I.

General Principles

Definition and Concept of Taxation

As a process, it is a means by which the sovereign, through its law-making body, raises
revenue to defray the necessary expenses of the government. It is merely a way of apportioning the
costs of government among those who in some measures are privileged to enjoy its benefits and
must bear its burdens.
As a power, taxation refers to the inherent power of the state to demand enforced
contributions for public purpose or purposes.

Taxation is a symbiotic relationship, whereby in exchange for the protection that the citizens
get from the government, taxes are paid.

Nature of Taxation

1. It is an inherent attribute of sovereignty

2. It is legislative in character

Characteristics of Taxation

1. The power of taxation is an incident of sovereignty as it is inherent in the State, belonging

as a matter of right to every independent government. It does need constitutional conferment.
Constitutional provisions do not give rise to the power to tax but merely impose limitations on what
would otherwise be an invincible power. No attribute of sovereignty is more pervading, and at no
point does the power of government affect more constantly and intimately all the relations of life
than through the exactions made under it.

2. The power to tax is inherent in the State, and the State is free to select the object
of taxation, such power being exclusively vested in the legislature, except where the Constitution
provides otherwise.

The Congress may by law authorize the President to fix within 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.

Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may
provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall
accrue exclusively to the local governments.
3. It is subject to Constitutional and inherent limitations; hence, it is not an absolute power
that can be exercised by the legislature anyway it pleases.

Power of Taxation Compared With Other Powers

 1. Police Power
2. Power of Eminent Domain

Taxation Police Power Eminent Domain

Purpose

Raising revenue Promote public welfare thru Taking of property for public use
regulations

Amount of exaction

No limit Limited to the cost of regulations, No exaction, compensation

issuance of the license or paid by the government
surveillance

Benefits received

No special or direct No direct benefits but a healthy economic Direct benefit

benefits received but the standard of society or damnum absque injuria is results in the form
enjoyment of the privileges attained of just
of living in an organized compensation
society

Non-impairment of contracts

The impairment rule Contracts may be impaired Contracts may be impaired

subsist

Transfer of property rights

Taxes paid become part of No transfer but only restraint on the Property is taken by the
public funds exercise of property right exists govt upon payment of
just compensation

Scope

Affects all persons, property and Affects all persons, property, privileges, Affects only the
excise and even rights particular property
comprehended

Basis

Public necessity Public necessity and the right Public necessity, private
of the state and the public to property is taken for
self-protection and self- public use
 preservation

Authority which exercises the power

Only by the government or Only by the government or May be granted to public

its political subdivisions its political subdivisions service, companies, or public
utilities

Purpose of Taxation

1. Revenue-raising

To provide funds or property with which the State promotes the general welfare and
protection of its citizens.

2. Non-revenue/special or regulatory

Promotion of General Welfare Taxation may be used as an implement of police power in

order to promote the general welfare of the people.

Regulation As in the case of taxes levied on excises and privileges like

those imposed in tobacco or alcoholic products or
amusement places like night clubs, cabarets, cockpits, etc.

Reduction of Social Inequality This is made possible through the progressive system of
taxation where the objective is to prevent the under-
concentration of wealth in the hands of few individuals.

Encourage Economic Growth In the realm of tax exemptions and tax reliefs, for
instance, the purpose is to grant incentives or exemptions
in order to encourage investments and thereby promote
the countrys economic growth.

e. Protectionism In some important sectors of the economy, as in the case

of foreign importations, taxes sometimes provide
protection to local industries like protective tariffs and
customs

Principles of Sound Tax System

 Fiscal Adequacy

The sources of tax revenue should coincide with, and approximate the needs of government
expenditure. Neither an excess nor a deficiency of revenue vis--vis the needs of government would
be in keeping with the principle.

Administrative Feasibility

Tax laws should be capable of convenient, just and effective administration

Theoretical Justice

The tax burden should be in proportion to the taxpayers ability to pay. The 1987
Constitution requires taxation to be equitable and uniform.

Theory and Basis of Taxation

Lifeblood Theory

Taxes are the lifeblood of the government, being such, their prompt and certain availability
is an imperious need. Without taxes, the government would be paralyzed for lack of motive power
to activate and operate it.

Necessity Theory

Taxes proceed upon the theory that the existence of the government is a necessity; that it
cannot continue without the means to pay its expenses; and that for those means, it has the right to
compel all citizens and properties within its limits to contribute.
Benefits-Protection Theory

The basis of taxation is the reciprocal duty of protection between the state and its
inhabitants. In return for the contributions, the taxpayer receives the general advantages and
protection which the government affords the taxpayer and his property.

Jurisdiction over subject and objects

Rules:

Tax laws cannot operate beyond a States territorial limits.

b) The government cannot tax a particular object of taxation which is not within its
territorial jurisdiction.

c) Property outside ones jurisdiction does not receive any protection of the State.
 d) If a law is passed by Congress, it must always see to it that the object or subject of
taxation is within the territorial jurisdiction of the taxing authority.

H. Doctrines in Taxation

Prospectivity of tax laws

General Rule Exception

Taxes must only be imposed prospectively. The language of the statute clearly demands
or express that it shall have a retroactive
effect.

Imprescriptibility

General Rule Exception

Taxes are imprescriptible. When provided otherwise by the tax law

itself.

3. Double taxation

Strict sense

Referred to as direct duplicate taxation, it means:

1. Taxing twice;
2. by the same taxing authority;
3. within the same jurisdiction or taxing district;
4. for the same purpose;
5. in the same year or taxing period;
6. some of the property in the territory

Broad sense

Referred to as indirect double taxation, it is taxation other than direct duplicate taxation. It
extends to all cases in which there is a burden of two or more impositions.

Constitutionality of double taxation

Unlike in the United States Constitution, our Constitution does not prohibit double taxation.
 However, while it is not forbidden, it is something not favored. Such taxation should,
whenever possible, be avoided and prevented.

In addition, where there is direct double taxation, there may be a violation of the
constitutional precepts of equal protection and uniformity in taxation.

Modes of eliminating double taxation

Two (2) methods of relief:

Exemption method The income or capital which is taxable at the state of source or
situs is exempted at the state of residence, although in some
instances it may be taken into account in determining the rate
of tax applicable to the taxpayers remaining income or capital

Credit method Although the income or capital which is taxed in the state of
source is still taxable in the state of residence, the tax paid in
the former is credited against the tax levied in the latter. The
basic difference between the two methods is that in the
exemption method, the focus is on the income or capital,
whereas the credit method focuses upon the tax.
 4. Escape from taxation

Shifting of tax burden

Ways of shifting the tax burden

a. Forward shifting When the burden of the tax is transferred from a factor of
production through the factors of distribution until it finally
settles on the ultimate purchaser or consumer.

b. Backward shifting When the burden of the tax is transferred from the consumer
or purchaser through the factors of distribution to the factors
of production.

c. Onward shifting When the tax is shifted two or more times either forward or
backward.

2) Taxes that can be shifted

Only indirect taxes may be shifted; direct taxes cannot be shifted.

3) Meaning of impact and incidence of taxation

Impact of taxation Incidence of taxation

The point on which a tax is originally The point on which the tax burden finally
imposed. In so far as the law is concerned, rests or settle down. It takes place when
the taxpayer is the person who must pay the shifting has been effected from the statutory
tax to the government. He is also termed as taxpayer to another.
 the statutory taxpayer-the one on whom the
tax is formally assessed. He is the subject of
the tax.

b. Tax avoidance

The exploitation of the taxpayer of legally permissible alternative tax rates or methods of
assessing taxable property or income in order to avoid or reduce tax liabilit

c. Tax evasion

The use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax.

5. Exemption from taxation

a. Meaning of exemption from taxation

It is the grant of immunity to particular persons or corporations or to persons or

corporations of a particular class from a tax which persons and corporations generally within the
same state or taxing district are obliged to pay. It is an immunity or privilege; it is freedom from a
financial charge or burden to which others are subjected.

b. Nature of tax exemption

1) It is a mere personal privilege of the grantee.

2) It is generally revocable by the government unless the exemption is founded on a contract

which is contract which is protected from impairment.

3) It implies a waiver on the part of the government of its right to collect what otherwise
would be due to it, and so is prejudicial thereto.

4) It is not necessarily discriminatory so long as the exemption has a reasonable foundation

or rational basis.

5) It is not transferable except if the law expressly provides so.

c. Kinds of tax exemption

1) Express
 When certain persons, property or transactions are, by express provision, exempted from all
certain taxes, either entirely or in part.

2) Implied

When a tax is levied on certain classes of persons, properties, or transactions without

mentioning the other classes.

3) Contractual

Agreed to by the taxing authority in contracts lawfully entered into by them under enabling
laws.

d. Rationale/grounds for exemption

Rationale for granting tax exemptions Grounds for granting tax exemptions

Its avowed purpose is some public benefit or 1) May be based on contract.

interests which the lawmaking body considers
sufficient to offset the monetary loss entailed in
the grant of the exemption.
The theory behind the grant of tax exemptions
is that such act will benefit the body of the
people. It is not based on the idea of lessening
the burden of the individual owners of
property.
2) May be based on some ground of
public policy.
3) May be based on grounds of
reciprocity or to lessen the rigors of
international double or multiple taxation.

Revocation of tax exemption

It is an act of liberality which could be taken back by the government unless there are
restrictions. Since taxation is the rule and taxation therefrom is the exception, the exemption may be
withdrawn by the taxing authority.
 6. Compensation and Set-off

General Rule Exception

Taxes are not subject to set-off or legal Where both the claims of the government
compensation. The government and the and the taxpayer against each other have
taxpayer are not creditors and debtors or already become due and demandable as well
each other. Obligations in the nature of as fully liquated.
debts are due to the government in its
corporate capacity, while taxes are due to the
government in its sovereign capacity.

7. Compromise

A contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to
one already commenced.

8. Tax amnesty

a. Definition

A general pardon or intentional overlooking by the State of its authority to impose penalties
on persons otherwise guilty of evasion or violation of a revenue to collect what otherwise would be
due it and, in this sense, prejudicial thereto.
b. Distinguished from tax exemption

Tax amnesty Tax exemption

Partakes of an absolute forgiveness or waiver The grant of immunity to particular persons

by the Government of its right to collect or corporations of a particular class from a
what otherwise would be due it and, in this tax of which persons and corporations
sense, prejudicial thereto, particularly to tax generally within the same state or taxing
evaders who wish to relent and are willing to district are obliged to pay.
reform are given a chance to do so and
therefore become a part of the society with a
clean slate.

Immunity from all criminal, civil and Immunity from civil liability only
administrative liabilities arising from non-
payment of taxes
Applies only to past tax periods, hence Prospective application
retroactive application

There is revenue loss since there was actually None, because there was no actual taxes due
taxes due but collection was waived by the as the person or transaction is protected by
government. tax exemption.

Never favored nor presumed in law, and is granted by statute. The terms of the amnesty or
exemption must be strictly construed against the taxpayer and liberally in favor of the
government.

9. Construction and Interpretation of:

a. Tax laws

General Rule Exception

Tax laws are liberally interpreted in favor of Liberal interpretation does not apply to tax
the taxpayer and strictly against the exemptions which should be construed in
government. strictissimi juris against the taxpayer.

b. Tax exemption and exclusion

General Rule Exceptions

In the construction of tax statutes, 1. The law itself expressly provides for a
exemptions are not favored and are liberal construction thereof.
 construed strictissimi juris against the taxpayer.
The fundamental theory is that all taxable 2. In cases of exemptions granted to
property should bear its share in the cost and religious, charitable and educational
expense of the government. institutions or to the government or its
agencies or to public property because the
Taxation is the rule and exemption. He who general rule is that they are exempted from
claims exemption must be able to justify his tax.
claim or right thereto by a grant express in
terms too plain to be mistaken and too
categorical to be misinterpreted. If not
expressly mentioned in the law, it must be at
least within its purview by clear legislative
intent.

c. Tax rules and regulations

1) General rule only

They shall not be given retroactive application if the revocation, modification or reversal will
be prejudicial to the taxpayers.

d. Penal provisions of tax laws

Tax laws are civil and not penal in nature, although there are penalties provided for their
violation.

The purpose of tax laws in imposing penalties for delinquencies is to compel the timely
payment of taxes or to punish evasion or neglect of duty in respect thereof.

e. Non-retroactive application to taxpayers

1) Exceptions

A statute may operate retroactively provided it is expressly declared or is clearly the

legislative intent. But a tax law should not be given retroactive application when it would be harsh
and oppressive.

I. Scope and Limitation of Taxation

 1. Inherent Limitations

a. Public Purpose

The tax must be used:

1) for the support of the state or
2) for some recognized objects of governments or
3) directly to promote the welfare of the community
b. Inherently Legislative

1) General Rule

Taxation is purely legislative, Congress cannot delegate the power to others. This limitation
arises from the doctrine of separation of powers among the three branches of government.

2) Exceptions

a) Delegation to local governments

The power of local government units to impose taxes and fees is always subject to the
limitations which the Congress may provide, the former having no inherent power to tax.

The power to tax is primarily vested in the Congress, however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely by virtue of a valid delegation but pursuant to
direct authority conferred by Section 5, Article X of the1987 Constitution, subject to guidelines and
limitations which Congress may provide which must be consistent with the basic policy of local
autonomy.

b) Delegation to the President

The power granted to Congress under this constitutional provision to authorize the
President to fix within specified limits and subject to such limitations and restrictions as it may
impose, tariff rates and other duties and imposts include tariffs rates even for revenue purposes
only. Customs duties which are assessed at the prescribed tariff rates are very much like taxes which
are frequently imposed for both revenue-raising and regulatory purposes.

c) Delegation to administrative agencies

With respect to aspects of taxation not legislative in character.

c. Territorial

1) Situs of Taxation

Meaning
 Literally means the place of taxation.

The place or the authority that has the right to impose and collect taxes. It is premised upon
the symbiotic relation between the taxpayer and the State.

b) Situs of Income Tax

From sources within the Philippines

From sources without the Philippines

Determined by the nationality, residence of the taxpayer and source of income.

3) Income partly within and partly without the

Philippines

Allocated or apportioned to sources within or without the Philippines.

c) Situs of Property Taxes

(1) Taxes on Real Property

The place where the property is located. The applicable concept is lex situs or lex rei sitae.

(2) Taxes on Personal Property

Tangible personal property Intangible personal property

Where the property is physically located The place where the owner is located. The
although the owner resides in another applicable concept is mobilia sequuntur
jurisdiction. personam.

d) Situs of Excise Tax

(1) Estate Tax

(2) Donors Tax

Determined by the nationality and residence of the taxpayer and the place where the
property is located.
 e) Situs of Business Tax

The place where the act or business is performed or occupation is engaged in.

(1) Sale of Real Property

The place or location of the real property.

(2) Sale of Personal Property

The place of sale.

(3) VAT

Where the goods, property or services are destined, used or consumed.

d. International Comity

The property of a foreign state or government may not be taxed by another.

Exemption of Government Entities, Agencies, and

Instrumentalities

i. Agencies performing governmental functions - tax exempt

ii. Agencies performing proprietary functions - subject to tax.

2. Constitutional Limitations

a. Provisions Directly Affecting Taxation

1) Prohibition against imprisonment for non-payment of poll tax

 No person shall be imprisoned for debt or non-payment of poll tax.

2) Uniformity and equality of taxation

The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.

3) Grant by Congress of authority to the President to impose tariff

rates

The Congress may, by law, authorize the President to fix 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.

4) Prohibition against taxation of religious, charitable entities, and

educational entities

Subject to the conditions prescribed by law, all grants, endowments, donations or

contributions used actually, directly and exclusively for educational purposes shall be exempt from
tax.
5) Prohibition against taxation of non-stock, non-profit institutions

All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties.

6) Majority vote of Congress for grant of tax exemption

No law granting any tax exemption shall be passed without the concurrence of a majority of
all the members of the Congress.
7) Prohibition on use of tax levied for special purpose

All money collected or any tax levied for a special purpose shall be treated as a special fund
and paid out for such purpose only. If the purpose for which a special fund was created has been
fulfilled or abandoned the balance, if any, shall be transferred to the general funds of the
government.

8) Presidents veto power on appropriation, revenue, tariff bills

The President shall have the power to veto any particular item or items in an Appropriation,
Revenue or Tariff bill but the veto shall not affect the item or items to which he does not object.

9) Non-impairment of jurisdiction of the Supreme Court

 The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the
various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in
Sec. 5 hereof.
10) Grant of power to the local government units to create its own
sources of revenue

Each local government unit has the power to create its own revenue and to levy taxes, fees
and charges subject to such guidelines and limitations as the Congress may provide.

11) Flexible tariff clause

This clause provides the authority given to the President to adjust tariff rates under Section
401 of the Tariff and Customs Code.
12) Exemption from real property taxes

Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques,

non-profit cemeteries, and all lands, building, and improvements actually, directly and exclusively used
for religious, charitable or educational purposes shall be exempt from taxation.
13) No appropriation or use of public money for religious purposes

No public money or property shall be appropriated, applied, paid or employed, directly or

indirectly for the use, benefit, support of any sect, church, denomination, sectarian institution, or
system of religion or of any priest, preacher, minister, or other religious teacher or dignitary as such
except when such priest, preacher, minister or dignitary is assigned to the armed forces or to any
penal institution, or government orphanage or leprosarium.

b. Provisions Indirectly Affecting Taxation

Due process

No person shall be deprived of life, liberty or property without due process of law x x x.

Equal protection

xxx nor shall any person be denied the equal protection of the laws.

Religious freedom

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 be forever allowed.

4) Non-impairment of obligations of contracts

No law impairing the obligation of contract shall be passed.

J. Stages of Taxation
 1. Levy

Determination of the persons, property or excises to be taxed, the sum or sums to be raised,
the due date thereof and the time and manner of levying and collecting taxes.

2. Assessment and Collection

The manner of enforcement of the obligation on the part of those who are taxed.

The two processes together constitute the taxation system.

3. Payment

The act of compliance by the taxpayer, including such options, schemes or remedies as may
be legally available.

4. Refund

The recovery of any tax alleged to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority, or of any sum alleged to have been
excessively, or in any manner wrongfully collected.

K. Definition, Nature, and Characteristics of Taxes

Definition Taxes are the enforced proportional contributions from

persons and property levied by the law-making body of the
State by virtue of its sovereignty for the support of
government and for public needs.

Nature They are not arbitrary exactions but contributions levied by

authority of law, and by some rule of proportion which is
intended to ensure uniformity of contribution and a just
apportionment of the burdens of government.

Characteristics 1. It is levied by the law-making body of the State.

2. It is an enforced contribution.
3. It is generally payable in money.

4. It is proportionate in character.

5. It is levied on persons or property.

6. It is levied for public purpose or purposes.

 7. It is levied by the State which has jurisdiction over the
persons or property.

L. Requisites of a valid tax

It should be for a public purpose

The rule of taxation should be uniform
Either the person or property taxed be within the jurisdiction of the taxing authority
The assessment and collection be in consonance with the due process clause
The tax must not infringe on the inherent and constitutional limitations of the power of
taxation.

M. Tax as distinguished from other forms of exactions

1. Tariff

May be used in three (3) senses:

a. A book of rates drawn usually in alphabetical order containing the names of several kinds
of merchandise with the corresponding duties to be paid for the same.
b. Duties payable on goods imported or exported.
c. The system or principle of imposing duties on the importation/exportation of goods.

