property tax ordinance of the province is
obligated to remit the share therefrom of the latter.
4. Once the newly converted city enacts its own property tax due and collected
pursuant thereto shall accrue exclusively to the city.
Payment of Real Property Taxes in Installments
The owner of the real property of the person having legal interest therein may pay
the basic real property tax and the additional tax for Special Education Fund due
thereon without interest in four equal instalments.
Pretemission of Holiday
What happens if the last day of the quarterly payment falls on a holiday or
non-working day? the next succeeding business day is considered the last day
of payment of the tax.
Tax Discount for Advanced Prompt Payment
If the basic real property tax and the additional tax accruing to the Special
Education Fund are paid in advance, the sanggunian shall grant a discound not
exceeding 20% of the annual tax due.
Repayment of Excessive Collections
Assessment of basic real property tax or any other tax is found to be illegal
or erroneous
Taxpayer may file a written claim or refund or credit for taxes and interests
within 2 years from the date that the taxpayer is entitled to such reduction
or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or
credit within 60 days from receipt thereof.
Claim for tax is denied the taxpayer may avail of assessment appeals.
Payment under Protest
No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words paid under protest.
Protest Not Required in Refund
Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund.
Procedure
Should the taxpayer or real property owner question the excessiveness of
reasonableness of the assessment, the taxpayer should first pay the tax due
before his protest can be entertained.
There shall be annotated on the tax receipts the words paid under protest
The local treasurer would not entertain the protest unless the tax due has been
paid.
If the local treasurer denies the protest or fails to act upon it within the 60-day
period, the taxpayer or real property owner may then appeal or directly file a
verified petition with the LBAA within 60 days from denial of the protest or receipt of
the notice of assessment.
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i.
ii.
iii.
iv.
Service of Warrant
It shall be mailed to or served upon delinquent owner or person having legal
interest therein
In case the person is out of the country or cannot be located, to the
administrator or occupant of the property.
- Notice is mandatory
Local treasurer cannot rely solely on the tax declaration but must verify
with the Register of Deeds
Annotation
Written notice of the levy with the attached warrant shall be mailed to or served
upon the assessor and the Registrar of Deeds (RD) of the province, city, or
municipality within Metro Manila
Assessor shall annotate the levy on the tax declaration while RD shall annotate
on the title of the property
Report
- Within 10 days after receipt of warrant by owner, levying officer shall submit a
report on the levy to the sanggunian concerned
-
Stay of Proceedings
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Owner or person having legal interest may stay the proceedings by paying the
delinquent tax, interest due and expenses of sale at any time before the date
fixed for the sale.
Payment of delinquent tax even at the auction stage is allowed, provided the
entire amount with interest and expenses is paid. The public auction will be
stopped.
The sale shall be held at the main entrance of the provincial, city, or municipal
building, or on the property to be sold, or at any other place as specified in the
notice of the sale.
Local treasurer shall prepare and deliver to the purchaser a certificate of sale.
Proceeds of the sale in excess of the delinquent tax shall be remitted to the owner
or person having real interest therein.
Local treasure may, by ordinance duly approved, advance an amount to defray the
costs of collection.
Purchase by LGU
Local treasurer shall purchase the real property in behalf of LGU concerned if
(i) theres no bidder or (ii) the highest bid is for an amount insufficient to pay the
real property tax and the related interest and costs of sale
RD shall transfer the title of the forfeited property to the LGU without necessity
of an order from a competent court
Taxpayer or his representative may redeem the property within 1 year from
date of such forfeiture, by paying the full amount of the real property tax and
the related interest and costs of sale.
If not redeemed, ownership shall be fully vested on the LGU.
Property under Litigation
The court may motu proprio or upon representation of the provincial, city, or
municipal treasurer award ownership, possession, or succession to any party to
the action upon payment to the court of the taxes with interest and other costs.
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J. Prescription
Prescriptive Period for Collection of Basic Real Property Tax
Real property tax and any other tax levied under LGC shall be collected within 5
years from the date they became due.
In case of fraud or intent to evade payment of the tax, within 10 years from
discovery of such fraud or intent to invade payment
Prescriptive periods were provided to enforce the collection of real property tax
within a specific time. Beyond the period, no action for collection shall be instituted.
If local treasurer has been sending notices of delinquency and/or reminder letters
for payment, the tax may be collected even beyond the 5-year period.
Prescription may only be validly invoked by taxpayer if local treasure neglected or
deliberately failed to perform his mandated duties.
Interruption or Suspension of Prescriptive Period
The period to collection shall be interrupted or suspended in the following instances:
i.
Local treasurer is legally prevented from collecting the tax
ii.
Owner of the property or the person having legal interest therein requests for
reinvestigation and executes waiver in writing before the expiration of the
period within which to collect, and
iii.
Owner of the property or the person having legal interest therein is out of the
country or otherwise cannot be located
GENERAL RULE: All articles imported from foreign country into the Philippines are subject
to duty. The same rule applies if the article has been previously exported from the
Philippines
EXCEPTIONS: (EPIS-G)
1. Those expressly exempted under the Tariff and Customs Code
Example: conditionally free importations (Sec. 105)
2. Grant of exemption by the President of the Philippines
3. Those exempted pursuant to special laws
Example: RA 9290
4. Exemption granted to government agencies, instrumentalities, and GOCCs with
contracts and agreements with foreign countries or international organizations
5. Exemption of international organizations or institutions pursuant to agreements,
treaties or special laws
Fees Charged by the Bureau of Customs (WHAT-BS)
Wharfage
due
Harbor fee
Prescriptive Period for Refund or Credit
Taxpayer may file a written claim for refund or credit for taxes and interests with the
provincial or city treasurer within 2 years from the date of entitlement to such
reduction or adjustment.
Arrastre
charge
Tonnage
due
A.
Tariff the system of imposing duties or taxes on the importation of foreign merchandise
Customs duties taxes on the importation or exportation of commodities; a tax levied on
imports by the customs authorities of a country to raise state revenue, and/or to protect
domestic industries from competitors abroad
Berthing
charge
Storage
charge
What
Amount assessed against the cargo of the
vessel engaged in foreign trade based on the
quantity, weight, or measure received or
discharged by such vessel
Payment for each entrance into or departure
from a port of entry in the PH
Payment for the handling, receiving, and
custody of the imported or exported article or
baggage of the passengers
Who Pays
Owner, consignee, or
agent of the owner or
consignee of the article
or
or
or
or
or
Articles Subject to Duty goods, ware, merchandise and anything that may be made the
subject of importation or exportation
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1.
2.
3.
Prohibited Articles
1. Absolutely prohibited articles
Example:
a. Written or printed articles advocating or inciting treason, rebellion, sedition,
insurrection or subversion against the government of PH
b. Written or printed articles, negatives, or cinematographic film, photograph and
similar articles representing obscene or immoral character
c. Articles, drugs, instruments for producing unlawful abortion
d. Opium pipes and parts thereof
2. Qualifiedly prohibited articles those that may be imported subject to certain
conditions or limitations
a. Dynamite, gunpowder, ammunition and other explosives, firearms and
weapons of war
b. Devices used for gambling (roulette wheels, gambling outfits, loaded dice,
marked cards)
c. Lottery and sweepstakes tickets except those authorized by the PH
government
d. Any article manufactured in whole or in part of gold, silver or other precious
metals or alloys thereof, the stamps, brands or marks of which do not indicate
the actual fineness of quality of said metals or alloys
e. Marijuana, opium poppies, coca leaves, heroin and other narcotics or
synthetic drugs which are declared habit-forming by the president of PH
Conditionally-free Importations articles that are exempt from payment of import duties
upon compliance with prescribed formalities or regulations
Fraudulent practice any article sold, bartered, hired or used for purposes other than that
they were intended without prior payment of duties, taxes or charges due and payable at the
time of entry
Temporary admission/temporary imports those conditionally-free importations that may
be imported without payment of duties upon posting of a bond equivalent to 150% of the
taxes due thereon conditioned on the re-exportation thereof within a specified period
Example:
a. Articles brought for repair to be re-exported upon completion of the repair
b. Articles used exclusively for public entertainment, public display or exhibition
c. Articles brought by foreign film producers directly and exclusively used for making
or recording motion picture films on location in the PH (THINK: Jason Bourne
movie)
d. Personal and household effects and vehicles of foreign consultants and experts
hired by the government
e. Imported material used in manufacturing, packaging, covering, branding and
labeling articles in a bonded manufacturing house
Drawbacks a refund of duties especially on imported products subsequently exported
or used to produce a product for export
Who pays: Bureau of Customs
When paid: 60 days after receipt of properly accomplished claims
B.
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Method Three: Transaction Value of Similar Goods transaction value of similar goods
for export and exported at or about the same time as the goods being valued.
*Similar goods: although not alike in all respects, have like characteristics and like
component materials which enable them to perform the same functions and to be
commercially interchangeable.
Method Four: Deductive Value based on the unit price sold in the Philippines in the
greatest aggregate quantity to persons not related to the persons from whom they buy such
goods.
Method Five: Computed Value - computed value which shall be the sum of:
a. cost or value employed in producing the imported
goods;
b. amount for profit and general expenses reflected in
the sale of goods;
c. freight insurance fees and other transportation
expenses;
d. Any assist, if its value is not included under par. (a);
and
e. cost of containers and packing.
Method Six: Fallback Value using other reasonable means and on the basis of data
available in the Philippines.
*Limitations: No dutiable value shall be determined under this method on the basis
of:
1. selling price in the Philippines of goods produced in the Philippines;
2. system that provides for the acceptance for customs purposes of the
higher of 2 alternative values;
3. price of goods in the domestic market of the country of exportation;
4. cost of production, other than computed values, that have been
determined for identical or similar goods
5. price of goods for export to a country other than the Philippines;
6. minimum customs values; or
7. arbitrary or fictitious values.
*Release of Goods in Case of Delay if it becomes necessary to delay the final
determination of such dutiable value, the importer shall secure the release of the
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*deemed entered in the Phil. for consumption when specified entry form is
properly filed and accepted, together with any related documents required, at the port or
station, by any the customs official designated to receive such and the required fees have
been paid provided that the article has previously arrived within the limits of the port of entry.
2.1. Anti Dumping Duty - It refers to a special duty imposed on the importation of a
product, commodity or article of commerce into the Philippines at less than its normal value
when destined for domestic consumption in the exporting country. (Formula: Anti-Dumping
Duty =Normal Value Export Price)
Elements of Dumping:
a. Like Product
b. Price Difference
c. Injury
d. Causal Link
C.
1. Regular Duties/Tariff Barriers Taxes that are imposed or assessed upon merchandise
from, or exported to a foreign country for the purpose of raising revenue. It may also limit
the amount of goods, which can be imported into a country.
Purpose of Tariff Barriers: Designed to protect the domestic manufacturers or producers
from foreign competition.
Kinds of Regular Duties/Tariff Barriers
Four ways to assessed Custom Duties:
1.1 Ad valorem Duty Assessed as percentage of the import value of goods(e.g., 30% of
Free on Board price).
1.2 Specific Duty - Assessed on the basis of some units of measurement such as quantity
(e.g., Php500.00 per dozen) or weight, either net, legal or gross weight.
1.3 Alternating Duty Alternates ad valorem and specific duties.
1.4 Compound Duty Assessed as a combination of the specific duty and ad valorem
duty (e.g., Php 200.00 per kilogram net, plus 30% of FOB price).
2. Special Duties/Non-tariff Barriers Imposed and collected in addition to the ordinary
custom duties on specific kinds of imported articles under certain conditions usually for the
protection of consumers and manufacturers as well as Philippine products from undue
competition posed y foreign-made products.
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Note:
Industries are deemed to have received subsidy as a result of : ( i) Direct or potential
transfer of government fund (ii) The government foregoing the revenue that should have
otherwise been collected ( iii) The government providing goods or services or purchasing
goods
Subsidy in order to be countervailable must be ( i) Specific (ii) An industry sector or
group of industries (iii) A designated geographic region within the jurisdiction of the granting
authority
2.3. Marking Duty It is imposed on every article of foreign origin imported into the
Philippines which is not marked in any official language of the Philippines in a conspicuous
place as legibly, indelibly and permanently as the nature of the article or its container will
permit (in such a manner as to indicate to an ultimate purchaser in the Philippines) the
name of the country of origin of the article.
Note:
The failure or refusal of the owner or importer to mark the articles within a period of thirty
days after due notice shall constitute as an act of abandonment of said articles.
2.4 Discriminatory Duty It is imposed on articles wholly or in part the growth or product
of or imported in a vessel of any foreign country whenever such country:
(i.)
(ii.)
Note:
If such foreign country increased its said discrimination against the commerce of the
Philippines, the president if he deems it consistent with the interest of the Philippines, issue
further proclamation that the said product and articles of the foreign country imported in its
vessel, shall be excluded from importation into the Philippines.
2.5. Safeguard Measure Duties - It is imposed to protect domestic industries and
producers from increased imports which cause or threaten to cause serious injury to those
domestic industries and producers.
Note:
The Secretary shall apply a general safeguard measure upon a positive final determination
of the Commission that a product is being imported into the country in increased quantities
as to be a substantial cause of injury or threat to the domestic industry.
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c)
Note:
The DA Secretary shall issue a DO requesting the DF Secretary to impose additional
special safeguard duty on agricultural product if: (i) Its cumulative import volume in a given
year exceeds its trigger volume and (ii) Its actual import price is less than its trigger price,
both subject to conditions of RA 8800.
D.
Basis: The Congress, may, by law authorize the President to fix within the specified limits,
and subject to such limitations and restrictions as 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 government. (Section 28(2) of Article
VI of the 1987 Constitution)
*May be exercised even for revenue purposes only
Tariff Powers of the President:
1) Increase, reduce, or remove existing protective rates of import duties including the
necessary changes in the classification
Condition: increase in the rate cannot exceed 100% ad valorem
2) Establish import quota or ban import of any commodity whenever necessary
3) Impose additional duty on ALL imports, not exceeding 10% ad valorem whenever
necessary
4) Cause a gradual reduction of protection levels upon periodic investigations by the
Tariff Commission and recommendation of NEDA
Requisites for the Exercise of Power
1) In the interest of national economy, general welfare and/or national security
2) Recommendation of NEDA to the President
a) Tariff Commission must conduct an investigation
b) Public hearing shall be held
Power to modify the form of duty: the corresponding ad valorem or specific equivalents of
the duty with respect to imports from the principal competing foreign country for the most
recent representative period shall be used as bases
Powers of the President Regarding Foreign Trade
For the purpose of:
1) Expanding foreign markets for Philippine products as a means of assistance in
the economic development of the country
2) Overcoming domestic unemployment
3) Increasing the purchasing power of the Philippine peso
4) Establishing and maintaining better relations between Philippines and other
countries
The President is authorized to:
1) Enter into trade agreements with foreign governments or instrumentalities
thereof
2) Modify import duties and other import restrictions
E.
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Balikbayans
Minors
US$ 250
Kabuhayan
Shopping
Privilege
(livelihood tools): US$ 2,000
All other passengers (Tourists and
Filipinos traveling to or returning from
abroad)
2)
US$ 1,000
As to Quantity
Cigarettes 2 reams
Tobacco 2 tins
Liquor and/or wine 2 bottles
Non-consumable items (value exceeds US$ 200) 1 only
3)
4)
5)
6)
7)
8)
US$ 250
Protect
the
legitimate
interests
of
consignors/senders and their consignees and the
transacting public
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3.
4.
5.
6.
7.
F.
subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from
15% to 100% (depending on its piston displacement)
its book value serves as the tax base (not the purchase price nor the
acquisition cost)
spare parts are taxed separately
older model: depreciation schedule is 10% per year counted
downwards from current year (which has 0% depreciation rate)
with piston displacement of 2000 cc: max depreciation of 50%;
below 2000 cc: max of 70%
d.
B.