2. Toll

Sum of money for the use of something, generally applied to the consideration which is paid
for the use of a road, bridge of the like, of a public nature.

Tax Toll

Demand of sovereignty Demand of proprietorship

Paid for the support of the government Paid for the use of anothers property

Generally, no limit as to amount imposed Amount depends on the cost of construction

or maintenance of the public improvement
used
 Imposed only by the government Imposed by the government or private
individuals or entities

3. License fee

A charge imposed under the police power for the purposes of regulation.

Tax License/Permit Fee

Enforced contribution assessed by sovereign Legal compensation or reward of an officer

authority to defray public expenses for specific purposes

For revenue purposes For regulation purposes

An exercise of the taxing power An exercise of the police power

Generally no limit in the amount of tax to be Amount is limited to the necessary expenses
paid of inspection and regulation

Imposed also on persons and property Imposed on the right to exercise privilege

4. Special assessment

An enforced proportional contribution from owners of lands especially or peculiarly

benefited by public improvements.

Tax Special Assessment

Imposed on persons, property and excise Levied only on land

Personal liability of the person assessed Not a personal liability of the person
assessed, i.e. his liability is limited only to the
land involved

Based on necessity as well as on benefits Based wholly on benefits

received

General application Exceptional both as time and place

 5. Debt

Debt is based upon juridical tie, created by law, contracts, delicts or quasi-delicts between
parties for their private interest or resulting from their own acts or omissions.

Tax Debt

Based on law Based on contracts, express or implied

Generally, cannot be assigned Assignable

Generally payable in money May be paid in kind

Generally not subject to set-off or May be subject to set-off or compensation

compensation

Imprisonment is a sanction for non-payment No imprisonment for non-payment of debt

of tax except poll tax

Governed by special prescriptive periods Governed by the ordinary periods of

provided for in the Tax Code prescriptions

Does not draw interest except only when Draws interest when so stipulated, or in case
delinquent of default
 N. Kinds of Taxes

1. As to object

Personal, capitation, or poll Property tax Privilege tax

tax

Tax of a fixed amount Tax imposed on property, A charge imposed upon the
imposed on persons residing real or personal, in performance of an act, the
within a specified territory, proportion to its value or in enjoyment of privilege, or
whether citizens or not, accordance with some other the engaging in an
without regard to their reasonable method of occupation.
property or the occupation apportionment.
or business in which they
may be engaged.

2. As to burden or incidence

Direct Indirect

Demanded from the person who also
shoulders the burden of the tax. It is a tax
which the taxpayer is directly or primarily
liable and which he or she cannot shift to
another.
Demanded from a person in the expectation
and intention that he or she shall indemnify
himself or herself at the expense of another,
falling finally upon the ultimate purchaser or
consumer. A tax which the taxpayer can shift
to another.

3. As to tax rates

Specific Ad valorem Mixed

The computation of the tax Tax upon the value of the Tax rates are partly
or the rates of the tax is article or thing subject to progressive and partly
already provided for by law. taxation; the intervention of regressive.
another party is needed for
the computation of the tax.
 4. As to purposes

General or fiscal Special, regulatory, or sumptuary

Imposed for the purpose of raising public Imposed primarily for the regulation of
funds for the service of the government. useful or non-useful occupation or
enterprises and secondarily only for the
purpose of raising public funds.

As to scope or authority to impose

National internal revenue taxes Local real property tax, municipal tax

Imposed by the National Government. Imposed by the municipal corporations or

local government units.

6. As to graduation

Progressive Regressive Proportionate

Rate or amount of tax Tax rate decreases as the Tax based on a fixed
increases as the amount of amount of income to be percentage of the amount of
the income or earning to be taxed increases. the property receipts or
taxed increases. other basis to be taxed.
II. National Internal Revenue Code of 1997 as amended (NIRC)

A. Income Taxation

1. Income Tax Systems

a. Global Tax System

All income received by the taxpayer are grouped together, without any distinction as to the
type or nature of the income, and after deducting therefrom expenses and other allowable
deductions, are subjected to tax at a fixed rate.

b. Schedular Tax System

The various types or items of income are classified accordingly and are accorded different
tax treatments, in accordance with schedules characterized by graduated tax rates. Since these types
of income are treated separately, the allowable deductions shall likewise vary for each type of
income.

Schedular system Global system

There are different tax rates There is a single tax rate

There are different categories of taxable There is no need for classification as all
income taxpayers are subjected to a single tax rate.

Usually used in the income taxation of Usually applied to corporations.

individuals

c. Semi-schedular or semi-global tax system

A system where the compensation, business or professional income, capital gain and passive
income not subject to final tax, and other income are added together to arrive at the gross income,
and after deducting the sum of allowable deductions from business or professional income, capital
gain and passive income not subject to final tax, and other income, in the case of corporations, as
well as personal and additional exemptions, in the case of individual taxpayers, the taxable income is
subjected to one set of graduated tax rates; method of taxation under the law.

2. Features of the Philippine Income Tax Law

Direct tax Progressive Comprehensive Semi-schedular or

 semi-global tax
system

One assessed upon The tax rates The Philippine

the property, person, increase as the tax Income tax law
business income, etc. base increases. In adopted the so-called
of those who pay certain cases, comprehensive tax
them. however, final taxes situs
are imposed on comprehensive in
passive income. the sense that it
practically applies all
possible rules of tax
situs.

3. Criteria in Imposing Philippine Income Tax

Citizenship Principle Residence Principle Source Principle

A citizen of the Philippines is A resident alien is liable to An alien is subject to

subject to Philippine income pay income tax on his Philippine income tax
tax income from sources within because he derives income
the Philippines but exempt from sources within the
(a) on his worldwide income, from tax on his income from Philippines. Thus, a
if he resides in the sources outside the nonresident alien is liable to
Philippines, or Philippines. pay Philippine income tax on
his income from sources
(b) only on his income from within the Philippines
sources within the despite the fact that he has
Philippines, if he qualifies as not set foot in the
nonresident citizen. Philippines.

4. Types of Philippine Income Tax

Presumptive Income Tax Composite Tax Unitary Income Tax

A scale of income taxes is A tax consisting of a series Incomes are arranged

imposed in relation to a of separate quasi-personal according to source. The
group of persons actual taxes, assessed on the separate items are added
expenditure and the particular source of income together and the rate applied
presumed income. with a superimposed to the resulting total income.
personal tax on the income
as a whole.

5. Taxable Period

Calendar Period Fiscal Period Short Period

A period of twelve (12) An accounting period of 12 A period of less than twelve

months commencing from months ending on the last (12) months.
January 1 and ending day of any month other than
December 31. December.

6. Kinds of Taxpayers

a. Individual Taxpayers

1) Citizens

a) Resident citizens
 Citizens of the Philippines who are residing therein.

b) Non-resident citizens

1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner of

Internal Revenue (CIR) the fact of his physical presence abroad with a definite intention to reside
therein.

2. A citizen of the Phils. who leaves the country during the taxable year to reside abroad,
either as immigrant or for employment or on permanent basis.

3. A citizen of the Phils. who works and derives from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year.

4. A citizen who has been previously considered as non-resident citizen and who arrives in
the Phils. at any time during the taxable year to reside permanently in the country.

5. A citizen who shall have stayed outside the Phils. for 183 days or more by the end of the
year.

2) Aliens

a) Resident aliens

Those whose residence are within the Philippines but who are not citizens thereof.

b) Non-resident alien

Those not residing in the Phils. and who are not citizens thereof.

(1) Engaged in trade or business

An alien who stays in the Philippines for more than 180 days.

(2) Not engaged in trade or business

An alien who stays in the Philippines for 180 days or less.

(3) Special Class of Individual Employees

a) Minimum wage earner

A worker in the private sector paid the statutory minimum wage, or to an employee in the
public sector with compensation income of not more than the statutory minimum wage in the non-
agricultural sector where he/she is assigned.
 By virtue of the passage of R.A. 9504, minimum wage earners are exempted from the
payment of the net income tax.

b) Corporations

1) Domestic corporations

Created or organized in the Phils. or under its laws.

2) Foreign corporations

Created, organized or existing under any laws other than those of the Phils.

Resident

Engaged in trade or business within the Phils.

(2) Non-resident

Not engaged in trade or business within the Phils.

c. Partnerships

Partnership is a contract whereby two or more persons bind themselves to contribute money,
property, or industry to a common fund with the intention of dividing the profits among themselves.

d. General Professional Partnerships

Formed by persons for the role purpose of exercising their common profession, no part of
the income of which is derived from engaging in any trade & business.

e. Estates and Trusts

Estate Trust

The mass of property, rights and obligations An arrangement created by will or co-
left behind by the decedent upon his death. agreement under which title to property is
passed to another for conservation or
investment with the income therefrom and
ultimately the corpus to be distributed in
accordance with the directions of the creator
as expressed in the governing instrument.
f. Co-ownerships
 It is created whenever the ownership of an undivided thing or right belongs to different
persons.

7. Income Taxation

a. Definition

A tax on all yearly profits arising from property, profession, trade or business, or a tax on
persons income, emoluments, profits and the like.

b. Nature

It is generally regarded as an excise tax. It is not levied upon persons, property, funds or
profits but on the privilege of receiving said income or profit.

c. General principles

1. A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines.

2. A non-resident citizen is taxable only on income derived from sources within the
Philippines.

3. An individual citizen of the Philippines, who is working and deriving income from abroad
as an overseas contract worker, is taxable only on income derived from sources within the
Philippines. Provided, that a seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the complement of a vessel engaged
exclusively in international trade shall be treated as an overseas contract worker.

4. An alien individual, whether or not a resident of the Philippines, is taxable only on income
derived from sources within the Philippines.

5. A domestic corporation is taxable on all income derived from sources within and without
the Philippines.

6. A foreign corporation, whether engaged or not in trade or business in the Philippines, is

taxable only on income derived from sources within the Philippines.

8. Income

a. Definition

It means cash or its equivalent coming to a person within a specified period, whether as
payment for services, interest or profit from investment. It covers gain derived from capital, from
labor, or from both combined, including gain from sale or conversion of capital assets.
 b. Nature

All wealth which flows to the taxpayer other than a mere return of capital.

It is an amount of money coming to a person/corporation within a specified time, whether

as payment for services, interest or profit from investment. Unless otherwise specified, it means
cash or its equivalent. Income can also be thought of as a flow of the fruits of one's labor.
Income includes earnings, lawfully or unlawfully acquired, without consensual
recognition, express or implied, of an obligation to repay and without restriction as their disposition.

c. When income is taxable

1) Existence of income

There must be gain a value received in the form of cash or its equivalent as a result of
rendition of service or earnings in excess of capital invested.

2) Realization of income

a) Tests of Realization

Unless income is deemed realized, then there is no taxable income.

Revenue is generally recognized when both conditions are met:

a. The earning process is complete or virtually complete; and

b. An exchange has taken place.
b) Actual vis--vis Constructive receipt

Actual receipt Constructive receipt

Income may be actual receipt or physical When money consideration or its equivalent
receipt. is placed at the control of the person who
rendered the service without restriction
by the payor.

3) Recognition of income

a. There is income, gain or profit

b. The income, gain or profit is received or realized during the taxable year
c. The income gain or profit is not exempt from income tax

4) Methods of accounting
 a) Cash method vis--vis Accrual method

Cash method Accrual method

Recognition of income and expense Gains and profits are included in gross
dependent on inflow or outflow of cash. income when earned whether received or
not, and expenses are allowed as deductions
when incurred, although not yet paid. It is
the right to receive and not the actual receipt
that determines the inclusion of the amount
in gross income

b) Installment payment vis--vis Deferred payment vis-

vis Percentage completion

Installment payment Deferred payment Percentage completion

Appropriate when
collections extend over
relatively long periods of
time and there is a strong
possibility that full collection
will not be made.
Initial payments exceed 25%
of the gross selling price and
such transaction shall be
treated as cash sale which
makes the entire selling price
taxable in the month of sale.
Persons whose gross income
is derived from long-term
contracts shall report such
income upon the basis of
percentage of completion.

d. Tests in determining whether income is earned for tax purposes

1) Realization test

No taxable income until there is a separation from capital of something of exchangeable

value, thereby supplying the realization or transmutation which would result in the receipt of
income.

2) Claim of right doctrine or Doctrine of ownership,

command, or control

A taxable gain is conditioned upon the presence of a claim of right to the alleged gain and
the absence of a definite unconditional obligation to return or repay.
 The power to dispose of income is the equivalent of ownership of it. The exercise of that
power to procure the payment of income to another is the enjoyment and hence, the realization of
the income by him who exercises it. The dominant purpose of the revenue laws is the taxation of
income to those who earn or otherwise create the right to receive it and enjoy the benefit of it when
paid.

3) Economic benefit test, Doctrine of proprietary interest

Income realized is taxable only to the extent that the taxpayer is economically benefited.

Any economic benefit to the employee that increases his net worth is taxable.

4) Severance test

There is no taxable income until there is a separation from capital of something which is of
exchangeable value thereby supplying the realization or transmutation which would result in the
receipt of income. Thus, income is not taxable unless separated or severed from the capital or labor
that bore it.

5) All events test

Requires that the right to income or liability be fixed, and the amount of such income or
liability be determined with reasonable accuracy. However, the test does not demand that the
amount of income or liability be known absolutely, only that a taxpayer has at his disposal the
information necessary to compute the amount with reasonable accuracy. The all-events test is
satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where
a computation may be unknown, but is not as much as unknowable, within the taxable year.

9. Gross Income

a. Definition

All income derived during a taxable year by a taxpayer from whatever source, whether legal
or illegal, including the following items:

1. Gross income derived from the conduct of trade or business or the exercise of a
profession.
2. Rents
3. Interests
4. Prizes and winnings
5. Compensation for services in whatever form paid, including, but not limited to
fees, salaries, wages, commissions, and similar items
6. Annuities
 7. Royalties
8. Dividends
9. Gains derived from dealings in property
10. Pensions
11. Partner's distributive share from the net income of the general professional partnership.
b. Concept of income from whatever source derived

Implies the inclusion of all income under the law, irrespective of the voluntary or involuntary
action of the taxpayer in producing the gains.

All income not expressly excluded or exempted from the class of taxable income,
irrespective of the voluntary or involuntary action of the taxpayer in producing the income.

c. Gross Income vis--vis Net Income vis--vis Taxable Income

Gross Income Net Income or Taxable Income

As to deductions

Allows no deductions Allows deductions

As to exemptions

Grants no exemptions Grants exemptions

As to tax base

Gross Income Net Income

Advantages/Disadvantages

Simplifies the income tax Confusing and complex

system process of filing income
tax return

Substantial reduction in corruption and tax Vulnerable to corruption on account of margin

evasion as the exercise of discretion, to allow of discretion in the grant of deductions
or disallow deductions, is dispensed with.

More administratively feasible Provides equitable releifs in the form of

deductions, exemptions and tax credit

Does away with wastage of manpower and Tax audit minimizes fraud
supplies
 d. Classification of Income as to Source

1) Gross income and taxable income from sources within the

Philippines

Interests:

a) Interests derived from sources within the Phils.

b) Interests on bonds, notes or other interest-bearing obligations of residents,
corporate or otherwise.

Dividends:

a) From a domestic corporation, and

b) From a foreign corporation 50% or more of the gross income of which for the 3-
year period ending with the close of the taxable year preceding the declaration of such
dividends, or for such part of such period as the corporation within the Phils. has been in
existence, was derived from sources. It must be only in an amount which bears the same
ratio to such dividends as the gross income of the corporation for such period derived
from sources within the Philippines bears to its gross income from all sources.
3) Compensation for labor or personal services performed in the Phils.

4) Rentals and Royalties from property located in the Phils. or from any interest in such
property, including rentals or royalties for

a) The use of, or the right or privilege to use in the Phils. any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade brand or other
like property or night;
b) The use of, or the right to use in the Phils. any industrial, commercial or scientific
equipment;
c) The supply of scientific, technical, industrial or commercial knowledge or
information;
d) The supply of any assistance that is ancillary and subsidiary to, and is furnished as
a means of enabling the application or enjoyment of, any such property or right as is
mentioned in paragraph (a), any such equipment as is mentioned in paragraph (b) or any
such knowledge or information as is mentioned in paragraph (c);
e) The supply of services by a nonresident person or his employee in connection
with the use of property or rights belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such nonresident person;
 f) Technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking,
venture, project or scheme; and
g) The use of, or the right to use:
1. motion picture films;
2. films or video tapes for use in connection with television; and
tapes for use in connection with radio broadcasting

5) Gains, profits, and income from the sale of real property located in the Phils. and

6) Gains, profits, and income from sale of personal property, treated as derived entirely
from the country where it is sold.

2) Gross income and taxable income from sources without

the Philippines

Interest other than those derived from sources within the Phils.

Dividends other than those derived from sources within the Phils.

Dividends from foreign corporations in general; and

Dividends derived from foreign corporations, 50% or more of the gross income of
which for the 3-year period preceding the declaration of dividends.

3) Compensation for labor or personal services performed outside the Phils.

4) Rentals or royalties from property located outside the Phils. or from any interest in such
property including rentals or royalties for the use of or for the privilege of using outside the Phils.,
patents, etc.

5) Gains, profits and income from the sale of real property located outside the Phils.

6) Gains, profits and income from the sale of personal property located outside the Phils.,
and

7) Income derived from the purchase of personal property within and its sale outside the
Phils.

3) Income partly within or partly without the

Philippines

1) Income from transportation such as foreign steamship companies whose vessel touch the
Phil. ports and other services rendered partly within and partly outside the Phils. such as foreign
corporations carrying on the business of transmission of telegraph and cable messages between
points outside the Phils.

2) Income from the sale of personal property produced in whole or in part by the taxpayer
within and sold outside the Phils. or produced by the taxpayer outside and sold within the Phils.

e. Sources of income subject to tax

Compensation Income

All remuneration for services performed by an employee for his employer, including the cash
value of all remuneration paid in any medium other than cash.

It includes all remuneration for services rendered by an employee for his employer unless
specifically excluded under the NIRC.

2) Fringe Benefits

a) Special treatment of fringe benefits

Applied to fringe benefits given or furnished to managerial or supervising employees and

not to the rank and file.

b) Definition

Any good, service or other benefit furnished or granted in cash or in kind by an employer to
an individual employee, except rank and file employee.

c) Taxable and non-taxable fringe benefits

Taxable fringe benefits Non-taxable fringe benefits

1) Fringe benefits which are authorized and

1) Housing Privileges exempted from tax under special laws;
(a) Lease of residential property for
2) Contributions of the employer for the
the use of the employee as his usual place of
benefit of the employee to retirement,
residence.
insurance and hospitalization benefit plans;
(b) Residential Property owned by
3) Benefits given to the rank and file
employer and assigned to employee as his
employees, whether granted under a
usual place of residence.
collective bargaining agreement or not;
(c) Residential property purchased by
4) De minimis benefits;
employer on installment basis for the use of
employer as his usual place of residence.
5) When the fringe benefit is required by the
nature of, or necessary to the trade, business
or profession of the employer
(d) Residential property purchased by
ER and ownership is transferred to EE as
6) When the fringe benefit is for the
his usual place of residence.
convenience of the employer. This is known
as Employers Convenience Rule.
(e) Residential property transferred to
employee at less than employers acquisition
cost.

2) Household Expenses refer to expenses

of the employee paid by the employer for
household personnel or other personal
expenses, which shall include:

(a) salaries of household helper

(b) personal driver of the employee

(c) payment for homeowner assoc.,

etc.
3) Interest on loan at less than market rate
4) Expenses for Foreign Travel

General rule:
Expenses for foreign travel insured by
the employee and/or family members of the
employee borne by the employer shall be
treated as taxable fringe benefits of the
employee.

Except:
 Where the expenses for foreign travel
paid by the employer for the employee are
for the purpose of attending business
meeting or convention. The exemption
covers only the following expenses:

a) Inland travel expenses except

lodging cost in hotel averaging US$ 300 or
less per day; and

b) Cost of economy or business class

airline ticket.

5) Membership fees, dues and other

expenses borne by the employer for his
employee, in social or athletic clubs or other
similar organizations.

6) Life or Health Insurance -

General rule:

The cost of life or health insurance

and other non life insurance premiums or
similar amounts in excess of what the law
allows borne by the employer for his
employees shall be treated as taxable fringe
benefits.

Except:

a) Contribution of the employer for the

benefits of the employee pursuant to existing
laws.

b) The cost of premium borne by the

employer for the group insurance of his
employees.

7) Holidays and Vacation Expense

8) Motor Vehicle

a) Motor vehicle purchased by

employer in name of employee.

b) Cash for the purchased provided by

the employer, the ownership is placed in the
name of the employee

c) Purchase on Installment basis, the

ownership is placed in the name of the
employee

d) Portion of purchased price

shouldered by employer

e) Fleet of motor vehicle leased by

the employer

f) Fleet of Motor vehicles owned and

maintained by employer.

9) Expense Account

a) Expenses incurred by the employee

but paid by his employer.

b) Expenses paid by the employee but

reimbursed by his employer.

10) Educational Assistance

General Rule: The cost of the

educational assistance to the employee or his
dependents which are borne by the employer
shall be treated as Taxable Fringe Benefits.

Exception:

Education granted to employee

Educational Assistance granted to

the dependents of the employee in
the nature of educational assistance
to the dependents of the employee
through a competitive scheme
under a scholarship program of the
company.
 3) Professional Income

The fees received by a professional from the practice of his profession, provided that
there is no employer-employee relationship between him and his clients.

4) Income from Business

The income derived from merchandising, mining, manufacturing and farming operations.

5) Income from Dealings in Property

a) Types of Properties

(1) Ordinary assets

Properties held by the taxpayer in the pursuit of his profession, trade or business:

Stock in Trade;
Property of a kind which would properly be included in the inventory if on hand at
the close of the taxable year;
Property held by the taxpayer primarily for sale to customers in the ordinary course
of trade or business;
Property used in trade or business which in subject to the allowance for depreciation;
and
v. Real property used in trade or business.

(2) Capital assets

Properties not specifically included in the statutory definition constitutes capital assets, the
profits or losses on the sale or the exchange of which are treated as capital gains or capital.

The statutory definition of "capital assets" practically excludes from its scope, all property
held by the taxpayer if used in connection with his trade or business.

b) Types of Gains from dealings in property

(1) Ordinary income vis--vis Capital gain

Ordinary gain Capital gain

Any gain from the sale or exchange of Any gain from the sale or exchange of
property which is not a capital asset. property which is a capital asset.
 (2) Actual gain vis--vis Presumed gain

Actual gain Presumed gain

Excess of the cost from a sale of asset. Presumption of law that the seller realized
gains, which is taxed at 6% of the selling
price or fair market value, whichever is
higher.

(3) Long term capital gain vis--vis Short term

capital gain

Long term capital gain Short term capital gain

The profit realized from selling or The profit realized from selling or
exchanging a capital asset held for more than exchanging a capital asset held for less than a
a specified period, usu. one (1) year. specified period, usu. one (1) year.

(4) Net capital gain, Net capital loss

Net Capital gain Net capital Loss

The excess of the gains from sales or The excess of the losses from sales or
exchange of capital assets over the losses exchanges of capital assets over the gains
from such sales or exchanges. from such sales or exchanges.

(5) Computation of the amount of gain or loss

The gain from the sale or other disposition of property shall be the excess of the amount
realized therefrom over the basis or adjusted basis for determining gain, and the loss shall be the
excess of the basis or adjusted basis for determining loss over the amount realized. The amount
realized from the sale or other disposition of property shall be the sum of money received plus the
fair market value of the property received.

(6) Income tax treatment of capital loss

(a) Capital loss limitation rule

Capital losses are deductible only to the extent of capital gains.

(b) Net loss carry-over rule

If any taxpayer sustains in any taxable year a net capital loss

 1. Such net capital loss cannot be deducted from ordinary income due to the loss limitation
rule;
2. Such loss could be carried over to the next taxable year as a deduction against net capital
gain in an amount not in excess of the taxable income in the year the loss was sustained; and
3. Such loss shall be treated as a loss from the sale or exchange of capital assets held for not
more than twelve (12) months.
(7) Dealings in real property situated in the
Philippines

6% final tax - on the gross selling price, or the current fair market value at the time of the
sale, whichever is higher.
(8) Dealings in shares of stock of Philippine
corporations

(a) Shares listed and traded in the

stock exchange

Not subject to income tax but to percentage tax of of 1% of the gross selling price.

(b) Shares not listed and traded in the

stock exchange

A final tax at the rates as follows:

Not over P100,000........ 5%

On any amount in excess of P100,000. 10%

(9) Sale of principal residence

Not liable for capital gains tax when:

a. Sold or disposed of by natural persons.

b. The proceeds of the sale are fully utilized in acquiring or constructing a new principal
residence within 18 calendar months from the date of sale or disposition.
c. The Commissioner is duly notified by the taxpayer within 30 days from the date of sale or
disposition through a prescribed return of his intention to avail of the tax exemption.
d. A deposit is made of the 6% capital gain tax otherwise due, in cash or managers check, in
an interest-bearing account with an Authorized Agent Bank (AAB), under an Escrow Agreement
between the taxpayer and the Bureau of Internal Revenue that the same shall be released to the
taxpayer when the proceeds of the sale shall have been utilized as intended.

e. The tax exemption can only be availed of once every 10 years.

6) Passive Investment Income
 a) Interest Income

An earning derived from depositing or lending of money, goods or credits.

b) Dividend Income

(1) Cash dividend

A dividend paid in cash and is taxable to the extent of the cash received.

(2) Stock dividend

A transfer of a portion of retained earnings to capital stock by action of stockholders. It

simply means the capitalization of retained earnings.

(3) Property dividend

A dividend paid in property held by the corporation and to the extent of the FMV of the
property received at the time of the distribution.

(4) Liquidating dividend

A dividend distributed to the shareholders upon dissolution of the corporation.

c) Royalty Income

Compensation or payment for the use of property and is paid to the owner of a right.

d) Rental Income

(1) Lease of personal property

(2) Lease of real property

Earnings derived from leasing of real estate as well as personal property. It includes all other
obligations assumed to be paid by the lessee to the third party in behalf of the lessor.

(3) Tax treatment of

(a) Leasehold improvements by lessee

Outright Method Spread Out Method

The fair market value of the building or Allocate the depreciated value over the
improvement shall be reported as additional remaining term of the lease contract. Every
 rent income. year, an aliquot part of the depreciated value
should be reported as additional rent in
addition to the regular rent income.

(b) VAT added to rental/paid by the

lessee

Any additional amount paid, directly or indirectly, by the lessee in consideration for the lease
is considered rental. Therefore, taxes paid by the lessee on leased property are part of rental income
of the landlord.

(c) Advance rental/long term lease

Advanced rental is a Security Deposit which Advance rental is prepaid rental received
restricts the lessor as to its use without restriction as to its use

The amount shall be excluded in the The entire amount is taxable in the year it
determination of rental income. is received.

7) Annuities, Proceeds from life insurance or other types of

insurance

Annuities Amounts payable yearly or at other regular

intervals for a certain or uncertain period.
They also represent as installment payments
for life insurance sold by insurance
companies.

Proceeds of life insurance Paid by reason of the death of the insured to

his estate or to any beneficiary, directly or in
trust.

Return of insurance premium

8) Prizes and awards

Contest prizes and awards received are generally taxable. Such payment constitutes gain
derived from labor.
 9) Pensions, retirement benefit, or separation pay

Pension refers to allowance paid regularly to a person on his retirement or to his dependents
on his death, in consideration of past services, meritorious work, age, loss or injury.

Retirement benefits received under RA 7641 and those received by officials and employees
of private firms in accordance with a reasonable private benefit plan maintained by the employer.

Any amount received by an employee or by his heirs from the employer as a consequence of
separation of such official or employee from the service of the employer because of death, sickness,
other physical disability or for any cause beyond the control of the employee.

The social security benefits, retirement gratuities, pensions and other similar benefits
received by resident or nonresident citizens of the Philippines or aliens who come to reside
permanently in the Philippines from foreign government agencies and other institutions.

Payments of benefits due or to become due to any person residing in the Philippines under
the laws of the United States administered by the United States Veterans Administration

Benefits received from or enjoyed under the Social Security System.

Benefits received from the GSIS, including retirement gratuity received by government
officials and employees.

10) Income from any source whatever

All income not expressly excluded or exempted from the class of taxable income,
irrespective of the voluntary or involuntary action of the taxpayer in producing the income.

a) Forgiveness of indebtedness

Dependent upon the circumstances, may amount to:

1. income;
2. a gift; or
3. a capital transaction.
b) Recovery of accounts previously written off
 To be included as part of the taxpayers gross income in the year of such recovery to the
extent of the income tax benefit of said deduction. There is an income tax benefit when the
deduction of the bad debt in the prior year resulted in lesser income and hence, tax savings for the
company.

c) Receipt of tax refunds or credit

As a general rule, a refund of a tax related to the business or the practice of profession is
taxable income in the year of receipt to the extent of the income tax benefit of said deduction.

d) Income from any source whatever

f. Source rules in determining income from within and without

Income from sources within the Philippines:

1) Interests

Interests derived from sources within the Philippines, and interests on bonds,
notes or other interest-bearing obligation of residents, corporate or otherwise.

2) Dividends

The amount received as dividends:

(a) from a domestic corporation; and

(b) from a foreign corporation, unless less than fifty percent (50%) of the
gross income of such foreign corporation for the three-year period ending with the
close of its taxable year preceding the declaration of such dividends or for such part
of such period as the corporation has been in existence was derived from sources
within the Philippines as determined under the provisions of this Section; but only in
an amount which bears the same ration to such dividends as the gross income of the
corporation for such period derived from sources within the Philippines bears to its
gross income from all sources.

3) Services

Compensation for labor or personal services performed in the Philippines.

4) Rentals

Rentals and royalties from property located in the Philippines or from any
interest in such property, including rentals or royalties for -

(a) The use of or the right or privilege to use in the Philippines any copyright,
patent, design or model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;

(b) The use of, or the right to use in the Philippines any industrial,
commercial or scientific equipment;

(c) The supply of scientific, technical, industrial or commercial knowledge or

information;

(d) The supply of any assistance that is ancillary and subsidiary to, and is
furnished as a means of enabling the application or enjoyment of, any such property
or right as is mentioned in paragraph (a), any such equipment as is mentioned in
paragraph (b) or any such knowledge or information as is mentioned in paragraph
(c);

(e) The supply of services by a non-resident person or his employee in

connection with the use of property or rights belonging to, or the installation or
operation of any brand, machinery or other apparatus purchased from such non-
resident person;

(f) Technical advice, assistance or services rendered in connection with

technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme; and

(g) The use of or the right to use:

(i) Motion picture films;

(ii) Films or video tapes for use in connection with television; and
(iii) Tapes for use in connection with radio broadcasting.
5) Royalties

6) Sale of real property

Gains, profits and income from the sale of real property located in the
Philippines.
7) Sale of personal property
Gains, profits and income from the sale of personal property

Items of gross income treated as income from sources without the Philippines:
 (1) Interests other than those derived from sources within the Philippines

(2) Dividends other than those derived from sources within the Philippines

(3) Compensation for labor or personal services performed without the

Philippines;

(4) Rentals or royalties from property located without the Philippines or

from any interest in such property including rentals or royalties for the use of or for
the privilege of using without the Philippines, patents, copyrights, secret processes
and formulas, goodwill, trademarks, trade brands, franchises and other like
properties; and

(5) Gains, profits and income from the sale of real property located without
the Philippines.

8) Shares of stock of domestic corporation

Gain from the sale of shares of stock in a domestic corporation shall be treated as derived
entirely form sources within the Philippines regardless of where the said shares are sold.

Situs of Income Taxation

h. Exclusions from Gross Income

Income received or earned but is not taxable as income because it is exempted by law or by
treaty. Receipts which are not in fact income are also excluded from Gross Income.
Rationale for the exclusions

They

a. Represent return of capital;

b. Are not income, gain or profit;
c. Are subject to another kind of internal revenue tax;
d. Are income, gain or profit that are expressly exempt from income tax.

2) Taxpayers who may avail of the exclusions

All kinds of taxpayers - individuals, estates, trusts and corporations, whether citizens, aliens,
whether residents or non-residents.
 3) Exclusions distinguished from deductions and tax credit

Exclusions Deductions Tax credit

Income received or earned The items or amounts An amount subtracted from

but is not taxable because by
law or treaty. Such tax free
income is not to be included
in the income tax return
unless information regarding
it is specifically called for.
authorized by law to be an individuals or entitys tax
subtracted from the liability to arrive at the total
pertinent items of gross tax liability.
income to arrive at taxable
income.

4) Under the Constitution

a) Income derived by the government or its political

subdivisions from the exercise of any essential
governmental function

From:

1) any public utility; and

2) the exercise of any essential governmental function.

5) Under the Tax Code

a) Proceeds of life insurance policies

Paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or
otherwise.

b) Return of premium paid

Paid by the insured under life insurance, endowment, or annuity contracts, either during the
term or at the maturity of the term of the contract or upon surrender.
c) Amounts received under life insurance, endowment
or annuity contracts

If the insured dies, and the beneficiary receives the life insurance proceeds, these are not
taxable income because they are excluded from gross income.

If the insured does not die and survives the designated period, the amount pertaining to the
premiums he paid are excluded from gross income, but the excess shall be considered part of his
gross income.

d) Value of property acquired by gift, bequest, devise

or descent
 The income from such property, as well as gift, bequest, devise, or descent of income from
property, in cases of transfers of divided interest, shall be included in gross income.

The estate of the testator or the decedent is subject to estate tax, while the heirs or
beneficiary/ies are not required to pay donees tax as the same was already abolished. The value of
the bequest and/or the devise received by the heirs or beneficiary/ies is not included in the
computation of their gross income since gifts, bequest and devises are excluded from gross income.

e) Amount received through accident or health

insurance

As compensation for personal injuries or sickness, plus the amounts of any damages
received, whether by suit or agreement, on the account of such injuries or sickness.

f) Income exempt under tax treaty

Income of any kind, to the extent required by any treaty obligation binding upon the
Government of the Philippines.

g) Retirement benefits, pensions, gratuities, etc.

a) Retirements benefits received under RA 7641 and those received by officials and
employees of private firms in accordance with reasonable private benefit plan.
b) Any amount received by an official or employees or by his heirs from the employer as a
consequence of separation from service due to death, sickness or other physical disability beyond
the control of the said official or employer.
c) Terminal leave and other social security benefits.
d) Benefits received under the US veterans Administration.
e) Benefits received from SSS
f) Benefits received from GSIS.

h) Winnings, prizes and awards, including those in

sports competition

Prizes and Awards - to be excluded, the following conditions must concur:

a. Prizes and award made primarily in recognition of religious, charitable,

scientific, educational, artistic, literary, or civic achievement.
 b. The recipient was selected without any action on his part to enter the contest
or proceeding.
c. The recipient is not required to render substantial future services as a
condition in receiving the award.
Prizes and Awards in Sports Competition

All prizes and award granted to athletes in local and international sports
competitions and tournaments whether held in the Phils. or abroad and sanctioned by
sports associations.
6) Under Special Laws

a) Prizes received by winners in charity horse race sweepstakes from PCSO.

b) Back pay benefits

c) Income of cooperative marketing association

d) Salaries and stipends in dollars received by non - Filipino citizens on the technical staff of
International Rice Research Institutes (IRRI)
e) Supplemental allowances per diem, benefits received by officer or employees of the
Foreign Service.
f) Income from bonds and securities for sale in the international market.

i. Deductions from Gross Income

1) General rules

a) Deductions must be paid or incurred in connection

with the taxpayers trade, business or profession

It must be directly connected with trade or business or profession of the taxpayer.

b) Deductions must be supported by adequate

receipts or invoices

The claimed deduction must be evidenced by official receipts or other adequate records.

c) Additional requirement relating to withholding

The taxpayer must:

1. Point to some specific provisions of the statute authorizing the deduction;

 2. Able to prove that he is entitled to the deduction authorized or allowed;

3. Any amount paid or payable which is otherwise deductible from, or taken into
account in computing gross income or for which depreciation/amortization may be allowed, shall
be allowed as deduction only if it is shown that the tax required to be deducted and withheld
therefrom has been paid to the BIR; and

4. Deductions for income tax purposes partake of the nature of tax exemptions hence,
if tax exemptions are to be strictly construed, then it follows that deductions must also be strictly
construed.

2) Return of capital (cost of sales or services)

Exempt from income tax.

To be taxable, there must be income, gain or profit; gain is received, accrued or realized
during the year;and it is not exempt from income tax under the Constitution, treaty or law

Sale of inventory of goods by manufacturers and

dealers of properties

b) Sale of stock in trade by a real estate dealer and

dealer in securities

c) Sale of services

3) Itemized deductions

a) Expenses

(1) Requisites for deductibility

1. It must be ordinary and necessary.

2. It must be paid or incurred during the taxable year.
 3. It must be paid or incurred in carrying on or which are directly attributable to the
development, management, operation and/or conduct of the trade, business or exercise of a
profession.
4. The amount must be reasonable.
5. It must be substantiated with sufficient evidence, such as official receipts or other
adequate records, showing:
i. the amount of the expense being deducted, and
ii. the direct connection or relation of the expense being deducted to the
development, management, operation and/or conduct of the trade, business or
profession of the taxpayer
6. It is not contrary to law, public policy or morals.
7. The tax required to be withheld on the amount paid or payable must have been paid to
the BIR by the taxpayer, who is constituted as a withholding agent of the government.

(a) Nature: Ordinary and necessary

Ordinary Necessary

When it connotes a payment, which is Where the expenditure is appropriate or

normal in relation to the business of the helpful in the development of taxpayers
taxpayer and the surrounding circumstances. business or that the same is proper for the
purpose of realizing a profit or minimizing a
loss.

(b) Paid and incurred during taxable

year

Paid Incurred

The payment is on cash receipt basis, The payment thereof is on accrual basis,
expenses are deductible in the year they are expenses are deductible in the year they are
incurred. incurred, whether paid or not.