BUREAU OF CUSTOMS
a. Chief Officials
i. Chief
ii. Assistant Chief
b. Powers:
i. Assessment and collection of lawful revenues from import
ii. Prevention and suppression of smuggling
iii. Supervision and control over entrance and clearance of vessels
and aircraft
iv. General supervision of vessels carrying passengers or freight
v. Prohibition of unnecessary noise
vi. Exclusion of 150 ton vessels from Pasig River
vii. Registration and inspection of vessels
viii. Enforcement of quarantine regulations and of tariff and custom
laws
ix. Licensing of marine/pilots
x. Supervision and control over handling of foreign mail
c. Territorial Jurisdiction
i. Over all seas within Philippine jurisdiction
ii. Exclusive control in respective ports of entry
d. Hot Pursuit
i. May continue beyond maritime zone
e. Collection Districts
i. Collector of Customs at each port of entry
f. Visitorial Power
i. In any place where foreign articles are openly offered for sale
ii. Kept in storage
g. Search Warrant is needed in case of dwelling house
C.
IMPORTATION IN GENERAL
a. Kinds
i. Freely Importable
ii. Regulated
iii. Prohibited
iv. Conditionally free
b. Importation begins upon entry into jurisdiction and terminated upon
payment of duty
EXPORT DUTIES
E.O. No. 26, July 1, 1986 abolished the export duties on all export products
export duty imposed on logs: 20% of the gross FOB value at the time of shipment
based on the prevailing rate of exchange
only planted trees are subject to the export duty, since all naturally grown trees are
banned from being exported
CHAPTER 9: ADMINISTRATION OF TARRIFF AND CUSTOMS
A.
TARIFF COMMISSION
a. Chief Officials
i. Chairman
ii. 2 Member Commissioners to be appointed by the President
b. Investigative Functions
i. Administration and effects of tariff and custom laws
ii. Relation between duty rates between raw materials and finished
products
iii. Effects of Ad Valorem and Specific Duties
iv. Questions related to schedules and classification
v. Tariff relations
vi. Importations vs. domestic production
vii. Effects of competition with foreign industries
viii. Investigative Operations
ix. Nature and composition of articles
c. Duties of the Commission
i. Ascertain conversion and production costs in principal centers
and in foreign countries
ii. Select representative articles
iii. Ascertain import costs and selling prices
78
c.
d.
e.
f.
g.
D.
E.
F.
G. DELIVERY OF ARTICLES
a.
b.
c.
d.
e.
f.
g.
H.
LIQUIDATION OF DUTIES
a. Shall be made on the face of the entry
b. Tentative liquidation if an action is required to determine the exact amount
c. Finality is 3 year from the date of payment of final duties
I.
J.
ABANDONMENT
a. Kinds
i. Express
ii. Implied
b. Ipso facto deemed property of the government
K.
RECORDS
a. All importers required to keep records for a period of 3 years from the
date of importation
b. Compliance audit
i. Full and free access
ii. BOC has contempt powers
c. Scope
i. Firms selected by computer-aided risk management system
ii. Errors in import declaration detected
iii. Voluntary request to be audited
d. Record to be kept by Customs
i. Articles of Incorporation
ii. Company Structure
iii. Key importations
iv. Privileges
v. Penalties
79
L.
M. ADMINISTRATIVE PROCEEDINGS
a. Collector shall issue a warrant for the detention of the property
b. Seizure to be reported to the commissioner and auditor and the
corresponding notice to owner/importer
c. Legality of seizure can only be contested by those whose rights have
been impaired
d. Settlement involves the payment of fine or the appraised value
e. Redemption prohibited for prohibited articles
f. Scope shall be limited to subject matter
g. Reliquidation if protest is proper
h. 15 days review by the commissioner
i.
Automatic review if adverse to the government
j.
Confirmation of decision
k. Notice of decision
l.
Reliquidation
m. Government has the right to compulsory acquisition to protect revenues
against undervaluation
3.
4.
5.
6.
7.
8.
9.
N. JUDICIAL PROCEEDINGS
1.
2.
3.
4.
Actions instituted under the authority of the Tariff and Customs Code shall be
brought in the name of the Philippine government and conducted by customs.
Approval of the Commissioner is required in an action for recovery of duties.
Aggrieved party may appeal to the CTA. If no appeal, ruling of the Commissioner is
final and conclusive.
BOC has exclusive jurisdiction over imported goods for enforcement of custom
laws. Seizure and forfeiture is for the Collector and then the Commissioner.
Exclusive original jurisdiction of the Collector pertains only to goods seized
pursuant to the authority under the Tariff and Customs Code.
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2.
Property shall be sold or disposed of upon the order of the Collector of the port
where the property in question is found.
3. Property shall be sold at public auction after 10 days notice. No customs official or
employee shall be allowed to bid.
4. The following charges shall be paid from the proceeds of the sale in the order
named:
a. Expenses of appraisal, advertisement and sale
b. Duties except in the case of abandoned and forfeited articles
c. Taxes and other charges
d. Government storage charges
e. Arrastre and private storage charges
f. Freight, lighterage or general average, on the voyage of importation
5. Any surplus remaining after the satisfaction of all unlawful charges shall be
retained by the Collector for 10 days subject to the call of the owner.
6.
Perishable articles may be sold at auction, after public notice, not exceeding 3
days.
7.
Disposition of articles unfit for use or sale or injurious to public health shall be
ordered by the Collector in such a manner as the case may require.
8. Disposition of contraband:
a. Ammunition and weapons to the AFP
b. Highly dangerous shall be destroyed
c. Contraband coin and bullion to BSP
d. Other contraband of commercial value and capable of legitimate use may
be sold under such restrictions
9.
Disposition of articles for want of bidders shall be used by BOC to promote
collection of taxes or channeled to official use of other offices.
10. Dangerous explosives shall be subject to disposition in the discretion of the
Commissioner.
11. Disposition of Smuggled Articles:
a. Written or printed articles inciting treason or rebellion
b. Written or printed articles or other representation of an obscene or
immoral character
c. Articles, instruments, drugs for unlawful abortion
d. Apparatus or devices used in gambling
e. Opium pipes
Q. OFFENSES
1.
2.
b.
3.
4.
Those who knowingly demand other or greater sums than are authorized
by law
c. Those who willfully neglect to give receipts
d. Those who willfully make opportunity for any person to defraud the
customs revenue
e. Those who permit the violation of the law
f. Those who make or sign any false entry in any book
g. Those who fail to report any fraud
h. Those who without authority attempt to collect payment
i.
Those who disclose confidential information without authority
Offenses punishable under the Tariff and Customs Code:
a. Concealment or destruction of evidence of fraud
b. Breaking of seal on car
c. Alteration of marks on any package of warehoused articles
d. Fraudulent opening or entering of warehouse
e. Fraudulent removal or concealment of warehoused articles
f. Violation of custom laws and regulations in general
Liability for unlawful importation
a. Duty to declare
b. Administrative penalty is separate and distinct of criminal liability for
smuggling
c. A Penal provision:
i. Fraudulently imports
ii. Assists in so doing
iii. Transportation, concealment, sale
d. Kinds of smuggling
1. Outright secretly contrary to law without paying duties
imposed
2. Technical fraudulent or erroneous declaration to avoid
duties
ii. Contraband refers to articles of prohibited importations and
exportations.
iii. Elements
1. Fraudulently or knowingly imported contrary to law
2. The respondent if not the importer himself must have in
any manner facilitated the transportation, concealment
or sale of the merchandise
3. Knowledge or possession
4. Knowledge that the goods have been imported contrary
to law
iv. Mere possession is enough to convict and payment of tax due
after apprehension is not a defense
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2.
3.
b.
c.
d.
e.
f.
ACCORDED RESPECT
Its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if substantial
82
evidence or a showing of gross error or abuse on the part of the Tax Court does not
support them.
2.
3.