(2) Salaries, wages and other forms of

compensation for personal services
actually rendered, including the grossed-
up monetary value of the fringe benefit
 subjected to fringe benefit tax which tax
should have been paid

(3) Travel/Transportation expenses

(4) Cost of materials

(5) Rentals and/or other payments for use or

possession of property

(6) Repairs and maintenance

(7)Expenses under lease agreements

(8) Expenses for professionals

(9) Entertainment expenses

(10) Political campaign expenses

(11) Training expenses

b) Interest

(1) Requisites for deductibility

a. There must be a valid and existing indebtedness

b. The indebtedness must be that of the taxpayer;
c. The interest must be legally due and stipulated in writing;
d. The interest expense must be paid or incurred during the taxable year;
e. The indebtedness must be connected with the taxpayer's trade, business or exercise of
profession;
f. The interest payment arrangement must not be between related taxpayers;
g. The interest is not expressly disallowed by law to be deducted from the taxpayers gross
income; and
h. The amount of interest deducted from gross income does not exceed the limit set forth in
the law.

(2) Non-deductible interest expense

a. Interest on preferred stock, which in reality is dividend

 b. Interest on unpaid salaries and bonuses

c. Interest calculated for cost keeping

d. Interest paid where parties provide no stipulation in writing to pay interest

e. If the indebtedness is incurred to finance petroleum exploration

f. Interest paid on indebtedness between related taxpayers

g. Interest on indebtedness paid in advance through discount or otherwise and the taxpayer
reports income on cash basis.

(3) Interest subject to special rules

(a) Interest paid in advance

If the indebtedness is payable in periodic amortizations, the amount of interest which

corresponds to the amount of the principal amortized or paid during the year shall be allowed as
deduction in such taxable year.

(b) Interest periodically amortized

(c) Interest expense incurred to

acquire property for use in
trade/business/profession

At the option of the taxpayer, may be allowed as a deduction or treated as a capital

expenditure.

(d) Reduction of interest

expense/interest arbitrage

It is a strategy which takes advantage of the difference in tax rates or tax systems as the
basis for profit.

c) Taxes

(1) Requisites for deductibility

1. It must be paid or incurred within the taxable year.

2. It must be paid or incurred in connection with the taxpayers trade, profession or
business.
3. It must be imposed directly on the taxpayer.
 4. It must not be specifically excluded by law from being deducted from the taxpayers
gross income.

(2) Non-deductible taxes

Taxes not allowed as deduction from gross income to arrive at taxable income:
a. Income tax provided under the NIRC
b. Income taxes imposed by authority of any foreign country

(3)Treatment/of
surcharges/interests/fines/for
delinquency

(4) Treatment of special assessment

Deductible as taxes where these are made for the purpose of:

1. Maintenance or repair of local benefits, if the payment of such assessment is ordinary and
necessary in the conduct of trade, business or profession

2. Constructing local benefits tending to increase the value of the property assessed, the
payments are in the nature of capital expenditures.

(5) Tax credit vis--vis deduction

Tax Credit Tax deduction

Deducted from Phil. income tax Deducted from the gross income

All taxes are allowed to be deducted with the Only foreign income taxes may be claimed as
exception of the taxes expressly excluded credits
 d) Losses

Losses actually sustained during the taxable year and not compensated for by insurance or
other forms of indemnity.

(1) Requisites for deductibility

The loss must be that of the taxpayer.

There must be an actual loss suffered in a closed and completed transaction.

c) The loss must be connected with the taxpayers trade, business or profession.

d) The loss must not be compensated for by insurance or otherwise.

e) The loss must be actually sustained and charge off during the taxable year.
f) In the case of casualty loss, declaration of loss must be filed within 45 days
from the occurrence of the casualty loss.
g) The loss must not be claimed as deduction for estate tax purposes in the estate tax return.

(2) Other types of losses

(a) Capital losses

Losses from sale or exchange of capital assets. Deductible to the extent of capital gains only.

(b) Securities becoming worthless

The loss resulting therefrom to the taxpayer is not considered as a bad debt but as a capital
loss.
(c) Losses on wash sales of stocks or
securities

Not deductible when:

1) A taxpayer who is not a dealer of stocks in trade has disposed shares and
2) Within the period of 60(sixty) days beginning 30 days before the date of such sale and
ending 30 days after such date, the taxpayer has acquired substantially identical stocks or securities.
(d) Wagering losses
 Deductible only to the extent of the gains from such wagering transaction. If there is no
gain from the wagering transaction, the loss therefrom cannot be deducted from gross income.
(e) NOLCO

It is the excess of allowable deductions over gross income of business for any taxable year
which had not been previously offset as deduction from gross income.

It shall be carried over as deduction from gross income for the next 3 consecutive years
following the year of such loss. Provided that:

1. The taxpayer was not exempt from income tax in the year of such net operating loss; and

2. There has been no substantial change in the ownership of the business or enterprise.

e) Bad debts

Debts due to the taxpayer when actually ascertained to be worthless and charged-off within
the taxable year.

They refer to those debts resulting from the worthlessness or uncollectibility, in whole or in
part, of amounts due to the taxpayer by others, arising from money lent or from uncollectible
amounts of income from goods sold or services rendered.

(1) Requisites for deductibility

There must be a valid and subsisting debt.

2) The same must be connected with the taxpayers trade, business or practice of profession.
3) The same must not be sustained in a transaction entered into between related parties.
4) The same must be actually charged-off the books of accounts of the taxpayer as of the
end of the taxable year.
5) The same must be actually ascertained to be worthless and uncollectible as of the end of
the taxable year.
(2) Effect of recovery of bad debts
The taxpayer is obliged to declare as taxable income subsequent recovery of bad debts in
the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad
debts were written off and claimed as deduction from gross income.

f) Depreciation

The gradual diminution in the useful value of tangible property used in trade or business
resulting from exhaustion, wear and tear, and normal obsolescence.
 The term is also applied to amortization of value of intangible assets the use of which in
trade or business is definitely limited in duration.

(1) Requisites for deductibility

The allowance for depreciation must be reasonable

It must be for property arising out of its use or employment in the business or trade, or
out of its not being used temporarily during the year
It must be charged-off during the taxable year;
d) A statement on the allowance must be attached to the return.
The property must have a limited useful life.

(2) Methods of computing depreciation

allowance

(a) Straight-line method

Spreads the total depreciation over the useful life of the asset and generally results in an
equal depreciation per unit of time regardless of the use to which the properties are put.

(b) Declining-balance method

Uses a rate to the declining book value of the asset. Depreciation is largest in amount the
first year and declines in the years thereafter.

(c)Sum-of-the-years-digit method

Requires the application of a changing fraction to the cost basis of the property, reduced by
the estimated residual salvage value.

g) Charitable and other contributions

Requisites for deductibility

a) Must actually be paid or made to the Phil. Government or any of its agencies or political
subdivision or to any domestic corporations or associations.

b) Must be made within the taxable year;

 c) Must not exceed 10% of the individuals taxable income and 5% of the corporations
taxable income before deducting the contribution; and
Must be evidenced by adequate records or receipts.
(2) Amount that may be deducted

Subject to limit Deductible in full

a) Donations to the Philippine government a) Donations to the government of the

or any of its agencies or any political Philippines or to any of its agencies or
subdivision thereof exclusively for public political subdivisions, including fully-owned
purposes; government corporations exclusively to
finance, to provide for, or to be used in
b) Donations to accredited domestic undertaking priority activities in:
corporations or associations organized and
operated exclusively for: Education;
Health;
Religions;
Youth and sports development;
Charitable;
4. Human settlements;
Scientific;

5. Science and culture; and

Youth and sports development;
6. Economic development.
Cultural; or
b) Donations to foreign institutions or
Educational purposes; or for the
international organizations in pursuance or
7. Rehabilitations of veterans; and compliance with agreements, treaties, or
commitments entered into by the
c) Donations to social welfare institutions or
government of the and the foreign laws or
to non-government organizations in
international organizations or in pursuance
accordance with rules and regulations
of special laws, and
promulgated by the Secretary of Finance,
provided no part of the net income of which
c) Donations to certain accredited non-
inures to the benefit of any private
government organization.
stockholders or individual.

h) Contributions to pension trusts

(1) Requisites for deductibility

a) The employer must have established a pension or retirement plan to provide for the
payment of reasonable pensions to its employees;
b) The pension plan is reasonable and actuarially sound.
 c) It must be funded by the employer;

The amount contributed must no longer be subject to its control or disposition; and
The payment has not therefore been allowed as a deduction.

(i) Deductions under special laws

These are deductions usually allowed only for particular business or enterprises and not to
others, or may be allowed for all but are not provided for under the provisions of the NIRC but
under special laws.

4) Optional standard deduction

a) Individuals, except non-resident aliens

A maximum of forty percent (40%) of gross sales or gross receipts during the taxable year.

The cost of sales or the cost of services is not allowed to be deducted for purposes of
determining the basis of the OSD inasmuch as the law is specific as to the basis thereof which states
that for individuals, the basis of the 40% OSD shall be the gross sales or gross receipts and not
gross income.

b) Corporations, except non-resident foreign

corporations

Not exceeding forty percent (40%) of their gross income.

c) Partnerships

1. If the GPP avails of itemized deductions under Sec. 34 of the NIRC in computing
net income, the partners may still claim itemized deductions on their net distributive
share that have not been claimed by the GPP;

2. The partners, however, are not allowed to claim OSD on their share of net income
because the OSD is a proxy for all items of deductions allowed in arriving at taxable income;

3. If the GPP avails of OSD in computing net income, the partners may no longer
claim further deductions from their net distributive share, whether itemized or OSD;

4. The election to claim either the OSD or itemized deductions must be signified in the
income tax return filed for the first quarter of the taxable year; once the election is made, the same
type of deduction must be consistently applied for all succeeding quarters and in the annual
income tax return; and
 5. A taxpayer who is required but fails to file the quarterly income tax return for the
first quarter shall be deemed to have elected to avail of itemized deductions for the taxable year.

5) Personal and additional exemption

a) Basic personal exemptions

Fifty thousand pesos (P50,000) each individual taxpayer.

b) Additional exemptions for taxpayer with

dependents

Twenty-five thousand pesos (P25,000) - each dependent not exceeding four (4).

c) Status-at-the-end-of-the-year rule

1. Taxpayer marries during taxable year - may claim the corresponding BPE in full for such
year.

2. Taxpayer should have additional dependent(s) during taxable year - may claim
corresponding AE in full for such year.

Taxpayer dies during taxable year - his estate may still claim BPE and AE for himself and
his dependent(s) as if he died at the close of such year.

4. If during the taxable year

a. spouse dies, or
b. any of the dependents dies or marries, turns 21 years old or becomes gainfully
employed, taxpayer may still claim same exemptions as if the spouse or any of the
dependents died, or married, turned 21 years old or became gainfully employed at the close
of such year.
d) Exemptions claimed by non-resident aliens

They can be entitled to personal and additional exemptions subject to the rule on reciprocity.

Their foreign country allows personal exemptions to citizens of the Philippines not
residing therein;

File an accurate return of their income from all sources within the Philippines on time;
and

Amount allowable is not to exceed our maximum allowable personal exemption.

6) Items not deductible

 a) General rules

These items are not related to the trade, business or profession of the taxpayer.

b) Personal, living or family expenses

These are personal expenses and not related to the conduct of trade or business.

c) Amount paid for new buildings or for permanent

improvements

These are capital expenditures added to the cost of the property and the periodic
depreciation is the amount that is considered as deductible expense.

d) Amount expended in restoring property

They are capital expenditures or those expenditures that result in obtaining benefits of a
permanent nature.

e) Premiums paid on life insurance policy covering

life or any other officer or employee financially
interested

When the taxpayer is directly or indirectly a beneficiary under such policy.

f) Interest expense, bad debts, and losses from sales

of property between related parties

Interest Expense Bad Debts Losses from sales of

property between related
parties

In general, the amount of
interest paid or incurred
within a taxable year on
indebtedness in connection
with the taxpayer's
profession, trade or business.
In general, debts due to the
taxpayer actually ascertained
to be worthless and charged
off within the taxable year
except those not connected
with profession, trade or
business and those sustained
in a transaction entered into
between parties. Recovery of
bad debts previously allowed
as deduction in the preceding
years shall be included as
(1) Between members of a
family; or
(2) Except in the case of
distributions in liquidation,
between an individual and
corporation more than fifty
percent (50%) in value of the
outstanding stock of which is
owned, directly or indirectly,
by or for such individual; or
(3) Except in the case of
 part of the gross income in
the year of recovery to the
extent of the income tax
benefit of said deduction.
distributions in liquidation,
between two corporations
more than fifty percent
(50%) in value of the
outstanding stock of which is
owned, directly or indirectly,
by or for the same individual
if either one of such
corporations, with respect to
the taxable year of the
corporation preceding the
date of the sale of exchange
was under the law applicable
to such taxable year, a
personal holding company or
a foreign personal holding
company;

(4) Between the grantor and

a fiduciary of any trust; or

(5) Between the fiduciary of

and the fiduciary of a trust
and the fiduciary of another
trust if the same person is a
grantor with respect to each
trust; or

(6) Between a fiduciary of a

trust and beneficiary of such
trust.

g) Losses from sales or exchange or property

In general, losses actually sustained during the taxable year and not compensated for by
insurance or other forms of indemnity:

1. If incurred in trade, profession or business;

2. Of property connected with the trade, business or profession, if the loss arises from fires,
storms, shipwreck, or other casualties, or from robbery, theft or embezzlement.
h) Non-deductible interest

i) Non deductible taxes

j) Non-deductible losses
 1. Losses from illegal transactions
2. Losses from sales or exchanges of property between related taxpayers but the gains are
taxable
k) Losses from wash sales of stock or securities

j. Exempt Corporations

Proprietary educational institutions and hospitals

Government owned or controlled corporations

i. Government Service Insurance System (GSIS),

ii. the Social Security System (SSS),
iii. the Philippine Health Insurance Corporation (PHIC), and
iv. the Philippine Charity Sweepstakes Office (PCSO).

Others

(A) Labor, agricultural or horticultural organization not organized principally for profit;

(B) Mutual savings bank not having a capital stock represented by shares, and cooperative
bank without capital stock organized and operated for mutual purposes and without profit;

(C) A beneficiary society, order or association, operating for the exclusive benefit of the
members such as a fraternal organization operating under the lodge system, or mutual aid
association or a non-stock corporation organized by employees providing for the payment of life,
sickness, accident, or other benefits exclusively to the members of such society, order, or
association, or non-stock corporation or their dependents;

(D) Cemetery company owned and operated exclusively for the benefit of its members;

(E) Non-stock 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;
 (F) Business league chamber of commerce, or board of trade, not organized for profit and
no part of the net income of which inures to the benefit of any private stock-holder, or individual;

(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;

(H) A non-stock and nonprofit educational institution;

(I) Government educational institution;

(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone company, or like organization of a purely local character,
the income of which consists solely of assessments, dues, and fees collected from members for the
sole purpose of meeting its expenses; and

(K) Farmers, fruit growers, or like association organized and operated as a sales agent for the
purpose of marketing the products of its members and turning back to them the proceeds of sales,
less the necessary selling expenses on the basis of the quantity of produce finished by them;

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income, shall
be subject to tax imposed under this Code.

10. Taxation of Resident Citizens, Non-resident Citizens, and Resident Aliens

a. General rule that resident citizens are taxable on income from all
sources within and without the Philippines

A citizen of the Philippines residing therein is taxable on all income derived

from sources within and without the Philippines.

Non-resident citizens

Taxable only on his income derived from sources within the Philippines.`

b. Taxation on Compensation Income

1) Inclusions

a) Monetary compensation

(1) Regular salary/wage

Compensation income derived from an employer-employee relationship in consideration of

services rendered, except in the case of a minimum wage earner.
 (2) Separation pay/retirement benefit not
otherwise exempt

Separation pay received by an employee who voluntarily resigns is subject to income tax.
Retirements benefits may be subject to tax if it does not comply with the provision of Sec. 32
(B)(6)(a).
(3) Bonuses, 13th month pay, and other
benefits not exempt

Amount in excess of Thirty thousand pesos (P30,000.00).

(4) Directors fees

b) Non-monetary compensation

(1) Fringe benefit not subject tax

(1) Fringe benefits which are authorized and exempted from tax under special laws;

(2) Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans;

(3) Benefits given to the rank and file employees, whether granted under a collective
bargaining agreement or not; and

(4) De minimis benefits.

(5) If the grant of fringe benefits to the employee is required by the nature of, or necessary
to the trade, business, or profession of the employer.

(6) If the grant of the fringe benefits is for the convenience of the employer.

2) Exclusions

a) Fringe benefit subject to tax

Any good, service or other benefit furnished or granted in cash or in kind by an employer to
an individual employee such as, but not limited to, the following:

(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference between the
market rate and actual rate granted;
 (6) Membership fees, dues and other expenses borne by the employer for the employee in
social and athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar amounts in
excess of what the law allows.

b) De minimis benefits

Limited to facilities or privileges furnished or offered by an employer to his employees that

are of relatively small value and are offered or furnished by the employer as a means of promoting
the health, goodwill, contentment, or efficiency of his employees.

They include:

Monetized unused vacation leave credits of 1. Private employees:

employees
a. Vacation leave - exempt
up to 10 days

b. Sick leave always taxable

2. Government employees:

Vacation and sick leave are always tax

exempt regardless of the no. of
days.

Medical cash allowance to dependents of Not exceeding P750 per

employees semester or P125 per month

Rice subsidy
P1,500 or one sack of 50-kg rice per month
amounting to not more than P1,500

Uniforms and clothing allowances actual Not exceeding P4,000 per annum
medical benefits

Actual medical benefits Not exceeding P10,000 per annum

 Laundry allowance Not exceeding P300 per month

Employee achievement awards In the form of tangible personal property

other than cash or gift certificate with an
annual monetary value not exceedingP10,000

Gifts given during Christmas and major Not exceeding P5,000 per
anniversary celebrations employee per annum

Flowers, fruits and books or similar items Reasonable value depending

given to employees under certain on the employers capacity
circumstances

Daily meal allowance for overtime work Not exceeding 25% of the basic minimum
wage.

c) 13th month pay and other benefits and payments

specifically excluded from taxable compensation
income

Gross benefits received by officials and employees of public and private entities, the total
exclusion of which shall not exceed Thirty thousand pesos (P30,000) which shall cover:

(a) Benefits received by officials and employees of the national and local government.

(b) Benefits received by employees.

(c) Benefits received by officials and employees not covered by (b)

(d) Other benefits

3) Deductions

Personal exemptions and additional exemptions

Basic personal exemption Additional exemption

Fifty thousand pesos (P50,000) for each Twenty-five thousand pesos (25,000) for
individual taxpayer. each dependent not exceeding four (4).

b) Health and hospitalization insurance

 The amount of premiums not to exceed Two thousand four hundred pesos (P2,400) per
family or Two hundred pesos (P200) a month paid during the taxable year taken by the taxpayer for
himself, including his family who has a gross income of not more than Two hundred fifty thousand
pesos (P250,000) for the taxable year.

In the case of married taxpayers, only the spouse claiming the additional exemption for
dependents shall be entitled to this deduction.

c) Taxation of compensation income of a minimum

wage earner

(1) Definition of Statutory Minimum Wage

The rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the
Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment
(DOLE).
(2) Definition of Minimum Wage Earner

(3) Income also subject to tax exemption:

holiday pay, overtime pay, night shift
differential, and hazard pay

c. Taxation of Business Income/Income from Practice of Profession

Optional Standard Deduction (OSD) or Itemized deductions.

Optional Standard Deductions 10 % of the gross income. May be availed only by

individuals who are not purely compensation income earners. This is in lieu of the itemized
deductions.

d. Taxation of Passive Income

1) Passive income subject to final tax

a) Interest income

i) Treatment of income from long-term

deposits

Subject to a Final Withholding Tax (FWT) at the rate of twenty percent (20%).

b) Royalties

Royalties, except on books, as well as other literary works and musical compositions 20%

Royalties on books literary works and musical compositions 10%

c) Dividends from domestic corporation

 Cash and or property dividend actually or constructively received from a domestic
corporation or from a joint stock company, insurance or mutual fund companies and regional
operating headquarters of multinational companies. 10%

d) Prizes and other winnings

Prizes over P10,000 20%

Prizes less than P10,000 are included in the income tax of the individual subject to the
schedular rate of 5% up to P125,000 + 32% of excess of P500,000.

Other winnings, except PCSO and Lotto, derived from sources within the Philippines 20%

2) Passive income not subject to final tax

Interest income from long-term deposit or investment in the form of savings, common or
individual trust funds, deposit substitutes, investment management accounts and other investments
evidenced by certificates - exempt from final tax.

e. Taxation of capital gains

1) Income from sale of shares of stock of a Philippine

corporation

a) Shares traded and listed in the stock exchange

The gains are not subject to income tax. The tax applicable will be a business tax known as
percentage tax.

A tax at the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross
value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall
be paid by the seller or transferor.

b) Shares not listed and traded in the stock exchange

A final tax as follows::

Not over P100,000..... 5%

Amount in excess of P100,000.. 10%
 2) Income from the sale of real property situated in the
Philippines

A final tax of six percent (6%) based on the gross selling price or current fair market value,
whichever is higher, upon capital gains presumed to have been realized from the sale, exchange, or
other disposition of real property classified as capital assets, including pacto de retro sales and other
forms of conditional sales, by individuals, including estates and trusts xxx.
3) Income from the sale, exchange, or other disposition of
other capital assets

A final tax of 6% on the gross selling price, or the current fair market value at the time of the
sale, whichever is higher.

11. Taxation of Non-resident Aliens Engaged in Trade or Business

a. General rules

A nonresident alien individual engaged in trade or business in the Philippines shall be subject
to an income tax in the same manner as an individual citizen and a resident alien individual, on
taxable income received from all sources within the Philippines.

b. Cash and/or property dividends

10% final tax, on cash and or property dividend actually or constructively received from a
domestic corporation or from a joint stock company, insurance or mutual fund companies and
regional operating headquarters of multinational companies.

c. Capital gains

12. Individual Taxpayers Exempt from Income Tax

a. Senior citizens

A senior Citizen is:

1. any resident citizen of the Philippines

2. at least sixty (60) years old, including those who have retired from both government
offices and private enterprises, and

3. has an income of not more than sixty thousand pesos (P60,000.00) per annum subject to
the review of the National Economic Development Authority(NEDA) every three (3) years.

b. Minimum wage earners

c. Exemptions granted under international agreements

 NRAETB may deduct personal exemption but only to the extent allowed by his country to
Filipinos not residing therein, and shall not exceed the aforementioned amounts. NRANETB
cannot claim any personal or additional exemption.

13. Taxation of Domestic Corporations

a. Tax payable

1) Regular tax

Thirty percent (30%) of taxable income.

2) Minimum corporate income tax (MCIT)

a) Imposition of MCIT

Two percent (2%) on the gross income.

b) Carry forward of excess minimum tax

Any excess of the minimum corporate income tax (MCIT) over the normal income tax shall
be carried forward on an annual basis and credited against the normal income tax for the three (3)
immediately succeeding taxable years.

c) Relief from the MCIT under certain conditions

The imposition of MCIT may be suspended, upon showing that the corporation suffers
losses due to any of the following causes:

Prolonged labor dispute

Legitimate business reverses
Force majeure

d) Corporations exempt from the MCIT

Proprietary Educational Institution

Non-profit hospitals
Depository banks under expended FCDU
International carriers
Offshore Banking Units
ROHQs of resident foreign corp.
 e) Applicability of the MCIT where a corporation is
governed both under the regular tax system and a
special income tax system

Only one may be imposed.

A minimum corporate income tax of 2% of the gross income xxx is imposed xxx on a
corporation xxx when the minimum income tax is greater than the (net income tax)

b. Allowable deductions

1) Itemized deductions

Business expenses which are ordinary and necessary in the conduct of business.

2) Optional standard deduction

May be taken by an individual, in lieu of itemized deductions.

c. Taxation of Passive Income

1) Passive income subject to tax

a) Interest from deposits and yield or any other

monetary benefit from deposit substitutes and
from trust funds and similar arrangements and
royalties

Twenty percent (20%) final tax.

b) Capital gains from the sale of shares of stock not

traded in the stock exchange

On the net capital gain:

Not over P100,000

Final Tax of 5%

On any amount in excess of P100,000

plus 10% Final tax on the excess

c) Income derived under the expanded foreign

currency deposit system

Ten percent (10%) final tax.

 Exempt - any income of nonresidents, whether individuals or corporations, from
transactions with depository banks.

d) Intercorporate dividends

Not subject to tax.

e) Capital gains realized from the sale, exchange, or

disposition of lands and/or buildings

Six percent (6%) final tax- on the gross selling price, or the current fair market value at the
time of the sale, whichever is higher.

2) Passive income not subject to tax

d. Taxation of Capital Gains

1) Income from sale of shares of stock

2) Income from the sale of real property situated in the

Philippines

3) Income from the sale, exchange, or other disposition of

other capital assets

e. Tax on proprietary educational institutions and hospitals

Ten percent (10%) on their taxable income.

Thirty percent (30%) - if gross income from unrelated trade, business or other activity
exceeds fifty percent (50%) of the total gross income derived from all sources.

f. Tax on government-owned or controlled corporations, agencies or

instrumentalities

Such rate of tax imposed upon corporations or associations engaged in similar business,
industry, or activity, except

1. The Government Service Insurance System (GSIS),

2. The Social Security System (SSS),
3. The Philippine Health Insurance Corporation (PHIC), and
4. The Philippine Charity Sweepstakes Office (PCSO).

14. Taxation of Resident Foreign Corporations

a. General rule

Resident foreign corporations are subject to any or some of the following:

1. Capital Gains Tax

2. Final Tax on Passive Income
3. Normal Tax [or] Minimum Corporate Income Tax (MCIT) [or] Gross Income
Tax (GIT)
4. Branch Profit Remittance Tax
b. With respect to their income from sources within the Philippines

c. Minimum corporate income tax

d. Tax on certain income

(1) Interest from deposits and yield or any other monetary

benefit from deposit substitutes, trust funds and similar
arrangements and royalties

(2) Income derived under the expanded foreign currency

deposit system

(3) Capital gain from sale of shares of stock not traded in the
stock exchange

(4) Intercorporate dividends

15. Taxation of Non-resident Foreign Corporations

a. General rule

Non-resident foreign corporations are subject to any or some of the following:

1. Capital Gains Tax

2. Final Tax on Passive Income
3. Final Tax on [Other] Gross Income from sources within the Philippines

b. Tax on certain income

(1) Interest on foreign loans

 Twenty percent (20%) final withholding tax.

(2) Intercorporate dividends

Fifteen percent (15%) - as long as the country in which the nonresident foreign corporation
is domiciled allows a tax credit for taxes deemed paid in the Philippines equivalent to 15%.

Thirty percent (30%) withholding tax - if the country within which the NRFC is domiciled
does not allow a tax credit.

(3) Capital gains from sale of shares of stock not traded in the
stock exchange

16. Improperly Accumulated Earnings of Corporations

Every corporation formed or availed for the purpose of avoiding the income tax with
respect to its shareholders or the shareholders of any other corporation, by permitting earnings and
profits to accumulate instead of being divided or distributed.

17. Exemption from tax on corporations

18. Taxation of Partnerships

Rules:

1. Subject to the same rules on corporations, but is not subject to the improperly
accumulated earnings tax [IAET]. The partnership must file quarterly and year-end income tax
returns.

2. The taxable income of the partnership, less the normal corporate income tax thereon, is
the distributable net income of the partnership.

3. Ten percent (10%) final tax - the share of a partner in the partnerships distributable
net income of a year deemed to have been actually or constructively received by the partners in
the same taxable year taxed to them in their individual capacity, whether actually distributed or not,
withheld by the partnership.

19. Taxation of General Professional Partnerships

Rules:

1. Not subject to income tax.

2. The partners shall only be liable for income tax only in their separate and individual
capacities.
 3. For purposes of computing the distributive share of the partners, the net income of
the GPP shall be computed in the same manner as a corporation.

4. Each partner shall report as gross income his distributive share, actually or
constructively received, in the net income of the partnership.

5. The share of a partner shall be subject to a creditable withholding income tax of 15%.

20. Withholding tax

a. Concept

The requirement that taxes imposed or prescribed by the NIRC are to be deducted and
withheld by the payor-corporations and/or persons from payments made to payees-corporations
and/or persons for the former to pay the same directly to the BIR. R. Hence, the taxes are collected
practically at the same time the transaction is made or when the taxable transaction occurs. It is
taxation at source.

b. Kinds

Withholding of final tax of certain income Withholding of creditable

tax at source
As to income subject of the system

1. Passive incomes 1. Compensation Income

2. Fringe benefits 2. Professional/talent fees

3. Rentals

4. Cinematographic film rentals and other

payments

5.Income payments to certain contractors

As to whether or not income should be reported as part

of the gross income

The recipient may not report the said income in his The employee is required to include the
gross income because the tax income in his gross income
withheld constitutes final and full settlement of the
tax liability

As to the effect of the tax withheld

The tax withheld cannot be claimed as tax credit The tax withheld can be
 claimed as a tax credit or
may be deducted from the
tax due or payable

As to filing of ITR

If the only source of income is There is a necessity to file on

subject to final tax, no need to file an the earner
ITR on the part of the earner

c. Withholding of VAT

(a) The government or any of its political subdivisions, instrumentalities or agencies,

including government-owned or controlled corporations (GOCCs) shall, before making payment on
account of each purchase of goods and/or services taxed at twelve percent (12%) VAT, deduct and
withhold a final VAT due at the rate of five percent (5%) of the gross payment thereof.

The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the
seller. The remaining seven percent (7%) effectively accounts for the standard input VAT for sales
of goods or services to government or any of its political subdivisions, instrumentalities or agencies,
including GOCCs, in lieu of the actual input VAT directly attributable or ratably apportioned to
such sales. Should actual input VAT attributable to sale to government exceeds seven percent (7%)
of gross payments, the excess may form part of the sellers expense or cost. On the other hand, if
actual input VAT is less than seven percent (7%) of gross payment, the difference must be closed to
expense or account.

(b) The government or any of its political subdivisions, instrumentalities or agencies,

including government-owned or controlled corporations(GOCCs), as well as private corporations,
individuals, estates and trusts, whether large or non-large taxpayers, shall withhold twelve percent
(12%) VAT, starting February 1, 2006, with respect to the following payments:

Lease or use of properties or property rights owned by non-residents; and

Other services rendered in the Philippines by non-residents.

d. Filing of return and payment of taxes withheld

1) Return and payment in case of government employees

The return of the amount deducted and withheld upon any wage shall be made by the officer
or employee having control of the payment of such wage, or by any officer or employee duly
designated for the purpose.
 2) Statements and returns

(A) Requirements Every employer required to deduct and withhold a tax shall furnish
to each such employee in respect of his employment during the
calendar year, on or before January thirty-first (31st) of the
succeeding year, or if his employment is terminated before the close
of such calendar year, on the same day of which the last payment of
wages is made, a written statement confirming the wages paid by the
employer to such employee during the calendar year, and the
amount of tax deducted and withheld under this Chapter in respect
of such wages. The statement required to be furnished by this
Section in respect of any wage shall contain such other information,
and shall be furnished at such other time and in such form as the
Secretary of Finance, upon the recommendation of the
Commissioner, may, by rules and regulation, prescribe.

(B) Annual Every employer required to deduct and withhold the taxes in respect
Information Returns. of the wages of his employees shall, on or before January thirty-first
(31st) of the succeeding year, submit to the Commissioner an annual
information return containing a list of employees, the total amount
of compensation income of each employee, the total amount of
taxes withheld therefrom during the year, accompanied by copies of
the statement referred to in the preceding paragraph, and such other
information as may be deemed necessary.

e. Final withholding tax at source

f. Creditable withholding tax

1) Expanded withholding tax

2) Withholding tax on compensation

Every employer must withhold from compensation paid, an amount computed in

accordance with the regulations.
 Exception:

Where such compensation income of an individual:

1. Does not exceed the statutory minimum wages; or

2. Five thousand pesos (P5,000) monthly - whichever is higher

f. Timing of withholding

It is payable when the obligation becomes due, demandable or legally enforceable.

At the time the income is paid or payable or accrued or recorded as an expense or asset
whichever is applicable in the payors books, whichever comes first.

B. Estate Tax

1. Basic principles

The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct
from the obligation to pay the same. Upon the death of the decedent, succession takes place and the
right of the State to tax the privilege to transmit the estate vests instantly upon death.

Not a direct tax on the property transmitted or transferred although its amount is based
thereon.

2. Definition

A graduated tax imposed on the privilege of the decedent to transmit property at death and
is based on the entire net estate, regardless of the number heirs and relations to the decedent.

3. Nature

A tax imposed on the privilege of transmitting property upon the death of the owner. The
liability for estate tax is generated by death and accrues at the time of death. It is governed by the
law in force at the time of death notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary. Consequently, all properties that are included in the
taxable estate should be valued at the moment of death of a decedent.

4. Purpose or object

Benefit-Received Theory

For the performance of services rendered by the government in the distribution of the estate
of the decedent and other benefits that accrue to the estate and the heirs, the state collects the tax.

Redistribution of Wealth Theory

 A contributing factor to the inequalities in wealth and income. The imposition of death tax
reduces the property received by the successor bringing about a more equitable distribution of
wealth in society.

Ability-to pay- theory

The receipt of inheritance places assets in the hands of the heirs and beneficiaries thereby
creating an ability to pay the tax and thus to contribute to governmental income; and

Privilege theory or State Partnership theory

Inheritance is not a right but a privilege granted by the state and large estates have been
acquired only with the protection of the state. The State, as a passive and silent partner in the
accumulation of property has the right to collect the share which is properly due to it

5. Time and transfer of properties

At the time of death.

6. Classification of decedent

a) resident decedent
b) non resident alien decedent

7. Gross estate vis--vis Net estate

Gross estate Net estate

The total value of all property, whether real Determined by deducting from the value of
or personal, tangible or intangible belonging the gross estate the following items of
to the decedent at the time of his death, deductions:
situated within or outside the Philippines,
where such decedent was a resident or 1. Expenses, losses indebtedness, and taxes.
citizen of the Philippines.
2. Property previously taxed.
In the case of a nonresident alien decedent, it
shall include only property situated in the 3. Transfers for public use.
Philippines.
4. The Family Home

5. Standard Deductions

6. Medical Expenses

7. Amount received by heirs under R.A.

 4917

8. Net share of the surviving spouse in the

conjugal partnership or community property.

8. Determination of gross estate and net estate

Decedent is a resident or nonresident citizen, Decedent is a non-resident alien

or a resident alien

All properties, real or personal, tangible or
intangible, wherever situated.
Only properties situated in the Philippines
provided that, intangible personal
property is subject to the rule of
reciprocity provided for under Section
104 of the NIRC.

9. Composition of gross estate

Decedent is a resident or nonresident citizen, Decedent is a non-resident alien

or a resident alien

Value at the time of death Value at the time of death of all:

of all:
1. Tangible personal property situated in
1. Real property wherever situated the Philippines

2. Personal property, tangible or intangible, 2. Intangible personal property with situs

wherever situated in the Philippines unless exempted on
the basis of reciprocity
3. To the extent of the interest therein of the
decedent at the time of his death.

10. Items to be included in gross estate

a. Decedent's interest It includes any interest having value or

capable of being valued, transferred by the
decedent at his death.

b. Transfer in contemplation of death A transfer motivated by the thought of

impending death although death may not be
imminent:
 1. When the decedent has, at any time,
made a transfer in contemplation of or
intended to take effect in possession or
enjoyment at or after death; or

2. When decedent has, at any time, made a

transfer under which he has retained for
his life or for a period not ascertainable
without reference to his death or any
period which does not in fact end before
his death:

a. Possession, enjoyment or right to

income from the property; or

b. The right alone or in conjunction

with any other person to designate
the person who will possess or enjoy
the property or income there from.

c. Revocable transfer A transfer by trust or otherwise, where the

enjoyment thereof was subject at the date of
his death to any change through the exercise
of a power to alter or amend or revoke or
terminate such transfer by:

a. Decedent alone;

b. By the decedent in conjunction with

any other person without regard to when or
from what source the decedent acquired
such power, to alter, amend, revoke or
terminate; or

c. Where any such power is relinquished

in contemplation of the decedents death
other than a bone fide sale for an adequate
and full consideration in money
or moneys worth.

d. Property passing under general power The right to designate the person who will
appointment succeed to the property of the prior
decedent, in favor of anybody, including
himself, his estate, his creditors, or the

e. Proceeds of life insurance
f. Prior interests
g. Transfers of insufficient consideration
11.Deductions from estate
Decedent is a resident citizen, non-resident
citizen, or resident alien
Ordinary deductions:
a. Funeral Expenses
b. Medical expenses
c. Judicial expenses of the testamentary or In case of deductions for expenses, losses,
intestate proceedings.
d. Claims against the decedents estate
e. Claims against insolvent persons
f. Unpaid mortgages indebtedness
creditors of his estate. If the donation
contains a provision of reversion to the
donor, this is similar to a revocable transfer.
When the beneficiary is:
a. The estate of the decedent, his executor or
administrator regardless of whether the
designation is revocable or irrevocable; and
b. A third person, other than the decedents
estate, executor, or administrator provided
that the designation is revocable.
All transfers, trusts, estates, interests, rights,
powers and relinquishment of powers made,
created, arising existing, exercised or
relinquished before or after the effectivity of
the Tax Code.
Only the excess of the fair market value of
the property at the time of the decedents
death over the consideration received shall
be included in the gross estate.
Decedent is a nonresident alien
The deductions allowed to citizens or
residents of the Philippines are also extended
to a non-resident alien decedent with respect
to his estates situated in the Philippines at
the time of his death.
indebtedness and taxes, the amount of the
allowable deduction is limited only to the
proportion of such deductions with the value
of such part of his gross estate which at the
time of his death, is situated in the
Philippines, bears to the value of his entire
 gross estate wherever situated.
g. Casualty Losses

h. Unpaid Taxes

i. Vanishing deduction
j. Transfer for public use

k. Family home

l. Standard deduction equivalent to P1,

000,000.00

m. Amounts received by heirs under R.A.

No. 4917 from the decedents employer as a
consequence of the death of the decedent
employee provided that such amount is
included in the gross estate of the decedent.

n. Net share of the surviving spouse in the

conjugal partnership or community property.

o. Tax credit for estate tax paid to a foreign

country.