Over tax collection where the amount is less than PhP 1,000,000.00
all criminal offense under the NIRC, and Tariff Customs Code, BIR, and
BOC where the amount of taxes and fines is PhP 1,000,000.00
Over tax collection where the amount is less than PhP 1,000,000.00
To receive evidence
To summon witnesses by subpoena
To require 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 damages against appellant if appeal to it is found to be frivolous or
dilatory
To suspend the collection of the tax pending appeal
To render decisions on cases brought before it
To issue order authorizing distraint of personal property and/or levy of real property
Presiding Justice
Eight (8) Associate Justices appointed by the President
It may sit en banc or in three (3) Divisions, each Division of three (3) Justices each,
including the Presiding Justice, who shall be the Chairperson of the First Division
and the two (2) most Senior Associate Justices shall be served as Chairpersons of
the Second and Third Divisions.
3.1. QUORUM
The presence of five (5) members is necessary to constitute a quorum and the
same number of affirmative vote to render a valid decision.
To administer oaths
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o
o
o
o
Disputed assessments
Refunds of Internal Revenue Taxes, fees or other charges
Penalties in relation to the abovementioned
Other matters arising under the National Internal Revenue or
other laws administered by the BIR
o
o
o
o
EXCLUSIVE
APPELLATE
JURISDICTION
o
o
o
o
CRIMINAL CASES:
Disputed assessments
EXCLUSIVE
ORIGINAL
JURISDICTION
OVER
CRIMINAL
OFFENSES
forfeitures,
other
penalties
in
relation
to
the
abovementioned
Other matters arising under the customs law or other laws
NIRC
Tariff and Customs Code
Other laws administered by the BIR or the BOC
a.
b.
c.
The CTA En Banc has exclusive appellate jurisdiction over the following cases:
1.
Decisions, resolutions or orders of the RTC in the exercise of its appellate jurisdiction
over local tax cases and tax collection cases
2.
Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property
3.
commodity, or aritcles
Decisions of the Secretary of Agriculture in the case of agricultural
product, commodity, or aritcles involving dumping and counter ailing
duties under the Tariff and Customs Code.
1.
Appeals from the judgments, resolutions or orders of the RTC in tax
collection cases
84
2.
By filing a petition for review provided under Rule 42 of the Rules of CivPro with
the CTA within 30 days from receipt of the decision or ruling or in the case of
inaction, from the expiration of the period fixed by law to act thereon.
With respect to decisions or rulings od the Central Board of Assessment Appeals
and the RTC in the exercise of its appellate jurisdiction, it shall be made by filing
a petition for review provided under rule 42 of the Rules of CivPro with the CTA
which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA shall be
raffled to its Divisions.
One adversely affected by such decision of a Division of the CTA may file
a motion for reconsideration before the same Division within 15 days from
notice thereof.
One adversely affected by such decision 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.
In criminal cases, the general applicable in regular Courts on matters of
prosecution and appeal shall likewise apply.
One adversely affected by a decision or ruling of a CTA en banc may file with the
SC a verified petition for review on certiorari pursuant to Rule 45 of the Rules of
CivPro.
PERIOD TO APPEAL
In case of assessment by the BIR, the taxpayer shall appeal within 30 days from
receipt of decision or ruling or upon the lapse of 180 days.
o The 30-day period runs from the date the taxpayer receives the appealable
decision and that failure to lodge his appeal:
i. Bars his appeal and renders the questioned decision final and executor
ii. The assessment is considered correct and all that is necessary is for the
Commissioner to enforce the collection of the tax by summary remedies
or judicial action
iii. The taxpayer may only raise defenses of absence of jurisdiction, collusion
between the parties, or fraud
A motion for reconsideration does not toll the 30-day period to appeal to the
CTA.
The Tax Code does not require that the Collector of Internal Revenue to rule
first on a taxpayers request for reconsideration before he can go to the
court for the purpose of collecting the tax assessed.
3.
4.
The Commissioner of Internal Revenue must state that his decision is final
for the 30-day period to appeal to run.
5.
Self explanatory
6.
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7.
8.
The NIRC provides that no court has the authority to grant a writ of injunction to
restrain the collection of any internal revenue tax, fee, or charge imposed by the
code.
If in its opinion the collection of taxes may jeopardize the interest of the
government and/or the taxpayer, the CTA may enjoin the same provided that a
deposit is made in the amount of the disputed assessment or a surety bond is
placed for not more than double the amount at issue.
DISPOSITION OF CASES
9.
A motion to suspend collection of taxes may be filed together with a petition for
review or with the answer, or in a separate motion filed by the interested party at
any stage of the proceedings
The CTA shall decide the cases filed before it within 30 days after the same has
been submitted for decision.
Non-compliance with the period does not affect the validity of the decision.
The decision must be in writing stating the facts and the law on which they are
based and signed by the judges who concurred.
Decisions shall be published in the Official Gazette.
ii. Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial and which, if presented, would probably alter the
result.
If the motion for new trial is anchored on this, it must be established that:
a. The evidence was discovered after the trial
b. Such evidence could not have been discovered and produced at the trial with
reasonable diligence
c. It is material, not merely cumulative, corroborative or impeaching
d. It is of such weight that it will probably change the judgment
11. SECOND MOTION FOR RECONSIDERATION OF A
RESOLUTION OR ORDER FOR NEW TRIAL IS PROHIBITED
DECISION,
FINAL
12. WHEN APPEAL IS WITHDRAWN, THE ASSAILED DECISION BECOMES FINAL AND
EXECUTORY
86
3.
Shall give effect to and administer the supervisory and police powers conferred
to it by this Code or other laws.
3.
4.
The power to compromise or abate, under Sec. 204 (A) and (B) of this Code,
any tax liability; and
The power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept.
87
2.
To examine the efficiency of all officers and employees of the Bureau of Internal
Revenue under his supervision, and to report in writing to the Commissioner,
through the Regional Director, any neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer of which he may obtain
knowledge, with a statement of all the facts and any evidence sustaining each
case.
Basic Remedies:
1. Assessment
2. Collection
OTHER CLASSIFICATIONS
I.
As to procedure
A. Assessment and Collection
B. Collection without assessment
II.
As to the nature of proceeding
A. Administrative Remedies
1. Exercise of power to make assessments
2. Remedies in collection stage
a. Tax lien
b. Distraint of personal property or garnishment of bank deposits
c. Levy of real property
d. Compromise and abatement (Discussed under Remedies of the
Taxpayer)
e. Penalties and fines (Discussed under Tax Administration and
Enforcement)
f. Non-availability of injunction to restrain collection of taxes
3. Other remedies
a. Forfeiture
B.
(Discussed
under
Tax
88
Assessment
It is an official action of an administrative officer in:
1. Determining the computation of the sum due.
2. Giving notice to that effect to the taxpayer.
3. Making, simultaneously with or sometimes after the giving of notice, of demand
upon him for the payment of the tax deficiency stated within a specified period
(CIR v. PASCOR Realty Development Corp., G.R. No. 128315, June 29, 1999).
* A notice of assessment without a due date cannot be considered as a demand but
mere requests for payment (First Gas Power Corp. v. CIR, CTA Case No. 7281,
September 24, 2012).
Reason for Assessment: There is a tax due to the government which has not been paid by
the taxpayer either as a delinquency or a deficiency tax. If the tax was properly paid,
assessment is not necessary.
General Rule: Taxes are self-assessing and thus do not require the issuance of an
assessment notice in order to establish the tax liability of the taxpayer.
Exceptions
Instances where taxes require assessment to establish additional tax liability:
1. Tax period of a taxpayer is terminated ( TAX CODE, Sec. 6[D])
2. Deficiency tax liability arising from a tax audit by the BIR (TAX CODE, Sec. 56 [B])
3. Tax lien (TAX CODE, Sec. 219)
4. Dissolving corporation (TAX CODE, Sec. 52[C])
Principle Governing Tax Assessments
1. General Rule: All presumptions are in the favour of tax assessments. When an
assessment is made, the same is presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise, and in the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a BIR
examiner and approved by his superior officers will not be disturbed ( CIR v. Wyeth
Suaco Laboratories, Inc., G.R. No. 76281, September 30, 2005).
Exception: The prima facie correctness of a tax assessment does not apply when
the CIR comes out with a naked assessment (an assessment that is without
foundation and hence, arbitrary and capricious) (CIR v. Hantex Trading, G.R. No.
L-13975, March 31, 2005).
2.
3.