12. Exclusions from estate

The following properties are excluded from gross estate:

a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by

the insured.
b) Proceeds of a group insurance policy taken out by a company for its employees.
c) Proceeds of insurance policies issued by the GSIS to government officials and employees.
d) Benefits accruing under the Social Security Act.
e) Proceeds of life insurance payable to the heirs of deceased members of the military
personnel of the United States Army or Philippine Army under laws administered by the United
State veterans Administration.
f) Accident insurance proceeds.
g) Separate property of the surviving spouse.
 13. Tax credit for estate taxes paid in a foreign country

The estate tax imposed by the tax code shall be credited with the amount of any estate tax
paid to a foreign country.

14. Exemption of certain acquisitions and transmissions

a. The first P200, 000.00 value of the estate.

b. The merger of the usufruct in the owner of the naked title.
c. The transmission from the first heir, legatee, or donee in favor of another beneficiary in
accordance with the desire of the predecessor.
d. All bequest, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which inured to the benefit of any individual and provided
that not more than 30% of the said bequest, etc. shall be used by such institution for administration
purposes.
e. Intangible personal property of non-resident aliens under the principle of reciprocity.
f. Retirement benefits of employees of private firms from private pension plans approved by
the BIR.
g. Amount received for war damages.
h. Grants and donations to the Intramuros administration.

15. Filing of notice of death

Within two (2) months after the decedents death to the Commissioner of Internal Revenue
where the gross value of the estate exceeds twenty thousand pesos (P 20,000.00).

16. Estate tax return

To be filed by the executor, administrator, or any of the legal heirs;

In cases of:

1. Transfers subject to tax

2. Where gross value of estate exceeds P200,000

3. Where estate consists of registered or registrable property, regardless of

Amount.
C. Donors Tax

1. Basic principles
 It is levied, assessed, collected and paid upon the transfer of any person, resident or non-
resident, of the property by gift inter vivos. It applies whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real or personal, tangible or
intangible.

Donors tax shall be imposed whether the transfer is in trust or otherwise, whether the gift is
direct or indirect and whether the property is real or personal, tangible or intangible.

A gift is merely subjected to donors tax.

2. Definition

A tax on the privilege of transmitting ones property or property rights to another or others
without adequate and full valuable consideration.

3. Nature

It is an excise tax on the privilege of the donor to give or on the transfer of property by way
of gift inter vivos. It is not a property tax.

4. Purpose or object

To:

a. Raise revenues

b. Tax the wealthy and to reduce certain other excise taxes

c. Discourage inter vivos transfers of property which could reduce mortis causa transfers on
which a higher tax can be collected

d. Prevent avoidance of income tax throughthe device of splitting income among

numerous donees who are usually members of a family or into many trusts, with the donor thereby
escaping the effect of the progressive rates of income taxation

5. Requisites of valid donation

a. The donor must have capacity to donate

b. There must be an intent to donate
c. There must be delivery, either actual or constructive
d. The donee must accept the donation
 6. Transfers which may be constituted as donation

a. Sale/exchange/transfer of property for insufficient consideration

If bona fide sale No value shall be included in the gross

estate.

If not a bona fide sale The excess of the fair market value at the
time of death over the value of the
consideration received by the decedent shall
form part of his gross estate.

If inter vivos transfer is proven fictitious Total value of the property at the time of
death included in the gross estate.

b. Condonation/remission of debt

If the creditor condones the indebtedness of the debtor the following rules apply:

1. On account of debtors services to the creditor the same is in taxable income to the
debtor.

2. If no services were rendered but the creditor simply condones the debt, it is taxable gift
and not a taxable income.

7. Transfer for less than adequate and full consideration

The amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.

8. Classification of donor

Taxable within and outside Philippines Taxable only within the Philippines

a. Resident citizen a. Non-resident aliens

b. Non-resident citizen b. Foreign corporation

c. Resident alien

d. Domestic corporation
 9. Determination of gross gift

All property, real or personal, tangible or intangible, that was given by the donor to the
donee by way of gift, without the benefit of any deduction.

10. Composition of gross gift

Resident citizen, non-resident citizen, and Non-resident alien

resident alien

a. Real property wherever situated; a. Real property situated within the

Philippines;
b. Personal property wherever situated,
tangible or intangible. b. Personal property:

i. Tangible property situated within the

Philippines

ii. Intangible personal property with situs

in the Philippines unless exempted on the
basis of reciprocity.

11. Valuation of gifts made in property

Personal property Real property

The fair market value of the property given The fair market value at the time of donation
at the time of the gift. or the value fixed by the assessor, whichever
is higher.

12. Tax credit for donors taxes paid in a foreign country

The tax imposed upon a donor who was a citizen or a resident at the time of donation shall
be credited with the amount of any donor's tax of any character and description imposed by the
authority of a foreign country.

13. Exemptions of gifts from donors tax

1. Donation for political campaign purposes

2. Certain gifts made by residents

 3. Certain gifts made by non-residents
4. Donation of intangibles subject to reciprocity

5. Donation for athletes prizes and awards

6. Donation under the Adopt-a-School Program

7. Exemption under other special laws.

14. Person liable

Any person, resident or nonresident, of the property transferred by gift.

Any person making a donation unless the donation is specifically exempted under NIRC or
other special laws, is required for every donation to accomplish under oath a donors tax return in
duplicate.

15. Tax basis

The total net gifts made during the calendar year.

D. Value-Added Tax (VAT)

1. Concept

VAT is a percentage tax imposed at every stage of the distribution process on the sale,
barter, or exchange, or lease of goods or properties, and on the performance of service in the course
of trade or business, or on the importation of goods, whether for business or non-business
purposes.

It is a business tax levied on certain transactions involving a wide range of goods,

properties, and services, such tax being payable by the seller, lessor, or transferor. The tax is so-
called because it is imposed on the value not previously subjected to VAT.

It is also an excise tax, or a tax on the privilege of engaging in the business of selling goods
or services, or in the importation of goods.

The taxpayer determines his tax liability by computing the tax on the gross selling price or
gross receipt and subtracting or crediting the earlier VAT on the purchase or importation of goods
or on the sale of service against the tax due on his own sale.

2. Characteristics
 It is an indirect tax, the amount of which may be shifted to or passed on the buyer,
transferee, or lessee of the goods, properties or services.

It is equitable: The law is equipped with a threshold margin (P1.5M). Also, basic marine
and agricultural products in their original state are still not subject to tax. Congress also provided
for mitigating measures to cushion the impact of the imposition of the tax on those previously
exempt. Excise taxes on petroleum products and natural gas were reduced. Percentage tax on
domestic carriers was removed. Power producers are now exempt from paying franchise tax.

VAT, by its very nature, is regressive. But the Constitution does not really prohibit
the imposition of indirect taxes which is essentially regressive. What it simply provides is that
Congress shall evolve a progressive system of taxation.
Other Characteristics:

a. It is consumption-based
b. It is imposed on the value-added in each stage of distribution
c. It is a credit-invoice method value-added tax
d. It is not a cascading tax.

3. Impact of tax

The seller upon whom the tax has been imposed.

4. Incidence of tax

It is on the final consumer, the place at which the tax comes to rest. The tax is shifted to the
buyer of the goods, properties, or services.

5. Tax credit method

The input tax shifted by the seller to the buyer is credited against the buyers output taxes
when he in turn sells the taxable goods, properties or services.

This method relies on invoices, an entity can credit against or subtract from the VAT
charged on its sales or outputs the VAT paid on its purchases, inputs and imports.

If at the end of a taxable period, the output taxes charged by a seller are equal to the input
taxes passed on by the suppliers, no payment is required. It is when the output taxes exceed the
input taxes that the excess has to be paid. If however, the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from acquisition of capital goods, any excess over
the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue
taxes.
6. Destination principle
 Under this doctrine, goods and services are taxed only in the country where they are
consumed. No VAT shall be imposed to form part of the cost of goods destined outside the
territorial border of the taxing authority. Thus, exports are zero-rated, while
imports are taxed.

Actual shipment of the goods from the Philippines to a foreign country is a precondition of
an export sale following the destination principle being adhered to by our VAT system.

VAT is imposed in the country in which the products or services are actually consumed or
used. Exports exempt, imports taxable.

7. Persons liable

A. Any person who, in the regular course of trade or business

1) sells, barters, exchanges goods or properties,

2) leases goods or properties,
3) renders services; and
4) any person who imports goods.

Consequently, any sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.

8. VAT on sale of goods or properties

a. Requisites of taxability of sale of goods or properties:

1. There is an actual or deemed sale, barter or exchange of goods or personal properties for
valuable consideration;

2. The sale is in the course of trade or business or exercise of profession in the Philippines;

3. The goods or properties are located in the Philippines and are for use or consumption
therein; and

4. The sale is not exempt from VAT under Section 109 of NIRC, special law, international
agreement binding upon the government of the Philippines.

9. Zero-rated sales of goods or properties, and effectively zero-rated sales of

goods or properties

The gross selling price of goods or properties is multiplied by 0% VAT rate. Zero-rated sale
of goods or properties by a VAT-registered person is a taxable transaction for VAT purposes but
the sale does not result in any output tax.
 However, the input tax on the purchases of goods, properties or services related to such
zero-rated sale shall be available as tax credit or refund.

Zero-rated sales of goods by a VAT-registered person:

Export Sales

Foreign Currency Denominated Sale

Sale to persons or entities which is VAT exempt under special laws or international
agreements to which the Philippines is a signatory
Transactions subject to zero-rated (0%)

10. Transactions deemed sale

a. Transfer, use or consumption not in the course of business of

goods/properties originally intended for sale or use in the course
of business.

e.g. when a VAT-registered person withdraws goods from his business for his personal use.

b. Distribution or transfer to shareholders, investors or creditors

1. Shareholders or investors as share in the profits of the VAT-registered persons; or

2. Creditors in payment of debt.

c. Consignment of goods if actual sale not made within 60 days from

date of consignment

Consigned goods returned by the consignee within the 60-day period are not deemed sold.

d. Retirement from or cessation of business with respect to

inventories on hand

As of the date of such retirement or cessation, whether or not the business is continued by
the new owner or successor. Examples are change of ownership of the business and dissolution
of a partnership and creation of a new partnership which takes over the business.
 11. Change or cessation of status as VAT-registered person

VAT shall apply to goods disposed of or existing as of a certain date if under the
circumstances, the status of a person as a VAT-registered person changes or is terminated.

a. Subject to VAT

Subject to output tax - applicable to goods/properties originally intended for sale or use in
business and capital goods which are existing as of the occurrence of the following:

1) Change of business activity from VAT taxable status to

VAT-exempt status

2) Approval of request for cancellation of a registration due

to reversion to exempt status

3) Approval of request for cancellation of registration due to

desire to revert to exempt status after lapse of 3
consecutive years

b. Not subject to VAT

1) Change of control of a corporation

By the acquisition of the controlling interest of such corporation by another stockholder or

group of stockholders.

The goods or properties used in the business or those comprising the stock-in trade
of the corporation will not be considered sold, bartered or exchanged despite the change in the
ownership interest. However, exchange of property by corporation acquiring control for the shares
of stocks of the target corporation is subject to VAT.

2) Change in the trade or corporate name

Change in the trade or corporate name of the business.

3) Merger or consolidation of corporations

The unused input tax of the dissolved corporation, as of the date of merger or consolidation,
shall be absorbed by the surviving or new corp.
 12. VAT on importation of goods

VAT shall be assessed and collected upon goods brought into the Philippines, whether or
not goods are for use in business.

a. Transfer of goods by tax exempt persons

The subsequent purchasers, transferees or recipients of such imported goods shall be

considered as importers who shall be liable for the tax on importation.

The tax due on such importation shall constitute a lien on the goods superior to all charges
or liens on the goods, irrespective of the possessor thereof.

13. VAT on sale of service and use or lease of properties

a. Requisites for taxability

1. There is a sale or exchange of service or lease or use of property enumerated in the law or
other similar services;

2. The service is performed or to be performed in the Philippines;

3. The service is in the course of trade of taxpayers trade or business or profession;

4. The service is for a valuable consideration actually or constructively received; and

5. The service is not exempt under the Tax Code, special law or international agreement.

14. Zero-rated sale of services

1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BSP.

2) Services other than those mentioned in the preceding paragraph rendered to a person
engaged in business conducted outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are performed, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP.

3) Services rendered to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively subjects the supply
of such services to zero percent (0%) rate.
 4) Services rendered to persons engaged in international shipping or international air
transport operations, including leases of property for use thereof; Provided, however, that the
services referred to herein shall not pertain to those made to common carriers by air and sea relative
to their transport of passengers, goods or cargoes from one place in the Phil. to another place in the
Phil., the same being subject to 12% VAT under Sec. 108.

5) Services performed by subcontractors and/or contractors in processing, converting, of

manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production.

6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign
country and;

7) Sale of power or fuel generated through renewable sources of energy such as, but not
limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and hydrogen fuels. Zero-rating shall apply strictly to
the sale of power or fuel generated through renewable sources of energy, and shall not extend to the
sale of services related to the maintenance or operation of plants generating said power.

15. VAT exempt transactions

a. VAT exempt transactions, in general

It involves goods or services which, by their nature, are specifically listed in and expressly
exempted from VAT under the Tax Code, without regard to the tax status of the party to the
transaction.

b. Exempt transactions, enumerated

1. Sale/ import of agricultural, marine food products in original state; of livestock and
poultry.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and
copra shall be considered in their original state.

2. Sale/ import of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds.

3. Import of personal and household effects of Phil resident returning from abroad and
nonresident citizens coming to resettle in the Philippines

4. Import of professional instruments and implements, wearing apparel, domestic animals,

and personal household effects belonging to persons coming to settle in the Philippines, for their
own use and not for sale, barter or exchange.

5. Services subject to percentage tax.

 6. Services by agricultural contract growers and milling for others of palay into rice, corn into
grits and sugar cane into raw sugar;

7. Medical, dental, hospital and veterinary services except those rendered by

professionals.
8. Educational services rendered by private educational institutions, duly accredited by
DEPED, CHED, TESDA, and those rendered by government educational institutions.

9. Services rendered by individuals pursuant to an employer-employee relationship;

10. Services rendered by regional or area headquarters established in the Philippines by

multinational corporations which act as supervisory, communications and coordinating centers for
their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines;

11. Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except those under P.D. No. 529.

12. Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce. Exemption includes importation of
direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce.

13. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority.

14. Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with
the Cooperative Development Authority are exempt but their importation of machineries and
equipment, including spare parts thereof, to be used by them are subject to vat.

15. Export sales by persons who are not VAT- registered;

16. Sale of real properties the ff. sales are exempt:

a. Sale of real properties NOT primarily held for sale to customers or held for lease
in the ordinary course of trade or business.

b. Sale of real properties utilized for low-cost housing

c. Sale of real properties utilized for socialized housing.

d. Sale of residential lot valued at P1.5M and below, or house & lot and other
residential dwellings valued at P2.5M and below, where the instrument of
sale/transfer/disposition was executed on or after July 1, 2005.

17. Lease of residential units with a monthly rental per unit not exceeding P10K,
regardless of the amount of aggregate rentals received by the lessor during the year. Lease of
residential units where the monthly rental per unit exceeds P10K but the aggregate of such
rentals of the lessor during the year do not exceed One Million Five Hundred Pesos (P1.5M)
shall likewise be exempt from VAT, however, the same shall be subjected to three
percent (3%) percentage tax.

In cases where a lessor has several residential units for lease, some are leased out for
a monthly rental per unit of not exceeding P10K while others are leased out for more than P10K per
unit, his tax liability will be as follows:

a. The gross receipts from rentals not exceeding P10K per month per unit shall be
exempt from VAT regardless of the aggregate annual gross receipts.

b. The gross receipts from rentals exceeding P10K per month per unit shall be
subject to VAT if the aggregate annual gross receipts from said units only exceeds P1.5M.
Otherwise, the gross receipts will be subject to the 3% tax.

18. Sale, importation, printing or publication of books and any newspaper, magazine review
or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements;

19. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport operations.

20. Importation of fuel, goods, and supplies by persons engaged in international shipping or
air transport operations.

21. Services of banks, non-bank financial intermediaries performing quasi-banking functions

and other non-bank financial intermediaries; and

22. Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of P1,500,0000.

16. Input tax and output tax, defined

Input tax Output tax

The VAT due from or paid by a VAT- The VAT due on the sale or lease of taxable
registered person in the course of his trade goods or properties or services by any
or business on importation of goods or person registered or required to register
local purchase of goods or services, including under Section 236 of the Code.
lease or use of property, from a VAT-
registered person. It includes the transitional
input tax determined in accordance with
Section 111 of this Code.

It includes input taxes which can be directly

attributed to transactions subject to the VAT
plus a ratable portion of any input tax which
 cannot be directly attributed to either the
taxable or exempt activity. Input tax must be
evidenced by a VAT invoice or official
receipt issued by a VAT- registered person in
accordance with Secs. 113 and 237 of the
Tax Code.

17. Sources of input tax

a. Purchase or importation of goods

b. Purchase of real properties for which a VAT has actually been paid

c. Purchase of services in which VAT has actually been paid

d. Transactions deemed sale

e. Presumptive input

The gross value of the purchases of primary agricultural products used as inputs to production by
persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing
refined sugar, cooking oil and packed noodle-based instant meals.

Transitional input

The value of the beginning inventory or the actual value-added tax paid on such goods, materials
and supplies, whichever is higher.

18. Persons who can avail of input tax credit

(a) Purchaser - upon consummation of sale and on importation of goods or properties; and

(b) Importer - upon payment of the value-added tax prior to the release of the goods from
the custody of the Bureau of Customs.

However, in the case of purchase of services, lease or use of properties, the

input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation,
rental, royalty or fee.

19. Determination of output/input tax; VAT payable; Excess input tax

credits
 a. Determination of output tax

Sellers of goods or properties:

Gross selling price (X) VAT rate

Sellers of service:

Gross receipts (X) VAT rate

b. Determination of input tax creditable

The sum of the excess input tax carried over from the preceding month or quarter and the
input tax creditable to a VAT-registered person during the taxable month or quarter shall be reduced
by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as
purchase returns or allowances and input tax attributable to exempt sale.

The claim for tax credit shall include not only those filed with the Bureau of Internal
Revenue but also those filed with other government agencies.

c. Allocation of input tax on mixed transactions

A VAT-registered person who is also engaged in transactions not subject to Vat shall be
allowed to recognize input tax credit on transactions subject to Vat as follows:

1. All the input taxes that can be directly attributed to transactions subject to VAT may be
recognized for input tax credit. Input taxes that can be directly attributable to VAT taxable sales of
goods and services to the Government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) shall not be credited
against output taxes arising from sales to non-Government entities; and

2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt
transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and
only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax
credit.

d. Determination of the output tax and VAT payable and

computation of VAT payable or excess tax credits

Output tax
Less: Input tax
VAT payable/ excess tax credits

20. Substantiation of input tax credits

 Transactions Required Support

Input taxes on domestic purchases of goods VAT invoice

or properties made in the course of trade or
business

Input tax on purchases of real property

a. Cash/deferred basis Public instrument together with the VAT

invoice for the entire selling price and
non-VAT Official Receipt for the initial and
succeeding payments.

b. Installment basis Public instrument and VAT Official Receipt

for every payment

Input tax on domestic purchases of service VAT Official Receipt

Input tax on importation of goods Import entry or other equivalent document

showing actual payment of VAT on the
imported goods

Transitional input tax Inventory of goods as

shown in a detailed list to
be submitted to the BIR

Input tax on deemed sale transaction Required invoices

Input tax from payments made to non- Monthly Remittance Return of Value Added
residents Tax Withheld filed by the resident payor in
behalf of the non-resident evidencing
remittance of VAT due which was withheld
by the payor.