General Rule: Assessment is discretionary on the part of the CIR. Mandamus will
not lie for it will constitute judicial encroachment on executive functions.
Exception: If in the exercise of his discretion, there is evidence of arbitrariness
and grave abuse of discretion as to go beyond statutory authority (Maceda v.
Macaraig, Jr., G.R. No. 88291, June 8, 1993).
4.
5.
Kinds of Assessment:
1. Self-assessment the tax is assessed by the taxpayer himself (TAX CODE, Sec.
56[A])
Examples:
a. Income tax
b. Estate tax
c. Donors tax
d. VAT
2. Deficiency assessment made by the tax assessor himself where the correct
amount of tax is determined after an examination or investigation is conducted
(TAX CODE, Sec. 56[B]).
3. Disputed assessment takes place when a taxpayer questions an assessment
and asks the collector to reconsider or cancel the same because he believes he is
not liable therefore (St. Stephens Association v. CIR, G.R. No. L-11238, August
21, 1958).
4. Jeopardy assessment a tax assessment made by an authorized Revenue
Officer, without the benefit of a complete or partial audit, in light of the officers
belief that the assessment and collection of a deficiency tax will be jeopardized by
delay caused by the taxpayers failure to:
a. Comply with audit and investigation requirements to present his books of
accounts and/or pertinent records.
b. Substantiate all or any kind of the deductions, exemptions, or credits claimed
in his return (RR No. 30-2002, Sec 3[1][a]).
Means Employed by the Commissioner in the Assessment of Taxes
89
The following are the general (constructive) methods developed by the BIR for
reconstructing a taxpayers income where the taxpayer keeps no or inadequate records or
where there is a strong suspicion that it has received income from undisclosed sources:
1. Percentage Method - equivalent of a ratio analysis of percentages considered
typical of the business under investigation to indicate potential areas of revenue
adjustment in examination where revenue records do not exist.
2. Net Worth Method method of reconstructing income based on the theory that if
the taxpayers net worth has increased in a given year in an amount larger than his
reported income, he had understated his income for that year.
3. Bank Deposit Method the bank records of the taxpayer are analyzed and the
Revenue Officer estimates income on the basis of the total bank deposits after
eliminating non-income items.
* This does not alter the confidentiality rule of bank deposits.
4.
5.
6.
7.
Assessment Process
Summary:
1. Issuance of Letter of Authority
2. Audit or Tax investigation
3. Issuance of Preliminary Notice of Assessment (PAN)
4. Reply to PAN
5. Issuance of Formal Letter of Demand and Final Assessment Notice (FAN)
1. Issuance of Letter of Authority (LA)
An LA is a request to the taxpayer to permit the bearer thereof, a particular enforcement
officer, to conduct the necessary tax examination and verification of books and records (DE
LEON, NIRC, p. 584).
2. Audit and Tax Investigation
The Revenue Officer shall, within 120 days from the date of issuance and service of the LA,
conduct his audit and submit his report of investigation (ABAN, p. 196; RMO No. 38-88).
90
representatives of the CIR who signed the PAN (RMC No, 11-2014; RMC No. 392013).
1.
2.
After the lapse of the 15-day period to respond to the PAN without the taxpayer
submitting a reply (RR No. 18-2013, Sec. 3.1.1).
Before the lapse of the 15-day period to respond to the PAN and the taxpayer has
not yet submitted a reply to PAN (Oakwood Management Services v. CIR, CTA
Case No. 7989, August 8, 2013).
* The issuance of the FAN before the lapse of the 15-day period for the taxpayer to file
a reply to the PAN inflicts no prejudice on the taxpayer as long as the taxpayer is
properly served the FAN and is able to intelligently contest the FAN by filing a protest
within the period allowed by law.
Reason: A PAN preparatory to the issuance of the FAN is not legally speaking an
assessment even if it contains the computation of the taxpayers liabilities (Oakwood
Management Services v. CIR, CTA Case No. 7989, August 8, 2013).
3. Within the 15 days after the filing of the response to the PAN (RR No. 18-2013,
Sec. 3.1.1).
4. After/Beyond the 15-day period after the filing of the response to PAN (RMC No.
11-2014).
* Issuance of the FLD/FAN beyond 15 days from the filing of the response to the PAN
shall not render it invalid. The non-observance of the 15-day period, however, shall
constitute an administrative infraction and the revenue officers who caused the delay
shall be subjected to administrative sanctions (RMC No. 11-2014).
Exceptions: In the following instances where PAN is not required, A FLD/FAN shall be
issued outright:
1. When the finding for any deficiency tax is the result of mathematical error in the
computation of tax as appearing on the face of the return.
2. When the excise tax due on excisable items has not been paid.
3. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent.
4. When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to a non-exempt person.
5. When the taxpayer has 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
91
for the taxable quarter or quarters of the succeeding taxable year (RR No. 182013, Sec. 3.1.2).
a.
Service of FLD/FAN
A. Modes of Service (RR. No. 18-2013, Sec. 3.1.6; RMC No. 11-2014)
1. Personal Service - the notice shall be served by delivering personally a
copy thereof to the party at his registered or known address or wherever
he may be found.
Known address a place other than the registered address where
business activities of the party are conducted or his place of residence.
In case personal service is not practicable, the notice shall be served by
substituted service or by mail.
2. Substituted Service resorted to when the party is not present at the
registered address or known address under the following circumstances:
a. Notice may be left at the partys registered address with his clerk or
with a person having charge thereof.
b. If the known address is a place where business activities of the party
are conducted, the notice may be left with his clerk or with a person
having charge thereof.
c. If the known address is the place of residence, substituted service
can be made by leaving a copy with a person of legal age residing
therein
d. If no person is found at the registered/known address, the revenue
officer shall bring a barangay official and two disinterested witnesses
to the address so that they may personally observe and attest to
such absence. The notice shall be given to the barangay official.
Such facts shall be contained in the bottom portion of the notice, as
well as the names, official position and signature of the witnesses.
e. Should the party be found at his registered or known address or any
other place but refuses to receive the notice, the revenue officer shall
bring a barangay official and 2 disinterested witnesses so that they
may personally observe and attest to such fact of refusal. The notice
shall be left to the barangay official. Such facts shall be contained in
the bottom portion of the notice, as well as the names, official
position and signature of the witnesses.
b.
Disinterested witness persons of legal age other than employees of the BIR.
3. Service by Mail done by sending a copy of the notice to the registered
or known address of the party by:
The server shall accomplish the bottom portion of the notice and make a written report
under oath setting forth the manner, place, and date of service, the name of the
person/barangay official/professional courier service who received the same and other
relevant information.
* Service to the tax agent/practitioner, who is appointed by the taxpayer under the
circumstances prescribed in the pertinent regulations on accreditation of tax agents,
shall be deemed service to the taxpayer.
The aforementioned modes of service are also applicable to the service of the PAN and
the FDDA.
The notice shall first be served to the taxpayers registered address before the same
may be served to the taxpayers known address or in the alternative, may be served to
the taxpayers registered and know address simultaneously (RMC No. 11-2014).
B. When FAN deemed made
The assessment is deemed to have been made on the date when the demand letter or
notice of assessment is released, mailed, or sent, even though the same is actually
received by the taxpayer after the expiration of the prescriptive period. (Basilan Estates
v. CIR, G.R. No. L-22492, September 5, 1967).
General Rule: When a mail matter is sent by registered mail, there exists a
presumption that it was received in the regular course of mail (Republic v. CA, G.R. No.
L-38540, April 30, 1987).
For the presumption to apply, the following facts must be proven:
1. Letter was properly addressed with postage prepaid.
2. Letter was mailed (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
August 7, 2006).
Proof of Mailing
The registry receipt issued by the post office or the official receipt issued by the
professional courier service containing sufficiently identifiable details of the transaction
shall constitute sufficient proof of mailing and shall be attached to the case docket
(RMC No. 18-2013, Sec. 3.1.6).
92
BIR record book is not sufficient (Barcelon Roxas Securities, Inc. V. CIR, G.R. No.
157064, August 7, 2006).
Exception: When there is a direct denial of the receipt. The burden is shifted to the BIR
to prove the letter mailed was received by the addressee. (Republic v. CA, G.R. No. L38540, April 30, 1987; Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
August 7, 2006).
C. Questioning the Validity of FLD/FAN
1. Prescription as a Defence
An FLD/FAN must be served to the taxpayer within the prescriptive period to make
a valid assessment (TAX CODE, Sec. 203).
The defence may be raised even for the first time on appeal when it is apparent on
the record that the assessment has already prescribed (CIR v. First Sumiden
Realty, Inc., CTA EB No. 975 re: CTA Case No. 8151, January 7, 2014).
2. Establishing Legal and Factual Bases of Tax Assessment
The details in the assessment notices issue to the taxpayer must be sufficient to
allow the taxpayer to intelligently answer the assessment as well as prepare the
documentary evidence for protest. If the BIR merely stated that per computerized
matching, the taxpayer has undeclared importations, the assessment is invalid
(CIR v. BASF Philippines, Inc., CTA EB Case No, 872 re CTA Case No. 7415,
September 12, 2013).
An assessment based on a Summary List of Purchases (SLP) cannot be used as
the sole basis. The SLP is doubtful, inconclusive and unreliable. The CIR must
prove the source of the information, otherwise the assessment is invalid (CIR v.
Fax N Parcel, Inc., CTA EB Case No. 883 re CTA Case No, 7415, February 14,
2013).
Authority of the CIR to make subsequent assessment or modify or revise assessment
The CIR has the authority to make subsequent assessments or modify or revise the original
assessment to collect additional sums covered by the original assessment as long as the
modification or revision is done within the prescriptive period for making assessments, and
even while the appeal of the taxpayer from the original assessment is still pending in the
CTA, so as to avoid multiplicity of suits (CIR v. Batangas Transportation Co., G.R. No. L9692, January 6, 1958).
Collection
It is the actual effort exerted by the government to effect the exaction of what is due from
the taxpayer. It is the final stage and goal of tax administration.
Is assessment necessary before collection?
General Rule: Yes, No proceeding in court without assessment for the collection of such
taxes shall be commenced (TAX CODE, Sec. 203).
A warrant of distraint and/or levy without issuance of a FAN is void (Gold Harvest Global
Corp. v. CIR, CTA Case No. 7503, September 18, 2009).
Exception: A proceeding in court for the collection of tax may be filed without prior
assessment in the following cases:
1. False or fraudulent return with intent to evade tax.
2. Failure to file a return (TAX CODE, Sec. 222[1]).
When does tax become collectible:
The government can collect when the assessment becomes final and executor for:
1. Failure to protest an FLD/FAN within the prescribed period.
2. Failure to appeal an FDDA within the prescribed period.
3. Failure to appeal an adverse decision of the court within the prescribed period.
ADMINISTRATIVE REMEDIES
Enforcement of Tax Lien
Tax Lien
A legal claim or charge on property, real or personal, established by law as
security in default of the payment of taxes (HSBC v. Rafferty, G.R. No. L-13188,
November 15, 1918).
* It is settled that the claim of the government predicated on a tax lien is superior to
the claim of a private litigant predicated on a judgement. The tax lien attaches not
only from the service of the warrant of distraint but from the time the tax became due
and payable (CIR v. NLRC, G.R. No. 74965, November 9, 1994).
Validity of Tax Lien
93
The lien shall be valid against any mortgagee purchaser or judgement creditor only when
notice of such lien shall be filed by the CIR in the office of the Register of Deeds of the
province or city where the property of the taxpayer is situated (TAX CODE, Sec. 219).
Distraint of Personal Property
Kinds of Distraint:
1. Actual Distraint
Resorted to when at the time required for payment, a person fails to pay his
delinquent tax obligation (NIRC, Sec. 207[A]).
It is the actual seizure and taking possession of personal property of the taxpayer.
Delinquent Taxpayer
A taxpayer is considered delinquent in the payment of his tax when the:
a. Self-assessed tax per return filed on the prescribed date was not paid at all or
partially paid.
b. Deficiency tax assessed by the BIR became final and executor.
Procedure for Actual Distraint
a. Commencement of distraint proceedings by:
1. CIR or his duly authorized representative where amount involved is
greater than 1M.
2. Revenue District Officer where amount involved is 1M or less (TAX
CODE, Sec. 207[A]).
b. Service of warrant of distraint
The personal property of the taxpayer is physically taken by the distraining
officer (TAX CODE, Sec. 208).
c. Report on the distraint
1. It shall be submitted by the distraining officer to the Revenue District
Officer and to the Revenue Regional Director within 10 days from receipt
of warrant.
2. The CIR or his duly authorized representative has the power to lift the
order of distraint (TAX CODE, Sec. 207[A]).
d. Notice of sale of distrained properties
1. Notice shall specify the time and place of sale and the articles distrained.
2. The time of sale shall not be less than 20 days after the notice to the
owner or possessor of the property and posting of such notice.
3. The posting shall be made in not less than two public places in the city or
municipality where the distraint is made. One place for the posting of such
notice is at the Office of the Mayor of such city or municipality in which the
property is distrained (TAX CODE, Sec. 209).
e. Sale at public auction
1. Sale must be held at the time and place stated at the notice.
2.
94
b.
c.
Debts and credits by leaving with the person owning the debts or having in
his possession or under his control such credits, or his agent, a copy of the
warrant of distraint.
Bank accounts by serving a warrant of garnishment upon the taxpayer and
upon the president, manager, treasurer, or other responsible officer of the
bank ((TAX CODE, Sec. 208)
Garnishment
The taking of personal properties, usually cash or sums of money, owned by the
delinquent taxpayer which is in the possession of a third party.
Bank accounts may be distrained notwithstanding the Bank Secrecy Act (R.A.
1405) which prohibits inquiry into bank accounts, since in the case of distraints, no
inquiry is made. The BIR merely seizes so much of the deposits as is sufficient to
discharge the obligation without having to know how much the deposits are, or
where the money or part of it came from (Opinion of the Secretary of Justice, No.
54 s. 1956)
2. Constructive Distraint
Issued where no actual tax delinquency of the taxpayer is necessary before the same is
resorted to by the government (ABAN, p. 238)
It is a preventive remedy to forestall possible dissipation of the taxpayers assets when
delinquency takes place.
It is issued in the following cases when the taxpayer is:
a. Retiring from any business subject to tax.
b. Intending to leave the Philippines.
c. Intending to remove his properties therefrom or to hide or conceal his property.
d. Intending to perform any act tending to obstruct the proceedings for collecting the
tax due or which may be due from him (TAX CODE, Sec. 206)
Constructive distraint is effected:
a. By requiring the taxpayer or any person having possession or control of such
property to sign a receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the same in any
manner whatever without the express authority of the CIR.
Punishment in case of violation: Upon the conviction, a fine of not less than twice the
value of the property so sold, encumbered, or disposed of but not less than P 5,000, or
suffer imprisonment of not less than two years and one day but not more than four
years, or both (TAX CODE, Sec. 276)
b. In case the person refuse or fails to sign the receipt, the Revenue Officer effecting
the constructive distraint shall prepare a list of the property and in the presence of
two witnesses, leave a copy thereof in the premises of the property where the
property distrained is located (TAX CODE, Sec. 206).
95
3.
4.
5.
The advertisement shall be made within 20 days after the levy, and the same
shall be for a period of at least 30 days (TAX CODE, Sec. 213).
Advertisement shall be effectuated by:
a. 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 property lies.
b. Publication once a week for three weeks in a newspaper of general
circulation in the municipality or city where the property is located.
Public Sale of Property under Levy
Taxpayer is given the right of pre-emption before the sale.
If he does not exercise it, the sale shall proceed and shall be held either at the
main entrance of the municipal building or city hall, or on the premises to be
sold, as the officer conducting the proceedings shall determine and as the
notice of the sale shall specify (TAX CODE, Sec. 213).
Right of Pre-emption: The taxpayer may discontinue all proceedings by
paying the taxes, penalties, and interest at any time before the day fixed for
the sale.
A Certificate of Sale shall be delivered to the purchaser.
If the proceeds of the sale exceed the claim and cost of sale, the excess shall
be turned over to the owner of the property.