Advance VAT on sugar Payment order showing payment of the

advance VAT
 21.Refund or tax credit of excess input tax

a. Who may claim for refund/apply for issuance of tax credit

certificate (TCC)

Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax.

b. Period to file claim/apply for issuance of TCC

Within two (2) years after the close of the taxable quarter when the sales were made.

c. Manner of giving refund

Upon warrants drawn by the Commissioner or by his duly authorized representative without
the necessity of being countersigned by the Chairman, Commission on audit, subject to post audit
by the Commission on Audit.

d. Destination principle or Cross-border doctrine

Destination principle Cross border doctrine

Goods and services are taxed only in the Mandates that no VAT shall be imposed to
country where these are consumed form part of the cost of the goods destined
for consumption outside the territorial
border of the taxing authority.

22. Invoicing requirements

a. Invoicing requirements in general

For every sale, a VAT-registered person shall issue an invoice or receipt.
Aside from the information required under Section 237, the following information shall be
indicated in the invoice or receipt:
 (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax.

b. Invoicing and recording deemed sale transactions

Transaction Invoicing Requirement

Transfer, use or consumption not in Memorandum entry in the subsidiary sales

the course of business of goods or journal to record withdrawal of goods for
properties originally intended for sale personal use
or for use in the course of business

Distribution or transfer to
shareholders/investors or creditors
Invoice, at the time of the transaction,
Consignment of goods if actual sale is which should include all the info prescribed
not made within 60 days in Sec. 113 (B)

Retirement from or cessation of An inventory shall be prepared and

business with respect to all goods in submitted to the RDO who has jurisdiction
hand over the taxpayers principal place of
business not later than 30 days after
retirement or cessation from the business.
An invoice shall be prepared for the entire
inventory, which shall be the basis of the
entry into the subsidiary sales journal. The
invoice need not enumerate the specific
items appearing in the inventory regarding
the description of the goods. If the business
is to be continued by the new owners or
successors, the entire amount of output tax
on the amount deemed sold shall be allowed
as input taxes.
 c. Consequences of issuing erroneous VAT invoice or VAT official
receipt

1. In case of non-VAT registered person who issues a VAT invoice/receipt shall be held
liable to:

a. payment of percentage tax if applicable;

b. payment of VAT without input tax;

c. 50% surcharge on tax due; and

d. the purchaser shall be allowed to recognize an input tax credit provided that the
invoice/official receipt contains the required information.

2. In case of VAT-registered who issues a VAT invoice/official receipt for a VAT exempt
sale without the words VAT Exempt Sale shall be held liable to pay 12% VAT.

23.Filing of return and payment

Every person liable to pay the VAT shall file a quarterly return of the amount of his gross
sales or receipts within 25 days following the close of each taxable quarter prescribed for each
taxpayer.

Required to file VAT return:

1. Every person or entity who in the course of trade or business, sells or leases goods,
properties, and services subject to VAT, if the aggregate amount of actual gross
sales or receipts exceed P1.5 million for any twelve month period

2. A person required to register as VAT taxpayer but failed to register

3. Any person who imports goods

4. Professional practitioners.

VAT-registered shall pay the VAT on a monthly basis. The monthly return shall be filed not
later than the 20th day following the end of each month.

24. Withholding of final VAT on sales to government

The Government or any of its political subdivisions, instrumentalities or agencies,

including government owned or controlled corporations (GOCCs) shall, before making payment on
account of its purchase of goods and/or services taxed at 12% shall deduct and withhold a final
VAT of 5% of the gross payment.
 E. Tax Remedies under the NIRC

1. Taxpayers Remedies

a. Assessment

1) Concept of assessment

The notice that the amount therein stated is due as a tax, with a demand for payment within
a stated period of time.

The official action of the administrative officer in determining the tax due from a taxpayer.
a) Requisites for valid assessment

The assessment must:

1. Be in writing and signed by the BIR;

2. Contain the law and the facts on which the assessment is made; and
3. Contain a demand for payment within the prescribed period.
b) Constructive methods of income determination

1. Percentage method The computed amount of revenues based on

the percentage computation is compared to
the amount of revenues reflected on the
return. The percentages used may be
obtained from the taxpayer, industry
publication, prior years audit results, or third
parties. The comparison will provide an
indication on the possibility of revenue being
understated.

2. Net worth method A method of reconstructing income which is

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
has understated his income for that year.
The net worth on a fixed starting date is
compared with the net worth on a fixed
ending date. Any increase in net worth is
presumed to be income not declared for tax
purposes.
 The bank records of the taxpayer are
3. Bank deposit method
analyzed and the BIR estimates income on
the basis of the total bank deposits after
eliminating non-income items. This method
stands on the premise that deposits represent
taxable income unless otherwise explained as
being non-taxable items. This method may
be used only where the BIR has been legally
allowed access to the taxpayers bank
records.

Assumes that the excess of a taxpayers

4. Cash expenditure method
expenditures during the tax period over his
reported income for that period is taxable to
the extent not disproved otherwise

The determination or verification of gross

5. Unit and value method
receipts may be computed by applying price
and profit figures to the known ascertainable
quality of business of the taxpayer.

6. Third party information or access to The BIR may require third parties, public or
records method private to supply information to the BIR,
and thus, obtain on a regular basis from any
person other than the person whose internal
revenue tax liability is subject to audit or
investigation, or from any office or officer of
the national and local governments,
government agencies and instrumentalities
including the Bangko Sentral ng Pilipinas and
government-owned or controlled
corporations, any information such as, but
not limited to, costs and volume of
production, receipts or sales and gross
incomes of taxpayers, and the names ,
addresses, and financial statements of
corporations, mutual fund companies,
insurance companies, regional operating
headquarters or multinational companies,
joint accounts, associations, joint ventures or
consortia and registered partnerships, and
their members.
 7. Surveillance and assessment method A letter sent by the Bureau of Internal
Revenue to a taxpayer asking him to explain
within a period of fifteen (15) days from
receipt why he should not be the subject of
an assessment notice. It is part of the due
process rights of a taxpayer.

c) Inventory method for income determination

d) Jeopardy assessment

A delinquency tax assessment made without the benefit of a complete or partial investigation
by a 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, or

b. Substantiate all or any of the deductions, exemptions or credits claimed in his return.

An assessment made demanding immediate payment of the tax due without the usual
formalities in instances when the Commissioner believes that if the tax will be collected under
normal procedures, the collection of such tax is at risk which might result in loss to the government.
e) Tax delinquency and tax deficiency

Delinquency Tax Deficiency Tax

A taxpayer is considered delinquent in the a. The amount by which the tax imposed by law
payment of taxes when: as determined by the CIR or his authorized
representative exceeds the amount shown as tax
a. Self-assessed tax per return filed by the by the taxpayer upon his return; or
taxpayer on the prescribed date was not paid at
all or only partially paid; or b. If no amount is shown as tax by the taxpayer
upon his return is made by the taxpayer, then the
b. Deficiency tax assessed by the BIR becomes amount by which the tax exceeds the amounts
final and executory. previously assessed or collected without
assessment as deficiency.

Collection

Can immediately be collected

administratively through the
issuance of a warrant of
distraint and levy, and/or judicial
action
 Civil Action

The filing of a civil action for the collection of the delinquent The filling of a civil action at
tax in the ordinary court is a proper remedy the ordinary court for
collection during the pendency
of protest may be the subject of
a motion to dismiss. In addition
to a motion to dismiss, the
taxpayer must file a petition
for review with the CTA to toll
the running of the
prescriptive period

Penalties

A delinquent tax is subject to administrative A deficiency tax is generally not subject to the
penalties such as 25% surcharge, interest, and 25% surcharge, although subject to interest and
compromise penalty compromise penalty

2) Power of the Commissioner to make assessments and

prescribe additional requirements for tax administration
and enforcement

a) Power of the Commissioner to obtain information,

and to summon/examine, and take testimony of
persons

The Commissioner is authorized:

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

(B) To obtain on a regular basis from any person other than the person whose internal
revenue tax liability is subject to audit or investigation, or from any office or officer of the national
and local governments, government agencies and instrumentalities, including the Bangko Sentral ng
Pilipinas and government-owned or -controlled corporations, any information such as, but not
limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of corporations, mutual fund companies, insurance
companies, regional operating headquarters of multinational companies, joint accounts, associations,
joint ventures of consortia and registered partnerships, and their members;
 (C) To summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the books of
accounts and other accounting records containing entries relating to the business of the person liable
for tax, or any other person, to appear before the Commissioner or his duly authorized
representative at a time and place specified in the summons and to produce such books, papers,
records, or other data, and to give testimony;

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

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

The Commissioner has no authority to inquire into bank deposits other than as provided for
in Section 6(F) of this Code.

3) When assessment is made

When it is released, mailed or sent by the collector of internal revenue to the taxpayer within
the three-year or ten-year period, as the case may be.

a) Prescriptive period for assessment

(1) False, fraudulent, and non-filing of returns

Ten (10) years from the discovery of the falsity, fraud or omission to file the return.

b) Suspension of running of statute of limitations

Periods suspended:

(a) periods for assessment

(b) beginning of distraint or levy
(c) proceeding in court for collection
2) Grounds for suspension of prescriptive periods:

a) Commissioner is prohibited from making the assessment or beginning distraint or

levy or a proceeding in court and for 60 days thereafter

b) Taxpayer requests for Reinvestigation which is granted

 c) Taxpayer cannot be located in the address given in the return filed, except if the
taxpayer informs the Commissioner of a change in address the prescriptive period will not
be suspended

d) When the warrant is duly served upon the taxpayer and no property could be
located

e) When the taxpayer is out of the Phils.

f) When there is an Answer filed by the BIR to the petition for review in the CTA
where the court justified this by saying that in the answer filed by the BIR, it prayed for the
collection of taxes.

4) General provisions on additions to the tax

a) Civil penalties
b) Interest

Additions to the tax consist of the:

(1) civil penalty, otherwise known as surcharge, which may either be 25% or 50 % of the tax
depending upon the nature of the violation;

(2) interest either for a deficiency tax or delinquency as to payment

(3) other civil penalties or administrative fines such as for failure to file certain information
returns and violations committed by withholding agents.

c) Compromise penalties

They are certain amounts of money paid in lieu of criminal prosecution and cannot be
imposed in the absence of a showing that the taxpayer consented thereto.

5) Assessment process

a) Tax audit

The process of examining, going over, or scrutinizing the books and records of the taxpayer
to ascertain the correctness of the tax declared and paid by the taxpayer.

It can only be performed upon a Letter of Authority issued by the Commissioner or

Regional Director.

b) Notice of informal conference

A written notice informing a taxpayer that the findings of the audit conducted on his books
of accounts and accounting records indicate that additional taxes or deficiency assessments have to
be paid.
 If, after the culmination of an audit, a Revenue Officer recommends the imposition of
deficiency tax assessments, this recommendation is communicated by the Bureau to the taxpayer
concerned during an informal conference called for this purpose, the taxpayer shall have 15 days
from receipt of the notice of informal conference to explain his side.

c) Issuance of preliminary assessment notice (PAN)

Communication issued by the Regional Assessment Division or any other concerned BIR
office, informing a taxpayer who has been audited of the findings of the Revenue Officer, following
the review of these findings. The assessment shall be in writing, and should inform the taxpayer of
the law and the facts on which the assessment is made; otherwise, the assessment is void.

d) Exceptions to Issuance of PAN

(a) The finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return; or

(b) A discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or

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

(d) The excise tax due on excisable articles has not been paid; or

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

e) Reply to PAN

Within 15 days, the taxpayer has to file a written reply contesting the proposed assessment if
he disagrees with the findings of the PAN.

Failure of the taxpayer to file a reply would now enable the RO to issue a FAN. However
no liability for additional or deficiency tax arises from such failure.

f) Issuance of formal letter of demand and assessment

notice/final assessment notice

Notice of Assessment is a formal letter of demand where a declaration of deficiency taxes is

issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of
time, or whose reply to the PAN was found to be without merit.

g) Disputed assessment
 When the taxpayer, indicates its protest against the delinquent assessment of the RO and
requests for reconsideration, through a letter. After the request is filed and received by the BIR, the
assessment becomes a disputed assessment.

.
j) Administrative decision on a disputed assessment

The taxpayer may elevate the protest to the CIR within 30 days from receipt of the decision
for a request for reconsideration and that his case is referred to the Bureaus Appellate Division.
Otherwise, it becomes final and appeal to the CTA may be taken.

6) Protesting assessment

It is the act by the taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as shown in the notice of
assessment and letter of demand.

a) Protest of assessment by taxpayer

(1) Protested assessment

The taxpayer files an administrative protest against the assessment. Such protest may either
be a request for reconsideration or for reinvestigation.

Prescriptive period provided by law to make collection by distraint or levy or by a

proceeding in court is interrupted once a taxpayer protests the assessment and requests for its
cancellation.

(2) When to file a protest

Within thirty (30) days from receipt of assessment.

(3) Forms of protest

Request for reconsideration Request for reinvestigation

A claim for re-evaluation of the assessment
based on existing records without need of
additional evidence. It may involve a
question of fact or law or both. It does not
toll the statute of limitations.
A claim for re-evaluation of the assessment
based on newly-discovered or additional
evidence. It may also involve a question of
fact or law or both. It tolls the statute of
limitations.

Content and validity of protest

The protest must be:

 1. In writing;

2. Addressed to the CIR;

3. Accompanied by a waiver of the Statute of Limitations in favor of the Government.

Without the waiver the prescriptive period will not be tolled;

4. State the facts, applicable law, rules and regulations or jurisprudence on which the
protest is based otherwise the protest would be void; and

5. Must contain the following:

a. Name of the taxpayer and address for the immediate past 3 taxable years;

b. Nature of the request, specifying the newly discovered evidence to be presented;

c. Taxable periods covered by the assessment;

d. Amount and kind of tax involved and the assessment notice number;

e. Date of receipt of the assessment notice or letter of demand;

f. Itemized statement of the finding to which the taxpayer agrees (if any) as basis for
the computation of the tax due, which must be paid upon filing of the protest;

g. Itemized schedule of the adjustments to which the taxpayer does not agree;

h. Statements of facts or law in support of the protest; and

i. Documentary evidence as it may deem necessary and relevant to support its

protest to be submitted 60 days from the filing thereof.

b) Submission of documents within 60 days from

filing of protest

All relevant documents should be filed, otherwise assessment becomes final and cannot be
appealed.
c) Effect of failure to protest

It makes the FAN final and executory, and the taxpayer loses his right to contest the
assessment, at the administrative and judicial levels.

d) Period provided for the protest to be acted upon

Within one hundred eighty (180) days from submission of documents.

7) Rendition of decision by Commissioner

 a) Denial of protest

Direct Denial Indirect Denial

The decision of the Commissioner or his a. Commissioner did not rule on the
duly rep. shall taxpayers MR of the assessment it was
only when respondent received summons on
a. state the facts, applicable law, rules and the civil action for the collection of
regulations or jurisprudence on which his deficiency income tax that the period to
protest is based, otherwise the protest shall appeal commenced to run.
be considered void and without force and
effect, in which case the same shall not be b. Referral by the Commissioner of request
considered a decision a disputed assessment for reinvestigation to the Solicitor General
and
c. Reiterating the demand for immediate
b. that the same is his final decision. payment of the deficiency tax due to
taxpayers continued refusal to execute
waiver

d. Preliminary collection letter may serve as

assessment notice

(1) Commissioners actions equivalent to

denial of protest

(a) Filing of criminal action against

taxpayer
(b) Issuing a warrant of distraint and
levy

These actions of the CIR serve as bases for appeal to the CTA.

(2) Inaction by Commissioner

The protest is not acted upon by the Commissioner within 180 days from submission of
documents.

8) Remedies of taxpayer to action by Commissioner

a) In case of denial of protest

Appeal the decision to the Court of Tax Appeals (CTA) within 30 days from receipt of
decision denying the protest.
 b) In case of inaction by Commissioner within 180
days from submission of documents

The taxpayer has two alternative options:

1. File a petition for review with the CTA within 30 days after the expiration of the
180-day period; or

2. Wait for the final decision of the CIR on the disputed assessment and appeal the
final decision to the CTA within 30 days from the receipt of the decision.

c) Effect of failure to appeal

1. The decision or assessment becomes final and executory.

2. In an action for the collection of the tax by the government, the taxpayer is barred from
re-opening the question already decided.

3. The assessment is considered correct which may be enforced by summary or judicial

remedies.

4. In a proceeding for collection of tax by judicial action, the taxpayers defenses are similar
to those of the defendant in a case for the enforcement of a judgment by judicial action.

5. The assessment which has become final and executory cannot be superseded by a
new assessment.

b. Collection

1) Requisites

Collection is only allowed when there is already a final assessment made for the
determination of the tax due.

Assessments are deemed final when:

1. The taxpayer failed to file a protest 30 days from receipt of the assessment

2. After the 180 day period and the CIR has not yet acted on the protest the taxpayer fails to
appeal it

3. After 30 days from the receipt of the decision of the CIR the taxpayer fails to appeal.

2) Prescriptive periods

Assessment was made False or fraudulent return or failure to file

a return,
 By distraint or levy or by a proceeding in A proceeding in court for the collection of
court - within three (3) years following the such tax may be filed without assessment - at
assessment released, mailed, or sent. any time within ten (10) years after the
discovery of the falsity, fraud or omission.

3) Distraint of personal property including garnishment

a) Purchase by the government at sale upon distraint

a. When the amount for the bid property under distraint is not equal to the amount of the
tax;
b. When the amount for the bid is very much less than the actual market value of the articles
for sale;
The property purchased may be resold by the Commissioner or his deputy.

b) Report of sale to Bureau of Internal Revenue (BIR)

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

c) Constructive distraint to protect the interest of the

government

The Commissioner may place under constructive distraint the property of a delinquent
taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is
intending to leave the Philippines or to remove his property therefrom or to hide or conceal his
property or to perform any act tending to obstruct the proceedings for collecting the tax due or
which may be due from him.

The constructive distraint of personal property shall be affected 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 Commissioner.

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

4) Summary remedy of levy on real property

a) Advertisement and sale

1. Twenty days after levy, the officer conducting the proceedings shall proceed to advertise
the property or a usable portion thereof as may be necessary to satisfy the claim and cost of the sale
and such advertisement shall be for a period of at least 30 days.
2. The notice of sale shall:
Be posted at the main entrance of the municipal building; and
public and conspicuous place in the barrio or district; and
be published once a week for three consecutive weeks in a newspaper of general
circulation.