Redemption of Property (TAX CODE, Sec. 214)
Period: Within one year from the date of the sale.
The one year period for redemption begins from the registration of the deed of
sale (Santos v. RFC, G.R. No. L-9796, July 31, 1967).
Who may redeem: The delinquent taxpayer or anyone for him.
To whom made: To the Revenue District Officer.
How made: Upon payment of the taxes, penalties, and interest thereon from
the date of the delinquency to the date of sale, together with interest on
purchase price at 15% per annum from the date of sale to the date of
redemption.
6.
The owner shall not be deprived of the possession of the property and shall be
entitled to the rents and other income thereof until the expiration of the time
allowed for redemption.
Effects of Redemption of Property Sold:
a. Such payment shall entitle the taxpayer to the delivery of the certificate
issued to the purchaser and a certificate from the RDO that he has
redeemed the property.
b. The RDO shall pay the purchaser the amount by which such property has
been redeemed and said property shall be free from lien of such taxes
and penalties.
Further Distraint and Levy
The remedy of distraint and levy may be repeated if necessary until the full
amount of the tax delinquency including all expenses is collected from the
taxpayer (TAX CODE, Sec. 217)
Grounds for Forfeiture to the Government:
a. No bidder for the real property.
b. The highest bid is for an amount insufficient to pay the taxes, penalties,
and costs (TAX CODE, Sec. 215)
The Register of Deeds shall transfer title to the Government upon registration
with his office of the declaration of forfeiture.
Within one year from forfeiture, the taxpayer may redeem his property.
Resale of Real Estate Taken for Taxes
The CIR shall have charge of any real estate obtained by the Government in
payment of taxes, penalties or costs arising under the Tax Code or in
compromise or adjustment of any claim.
The CIR may:
a. Sell and dispose of the same at a public auction upon giving of not less
than 20 days notice.
b. Dispose of the same at a private sale with the approval of the Secretary
of Finance (TAX CODE, Sec. 216)
c.
* The remedies of distraint and levy as well as collection by civil and criminal action
may, in the discretion of the CIR, be pursued singly or independently of each other, or
all of them simultaneously.
Both distraint and levy are summary remedies and cannot be availed of
where the amount of tax involved is than P 100.
Real property placed under levy may be sold at public auction for less than
its market value (NIRC, Sec. 215) since the taxpayer is given the right to
96
redeem (NIRC, Sec. 214). With respect to distrained personal property the
rule is different (NIRC, Sec. 212).
Penalties and Fines
Increments to the basic tax incident to the taxpayers non-compliance with certain legal
requirements.
1.
3.
2.
* Forfeited property shall not be destroyed until at least 20 days after seizure.
Instances when Forfeiture is Appropriate
1. All chattels and removable fixtures of any sort, used in the unlicensed production of
articles (TAX CODE, Sec. 268 [B])
2. Dies used for printing or making of any imitation revenue stamp, label or tag which
is an imitation of or purports to be a lawful stamp, label or tag (TAX CODE, Sec.
268[B])
3. Liquor or tobacco shipped under a false name or brand (TAX CODE, Sec. 262)
JUDICIAL REMEDIES
Civil Action
For tax remedy purposes, these are actions instituted by the government to collect internal
revenue taxes including the filing by the government of claims against the deceased
taxpayer with the probate court. The government can collect when the assessment has
become final and executor.
Two Ways to Enforce Civil Liability through Civil Action
1. By filing a civil case for collection of a sum of money with the proper regular court
(TAX CODE, Sec. 203 and 222).
2. By filing an answer to the petition for review filed by the taxpayer with the CTA
( Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969).
Can the BIR file a civil action for the collection pending the decision of the
administrative protest?
97
Yes. The request for reinvestigation and reconsideration was in effect considered denied by
the CIR when the latter filed a civil suit for collection of deficiency income (CIR v. Union
Shipping, G.R. No. L-66160, May 21, 1990).
Forms and Mode of Proceeding:
1. Civil actions shall be brought in the name of the Government of the Philippines.
2. It shall be conducted by legal officers of the BIR.
3. No civil or criminal action for the recovery of taxes shall be filed in court without the
approval of the CIR (TAX CODE, Sec. 220).
1.
2.
3.
4.
5.
6.
98
The recommendation by the CIR to the DOJ for the filing of a criminal complaint
against the taxpayer cannot be considered a formal assessment. Even a cursory
perusal of the letter would reveal three key points:
a. It was not addressed to the taxpayer.
b. There was no demand made to the taxpayer to pay the tax liability, nor a
period for payment set therein.
c. The letter was never mailed or sent to the taxpayer by the CIR.
7.
In fine, the said recommendation letter served merely as the prima facie basis for
the filing of the criminal information that the taxpayer had violated the penal
provisions of the tax code (Adamson v. CA, G.R. No. 1290935, May 21, 2009).
No reservation to file civil action
Under R.A. 9282, the filing of the criminal case implies also the filing of the civil
case. In fact, no reservation for the filing of the civil case may be made under this
law, unlike that of a felony under the RPC (MAMALATEO, pp. 445-446).
STATUTE OF LIMITATIONS
Assessment
General Rule: Within three years after the last day prescribed by the law for the filing of the
return or from the date of actual filing the return, whichever comes later (ordinary or
normal assessment) (TAX CODE, Sec. 203).
Exceptions:
1. In case of false or fraudulent return with intent to evade tax or failure to file a
return within 10 years after the discovery of falsity, fraud or omission
(extraordinary or abnormal assessment) (TAX CODE, Sec.222[a]).
2. In case there is valid waiver of the statute of limitations up to the extended
period agreed upon (TAX CODE, Sec. 222[b]).
* The prescriptive period for making assessment shall also apply when the
Government makes an erroneous refund of internal revenue taxes. The prescriptive
period is not the six-year period of limitation under Art. 1145 of the Civil Code on
quasi-contracts (ABAN, p. 296) because the demand of the Government on the taxpayer
to pay the erroneously refunded tax is in effect an assessment of deficiency tax (Guaga
Electric v. CIR, G.R. No. L-23611, April 24, 1967).
Construction of Statutory Provision on Prescription
For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of
taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection. As a corollary, the exceptions to the law on
prescription should perforce be strictly construed (CIR v. B.F. Goodrich Phils., Inc. G.R. No.
104171, February 24, 1999).
The law of prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommended the approval of the law (Republic v. Ablaza, G.R. No. L14519, July 26, 1990).
Computing for the Prescriptive Period
Both Art. 13 of the Civil Code and the Administrative Code deal the computation of legal
periods. The Administrative Code being the more recent law, it shall govern the computation
of legal periods under the principle Lex posterior derogate priori (CIR v. Primetown Property
Group, Inc, G.R. No. 162155, August 28, 2007).
Burden of proof that a return was filed to apply the three year prescriptive period
It is incumbent on the taxpayer to prove that a return had been filed by him in order that the
three-year prescriptive period may apply (Republic v. Marsman Dev't., G.R. No. L-18956,
April 27, 1972) because the prescription of the Governments right to assess taxes is an
affirmative defence (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
Requisites in order that a return may be considered filed for purposes of starting the
running of the prescriptive period:
1. The return must be valid it must comply substantially with the requirements of the
law.
2. The return must be appropriate it is a return for the particular tax required by law.
Thus, an income tax return cannot be considered as the equivalent of the Vat or
percentage return (Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601, February 28,
1966).
Amendment of Tax Return
General Rule: The following shall govern in case there is an amendment of the return:
1. If the amendment is substantial, the counting of the prescriptive period shall be
reckoned on the date the substantial amendment was made.
2. If the amendment was superficial, the counting of the prescriptive period is still the
original period (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
Example of Substantial amendment: An amendment of an original income tax return
showing a net loss to show more losses (CIR v. Phoenix Assurance, G.R. No. L-19727,
May 20, 1965).
Reason: To prevent taxpayers from evading the payment of taxes by simply reporting
in their original return heavy losses and amending the same more years later when the
CIR has lost his authority to assess the proper tax thereunder. The object of the NIRC
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is to impose taxes for the needs of the Government and not to enhance tax avoidance
to its prejudice (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
Exception: If the return is sufficiently complete to enable the CIR to intelligently
determine the proper amount of tax to be assessed, then the prescriptive period for the
assessment starts from the filing of the original return (A.L. Ammen Transportation v.
Collector, CTA Case No. 540, November 10, 1965).
False Return
That which contains wrong information due to mistake, carelessness or ignorance
(Aznar v. CIR, G.R. No. L-20569, August 23, 1974).
A substantial under-remittance of withholding tax on compensation constitutes falsity to
warrant the 10-year prescriptive period (Samar-I Electric Cooperative, Inc. v CIR, CTA
EB Case No. 462, March 11 2010).
Fraudulent Return
For the 10-year prescriptive period to apply based on fraud, such fact must first be
proved as a fact by the BIR.
Such fact in a fraud assessment which has already become final and executor shall be
judicially taken cognizance of in a civil or criminal action for the collection thereof (TAX
CODE, Sec. 222[a]).
The following instances negate the existence of fraud and preclude the application of
the 10-year prescriptive period:
1. The CIR failed to impute fraud in the assessment notice or demand for payment.
2. The CIR failed to allege fraud in his answer to the taxpayers petition for review
when the case is appealed to CTA (ABAN, pp. 274-275).
3. The fact that the CTA raised the question of fraud only for the first time in his
memorandum which was filed with the CTA after he had rested his case
(Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
4. The fact that the CIR did not include fraud penalty in his deficiency assessment
which was issued after the filing of the return as an indication that he himself did
not believe that there was fraud (Gomez v. Domingo, CTA Case no, 1168,
February 15, 1964).
5. In an assessment, where the BIR appeared not so sure as to the real amount of
the taxpayers net income, as where the BIR arrived at three highly different
computations (Republic v. Lim de Yu, G.R. No. L-17438, April 30, 1964).
6. The CIR merely relied upon an alleged substantial under declaration of income tax
resulting from his own computation.
7. Mere understatement of gross earnings does not by itself prove fraud (Yutivo Sons
v. CTA, G.R. No. L-13203, January 28, 1961).
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* The waiver of the statute of limitations does not mean that the taxpayer relinquishes
its right to invoked prescription (Philippine Journalists, Inc. v. CIR, G.R. No. 162852,
December 16, 2004).
Failure to comply with all the requirements stated above renders the waiver invalid.
As such, the prescriptive period shall not be extended.
The taxpayer may, however, be stopped to question the validity of the waiver as when
he made partial payment of the revised assessments issued within the extended
period as provided in the questioned waivers. The Court held that had he believed the
waivers were invalid and the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount of taxes in the revised
assessments (RCBC v. CIR, G.R. No. 1702567, September 7, 2011).
Collection
The following rules shall govern the prescriptive period of collection of taxes:
1. For both normal or ordinary assessment (one with the three-year period to
assess) and Abnormal or extraordinary assessment (one with the 10-year
period to assess) Five years from the time the assessment was made.
2. Collection without assessment through judicial action 10 years after the
discovery of the falsity, fraud or omission to file a return.
The Government may collect without prior assessment in the same instances
under abnormal or extraordinary assessment.
Grounds for Suspension of the Running of the Statute of Limitations to Assess and
Collect: (TAX CODE, Sec. 223)
1. When the CIR is prohibited from making the assessment or beginning the distraint
or levy or a proceeding in court, and for sixty days thereafter.
2. When the taxpayer requests for reinvestigation and is granted by the CIR.
Requisites:
a. There must be a request for reinvestigation and not a request for
reconsideration (CIR v. Philippine Global Communications, G.R. No. 167146,
October 31, 2006).
b. The request for reinvestigation must be granted or acted upon by the CIR (BPI
v. CIR, G.R. No. 174942, March 7, 2008).
response to the request for reinvestigation (BPI v. CIR, G.R. No. 174942, March 7,
2008).
3.
4.
5.
When the taxpayer cannot be located in the address given by him in the return,
unless he informs the CIR of any change in his address.
When the warrant of distraint or levy is duly served, and no property is located.
When the taxpayer is out of the Philippines.
Criminal Cases
All violations of any provision of this Code shall prescribe after five years (NIRC, Sec. 281).
* In No. 1, the period shall run again if the proceedings are dismissed for reasons not
constituting jeopardy (TAX CODE, Sec. 281).
* The burden of proof that the request for reinvestigation had been actually granted
shall be on the CIR. Such grant may be expressed in its communication with the
taxpayer or implied from the action of the CIR or his authorized representative in
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QUESTION: Can the taxpayer institute a direct action before a court of justice to protest the
assessment?
ANSWER: No. The assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of assessment (Sec. 228 (4)
NIRC).
QUESTION: What about the claim for refund?
ANSWER: No. No suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax UNTIL a claim for refund or credit has been filed with the
Commissioner(Sec. 229 NIRC).
I.
Before Payment
A.
Administrative Remedies
1.
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(1) Appeal to the Court of Tax Appeals (Division), within 30 days from
receipt of decision on the protest or from the lapse of 180 days due to
inaction of the Commissioner otherwise it will be final and executory;
(2) Appeal the CTA en banc, the party adversely affected by the CTA
Divisions decision may file one (1) motion for reconsideration/new
trial within 15 days from receipt of the decision with the CTA division.
If the MR is denied, file a petition for review with the CTA en banc;
(3) Appeal to the Supreme Court, within 16 days from the receipt of the
decision of the CTA;
(4) By way of special civil action, petition for certiorari, prohibition
and mandamus to the Supreme Court in case of grave abuse of
discretion, lack of jurisdiction or excess of jurisdiction;
(5) Action to contest forfeiture of chattel, at any time before the sale
or destruction thereof, to recover the same, and upon giving proper
bond, enjoin the sale; or after the sale and within 6 months, an action
to recover the net proceeds realized at the sale (Sec. 231 NIRC);
(6) Action for damages against a revenue officer by reason of any act
done in the performance of official duty (Sec. 227 NIRC);
(7) Injunction, to be issued by the CTA if collection may jeopardize the
interest of the government and/or the taxpayer (R.A. 1125 as
amended by R.A. 9282).
B.
Judicial Remedies
II.
After Payment
A.
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(2) Collector vs. Prieto, G.R. No. L-11976, August 29, 1961;tax is paid
only in installments or only in part from the date the last or final
installment or payment.
(3) Union Garment vs. Collector, CTA Case No. 416, November 17,
1958; taxpayer merely made a deposit counted from the
conversion of the deposit to payment.
(4) Gibbs vs. Commissioner, G.R. No. L-17406, November 29, 1965;
tax has been withheld from source counted from the date it falls
due at the end of the taxable year.
(5) ACCRA Investments vs. CA, G.R. No. 96322, December 20, 1991;
end of taxably year vs. date of the filing of the final adjusted return
from the date when the final adjusted return was filed.
(6) Commissioner vs. TMX Sales, G.R. No. 83736, January 15, 1992;
date when quarterly income tax was paid vs. date when final adjusted
return was filed from the date when final adjusted return was filed.
(7) Commissioner vs. CA, G.R. No. 117254, January 21, 1999; date
when the final adjustment return was actually filed vs. last day when
the adjustment return could still be filed from the date the final
adjustment return was actually filed.
(8) Commissioner vs. Don Pedro Central Azucarera, G.R. No. L28467, February 28, 1973;tax was not erroneously or illegally paid
but the taxpayer became entitled to refund because of supervening
circumstances from the date the taxpayer becomes entitled to
refund and not from the date of payment.
QUESTION: Does the filing of the claim for refund or credit suspend the
running of the 2-year prescriptive period?
ANSWER: No, hence, the taxpayer should not wait for the decision of the
CIR. Both the claim for refund and subsequent appeal must be filed within
the 2-year period.
QUESTION: When is there waiver of the prescription in an action for
refund?
ANSWER: If the government failed to plead prescription in a motion to
dismiss or as a defence in its answer to the petition for review. Exception:
taxpayer amends his petition for review alleging therein a new cause of
action and the government pleads prescription in his answer to the
amended petition for review.
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