3. Right of Pre-emption At any time before the day fixed for the sale, the taxpayer may
discontinue all proceedings by paying the taxes, penalties, and interest.
4. 5 days after the sale, a return by the distraining or levying officer of the proceedings shall
be entered upon the records of the Revenue Collection Officer (RCO), the RDO and Revenue
Regional Director.
5. A certificate of sale shall be delivered to the purchaser.
6. Excess of the proceeds of the sale shall be delivered to the taxpayer.
b) Redemption of property sold

Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall
have the right of paying to the Revenue District Officer the amount of the public taxes, penalties,
and interest thereon from the date of delinquency to the date of sale, together with interest on said
purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date
of redemption, and such payment shall entitle the person paying to the delivery of the certificate
issued to the purchaser and a certificate from the said Revenue District Officer that he has thus
redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser
the amount by which such property has thus been redeemed, and said property thereafter shall be
free from the lien of such taxes and penalties.
 The owner shall not, however, be deprived of the possession of the said property and shall
be entitled to the rents and other income thereof until the expiration of the time allowed for its
redemption.

c) Final deed of purchaser

In case the taxpayer shall not redeem the property, the Revenue District Officer shall, as
grantor, execute a deed conveying to the purchaser so much of the property as has been sold, free
from all liens of any kind whatsoever, and the deed shall succinctly recite all the proceedings upon
which the validity of the sale depends.

5) Forfeiture to government for want of bidder

a) Remedy of enforcement of forfeitures

Action to contest forfeiture of chattel

In case of the seizure of personal property under claim of forfeiture, the owner desiring to
contest the validity of the forfeiture may, at any time before sale or destruction of the property,
bring an action against the person seizing the property or having possession thereof to recover the
same, and upon giving proper bond, may enjoin the sale; or after the sale and within six (6) months,
he may bring an action to recover the net proceeds realized at the sale.

b) Resale of real estate taken for taxes

The Commissioner shall have charge of any real estate obtained by the Government of the
Philippines in payment or satisfaction of taxes, penalties or costs or in compromise or adjustment of
any claim therefore, and said Commissioner may, upon the giving of not less than twenty (20) days
notice, sell and dispose of the same of public auction or dispose of the same at private sale.

In either case, the proceeds of the sale shall be deposited with the National Treasury, and an
accounting of the same shall be rendered to the Chairman of the Commission on Audit.

c) When property to be sold or destroyed

Upon forfeiture, distilled spirits, liquors, cigars, cigarettes, other manufactured products of
tobacco, and all apparatus used in or about the illicit production of such articles may be destroyed by
order of the Commissioner, when the sale of the same for consumption or use would be injurious to
public health or prejudicial to the enforcement of the law.
Forfeited property shall not be destroyed until at least twenty (20) days after seizure.

d) Disposition of funds recovered in legal

proceedings or obtained from forfeiture
 All judgments and monies recovered and received for taxes, costs, forfeitures, fines and
penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are
required to be paid and shall be accounted for and dealt with the same way.

6) Further distraint or levy

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

7) Tax lien

A legal claim or charge on property, either real or personal, established by law as a security in
default of the payment of taxes.

8) Compromise

Authority of the Commissioner to compromise

and abate taxes

Compromise the payment of any internal Abate or cancel a tax liability

revenue tax

When: When:

1. There is reasonable doubt as to the validity 1. The tax or any portion thereof appears to
of the claim against the taxpayer; or be unjustly or excessively assessed; or

2. The financial position of the taxpayer 2. The administration and collection costs
demonstrates a clear inability to pay the involved do not justify the collection of the
assessed tax. amount due.

9) Civil and criminal actions

a) Suit to recover tax based on false or fraudulent

returns

If tax is collected under an assessment that the list, statement or return is false/fraudulently
made, it cannot be recovered by any suit unless it is proved that the said list, statement or return was
not false nor fraudulent & did not contain any understatement or undervaluation.

c. Refund

Grounds and requisites for refund

Grounds Requisites
 a. Tax is erroneously or illegally collected.
a. There must be a written claim with the
CIR, as it would enable the CIR to correct
b. Sum collected is excessive or in any the errors of his subordinate and to notify
manner wrongfully collected. the government;

c. Penalty is collected without authority. b. Must be a categorical claim for refund or

credit;

c. Must be filed within 2 years after the

payment of the tax or penalty otherwise no
refund or credit could be taken. No suit or
proceeding shall be instituted after the
expiration of the 2 year period regardless of
any supervening cause that may arise after
payment; and

d. Present proof of payment of the tax.

2) Requirements for refund as laid down by cases

a) Necessity of written claim for refund

This requirement is mandatory.

Except:

Where on the face of the return upon which payment is made, such payment appears clearly
to have been erroneous.

b) Claim containing a categorical demand for

reimbursement

c) Filing of administrative claim for refund and the

suit/proceeding before the CTA within 2 years
from date of payment regardless of any
supervening cause

The requirement is a condition precedent and non-compliance therewith bars recovery.

It refers not only to the administrative claim that the taxpayer should file within 2 years
from date of payments with the BIR, but also the judicial claim or the action for refund the
taxpayer should commence with the CTA.

3) Legal basis of tax refunds

Legal principle of quasi-contracts or solutio indebiti.

 The Government is within the scope of the principle of solutio indebiti.
4) Statutory basis for tax refund under the Tax Code

a) Scope of claims for refund

The Commissioner may credit or refund taxes:

a) Erroneously or illegally assessed or collected internal revenue taxes

b) Penalties imposed without authority
c) Any sum alleged to have been excessive or in any manner wrongfully collected.

b) Necessity of proof for claim or refund

Refund claim partakes of the nature of an exemption which cannot be allowed unless
granted in the most explicit and categorical language.

Failure to discharge burden of giving proof is fatal to claim.

It must be shown that payment was an independent single act of voluntary payment of a
tax believed to be due, collectible and accepted by the government, and which therefore, become
part of the state moneys subject to expenditure and perhaps already spent or appropriated.

c) Burden of proof for claim of refund

Written claim for refund or tax credit filed by the taxpayer with the Commissioner.

d) Nature of erroneously paid tax/illegally assessed

collected

Taxpayer pays under the mistake of fact, as for instance in a case where he is not aware of
the existing exemption in his favor at the time payments were made.

A tax is illegally collected if payments are made under duress.

e) Tax refund vis--vis tax credit

Tax refund Tax credit

Requires a physical return of the sum Generally refers to an amount that is

erroneously paid by the taxpayer. subtracted directly from ones total tax
liability, an allowance against the tax itself, or
a deduction from what is owned.
The taxpayer to whom the tax is refunded
would have the option, among others, to Reduces the tax due, including whenever
invest for profit the returned sum, an option applicable the income tax that is
not proximately available if the taxpayer determined after applying the corresponding
chooses instead to receive a tax credit. tax rates to taxable income.
 f) Essential requisites for claim of refund

1. The claim is filed with the Commissioner of Internal Revenue within the two-year period
from the date of the payment of the tax.
2. It is shown on the return of the recipient that the income payment received was declared
as part of the gross income; and
3. The fact of withholding is established by a copy of a statement duly issued by the payee
showing the amount paid and the amount of tax withheld therefrom.
5) Who may claim/apply for tax refund/tax credit

Taxpayer/withholding agents of non-resident

foreign corporation

A withholding agent is subject to and liable for deficiency assessments, surcharges and
penalties should the amount of the tax withheld be finally found to be less than the amount that
should have been withheld under the law.

A person liable for tax has been held to be a person subject to tax and properly
considered a taxpayer. xxx By any reasonable standard, such a person should be regarded as a
party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes.

6) Prescriptive period for recovery of tax erroneously or

illegally collected

Two (2) years from the date of payment of the tax or penalty.

7) Other consideration affecting tax refunds

a) Taxpayer may file an action for refund in the CTA even before the Commissioner decides
his pending claim in the BIR.

b) Suspension of the 2-year prescriptive period may be had when:

i. there is a pending litigation between the two parties (government and taxpayer) as
to the proper tax to be paid and of the proper interpretation of the taxpayers charter in
relation to the disputed tax; and

ii. the commissioner in that litigated case agreed to abide by the decision of the
Supreme Court as to the collection of taxes relative thereto.

c) Even if the 2-year period has lapsed, the same is not jurisdictional and may be suspended
for reasons of equity and other special circumstances.
 d) 2-year prescriptive period for filing of tax refund or credit claim computed from date of
payment of tax of penalty except in the following:

i. Corporations:

2-year prescriptive period for overpaid quarterly income tax is counted not
from the date the corporation files its quarterly income tax return, but from the date
the final adjusted return is filed after the taxable year.

ii. Taxes payable in installment:

2-year period is counted form the payment of the last installment.

iii. Withholding Taxes

Prescriptive period counted not from the date the tax is withheld and
remitted to the BIR, but from the end of the taxable year.

iv. VAT Registered Person whose sales are zero-rated or effectively zero-rated

2-year period computed from the end of the taxable quarter when the sales
transactions were made.

e) Interest on Tax Refund:

The Government cannot be required to pay interest on taxes refunded to the taxpayer
unless:
i. The Commissioner acted with patent arbitrariness
ii. In case of Income Tax withheld on the wages of employees.

2. Government Remedies

a. Administrative remedies

1) Tax lien

2) Levy and sale of real property

Levy - is the seizure of real property and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent taxpayer.

The requisites are the same as that of distraint.

 3) Forfeiture of real property to the government for want of
bidder

Implies a divestiture of property without compensation, in consequence of a default or

offense.

Includes the idea of not only losing but also having the property transferred to another
without the consent of the owner and wrongdoer.

4) Further distraint and levy

5) Suspension of business operation

6) Non-availability of injunction to restrain collection of tax

No court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the Code.

Exception:
Injunction may be issued by the CTA in aid of its appellate jurisdiction.

b. Judicial remedies

Civil Action Criminal Action

1. By filing a civil case to collect internal Generally resorted to by the BIR when the
revenue taxes in regular courts summary remedies for the collection of taxes
have proven ineffective and futile.
2. By filing an answer to the petition for
review filed by the taxpayer with the CTA Instituted not to demand payment but to
 penalize taxpayer for the violation of the
NIRC.

3. Statutory Offenses and Penalties

a. Civil penalties

They are imposed in addition to the tax required to be paid.

1) Surcharge

A civil penalty imposed by law as an addition to the main tax required to be paid. It is not a
criminal penalty but a civil administrative sanction provided primarily as safeguard for the protection
of the State revenue and to reimburse the government for the expenses of investigation and the loss
resulting from the taxpayers fraud.

A surcharge added to the main tax is subject to interest.

2) Interest

a) In General

Assessed and collected on any unpaid amount of tax at the rate of twenty percent (20%) per
annum from the date prescribed for payment until the amount is fully paid.

b) Deficiency interest

The interest due on any amount of tax due or installment thereof which is not paid on or
before the date prescribed for its payment computed at the rate of 20% per annum, from the date
prescribed for its payment until it is fully paid.

c) Delinquency interest

The interest of 20% per annum required to be paid in case of failure to pay:

(1) The amount of the tax due on any return to be filed, or

(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the
notice and demand of the Commissioner.
 d) Interest on extended payment

If any person required to pay the tax is qualified and elects to pay the tax on installment but
fails to pay the tax or any installment hereof, or any part of such amount or installment on or before
the date prescribed for its payment, or where the Commissioner has authorized an extension of time
within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected
interest at the rate prescribed on the tax or deficiency tax or any part thereof unpaid from the date
of notice and demand until it is paid.

4. Compromise and Abatement of taxes

a. Compromise

Involves a mere reduction of the tax.

b. Abatement

A cancelation of the entire liability.

 G. Organization and Function of the Bureau of Internal Revenue

1. Rule-making authority of the Secretary of Finance

a. Authority of Secretary of finance to promulgate rules and

regulations

Upon recommendation of the Commissioner, for the effective enforcement of the

provisions of the Code.

b. Specific provisions to be contained in rules and regulations

(1) The time and manner in which Revenue Regional Director shall canvass their respective
Revenue Regions for the purpose of discovering persons and property liable to national internal
revenue taxes, and the manner in which their lists and records of taxable persons and taxable objects
shall be made and kept;

(2) The forms of labels, brands or marks to be required on goods subject to an excise tax,
and the manner in which the labelling, branding or marking shall be effected;

(3) The conditions under which and the manner in which goods intended for export, which
if not exported would be subject to an excise tax, shall be labelled, branded or marked;

(4) The conditions to be observed by revenue officers respecting the institutions and
conduct of legal actions and proceedings;

(5) The conditions under which goods intended for storage in bonded warehouses shall be
conveyed thither, their manner of storage and the method of keeping the entries and records in
connection therewith, also the books to be kept by Revenue Inspectors and the reports to be made
by them in connection with their supervision of such houses;

(6) The conditions under which denatured alcohol may be removed and dealt in, the
character and quantity of the denaturing material to be used, the manner in which the process of
denaturing shall be effected, so as to render the alcohol suitably denatured and unfit for oral intake,
the bonds to be given, the books and records to be kept, the entries to be made therein, the reports
to be made to the Commissioner, and the signs to be displayed in the business ort by the person for
whom such denaturing is done or by whom, such alcohol is dealt in;
(7) The manner in which revenue shall be collected and paid, the instrument, document or
object to which revenue stamps shall be affixed, the mode of cancellation of the same, the manner
in which the proper books, records, invoices and other papers shall be kept and entries therein made
by the person subject to the tax, as well as the manner in which licenses and stamps shall be
gathered up and returned after serving their purposes;

(8) The conditions to be observed by revenue officers respecting the enforcement of Title
III imposing a tax on estate of a decedent, and other transfers mortis causa, as well as on gifts and
such other rules and regulations which the Commissioner may consider suitable for the enforcement
of the said Title III;
 (9) The manner in which tax returns, information and reports shall be prepared and reported
and the tax collected and paid, as well as the conditions under which evidence of payment shall be
furnished the taxpayer, and the preparation and publication of tax statistics;

(10) The manner in which internal revenue taxes shall be paid through the collection officers
of the Bureau of Internal Revenue or through duly authorized agent banks which are hereby
deputized to receive payments of such taxes and the returns, papers and statements that may be filed
by the taxpayers in connection with the payment of the tax.

c. Non-retroactivity of rulings

If the revocation, modification or reversal will be prejudicial to the taxpayers, except:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith.

2. Power of the Commissioner to suspend the business operation of a

taxpayer

III. Local Government Code of 1991, as amended

A. Local Government Taxation

1. Fundamental principles

a. Taxation shall be uniform in each LGU

b. Taxes, fees, charges and other impositions shall be:
 1. Equitable and based on the taxpayers ability to pay.
2. For public purpose.
3. Not unjust, excessive, oppressive or confiscatory.
4. Not contrary to law, public policy, national economic policy, or in restraint of
trade.
c. The collection of local taxes, fees, charges and other impositions shall in no case be Let to
any private person;

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

e. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

2. Nature and source of taxing power

a. Grant of local taxing power under the Local Government Code

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

b. Authority to prescribe penalties for tax violations

The sanggunian of a local government unit is authorized to prescribe fines or other penalties
for violation of tax ordinances but in no case shall such fines be less than One thousand pesos
(P1,000.00) nor more than Five thousand pesos (P5,000.00), nor shall imprisonment be less than
one (1) month nor more than six (6) months. Such fine or other penalty, or both, shall be imposed
at the discretion of the court.

The sangguniang barangay may prescribe a fine of not less than One hundred pesos (P100.00)
nor more than One thousand pesos (P1,000.00).

c. Authority to grant local tax exemptions

Local government units may, through ordinances duly approved, grant tax exemptions,
incentives or reliefs under such terms and conditions as they may deem necessary.
 d. Withdrawal of exemptions

Tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or -controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the effectivity of this Code.

e. Authority to adjust local tax rates

LGUs are given authority to adjust the tax rates, but the adjustment should be made not
oftener than once every 5 years but in no case shall the adjustment exceed 10% of the rates fixed
under the LGC.
f. Residual taxing power of local governments

LGUs may exercise the power to levy taxes, fees or charges on any base or subject not
otherwise specifically enumerated herein or taxed under the

1. Local Government Code;

2. National Internal Revenue Code; or
3. Other applicable laws.

g. Authority to issue local tax ordinances

The power to impose a tax, fee, or charge or to generate revenue shall be exercised by the
sanggunian of the local government unit concerned through an appropriate ordinance.

3. Local taxing authority

a. Power to create revenues exercised thru LGUs

Local governments are authorized to impose and collect the following charges:

Reasonable fees and charges for services rendered.

Public Utility Charges if:
Owned, operated and maintained
Within their jurisdiction

Tools, Fees or Charges for:

Use of public road, pier or wharf, waterway bridge, ferry or

telecommunication system
Funded and constructed by the local government
 b. Procedure for approval and effectivity of tax ordinances

1. The procedure applicable to local government ordinances in general should be observed.

The following procedural details must be complied with:

a. Necessity of quorum

b. Submission for approval by the local chief executive

c. The matter of veto and overriding the same

d. Publication and effectivity

2. Public hearings are required before any local tax ordinance is enacted.

3. Within 10 days after their approval, publication in full for 3 consecutive days in a
newspaper of general circulation. In the absence of such newspaper in the province, city or
municipality, then the ordinance may be posted in at least two conspicuous and publicly accessible
places.

4. Scope of taxing power

a. Each local government unit shall exercise its power to create its own sources of revenue
and to levy taxes, fees, and charges, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall exclusively accrue to it.

b. All local government units are granted general powers to levy taxes, fees or charges on any
base or subject not otherwise specifically enumerated herein or taxed under the provisions of the
NIRC, as amended, or other applicable laws. The levy must not be unjust, excessive, oppressive,
confiscatory or contrary to a declared national economic policy.

c. No such taxes, fees or charges shall be imposed without a public hearing having been held
prior to the enactment of the ordinance.

d. Copies of the provincial, city, and municipal tax ordinances or revenue measures shall be
published in full for three consecutive days in a newspaper of local circulation or posted in at least
two conspicuous and publicly accessible places.
5. Specific taxing power of local government unit (LGUs)

a. Taxing powers of provinces

1) Tax on transfer of real property ownership

Transaction taxed Sale, barter, or any other mode of transferring ownership
of, or title to, real property

Rate At not more than 50% of 1% total consideration.

Exception from tax The sale, transfer or other disposition of real property
pursuant to R.A. 6657.

2) Tax on business of printing and publication

Transaction taxed Business of printing and publication of books, cards,

posters, leaflets, handbills, certificates, receipts, pamphlets,
and other similar nature

Tax Rate Not exceeding 50% of 1% of the gross annual receipts for
the preceding calendar year, in the case of newly started
business, not to exceed 1/20 of 1% of the capital
investment

Exception The receipts from the printing and/ or publishing of books

or other reading materials prescribed by the DECS as
school text or references are not subject to the tax imposed

3) Franchise tax

Franchise Generally refers to a privilege conferred by the

government on an individual or corporation, which
does not belong to the citizens by common right

Tax Rate Not exceeding 50% of 1%, if newly started business,

1/20 of 1 %

Tax base Gross annual receipts of preceding calendar year

 based on:

a) Incoming receipts, or
b) Realized within territorial jurisdiction.

4) Tax on sand, gravel and other quarry services

Tax Rate Not more than 10% of fair market value

Issuance of Permit To permit to extract the sand, gravel and other

quarry resources shall be issued exclusively by the
provincial governor pursuant to the ordinance of
the sangguniang panlalawigan

5) Professional tax

Tax rate In such as Sanggunian may determine and in no case

to exceed P300

When paid On or before Jan. 20

Where Paid on the place where you practice your

profession.

6) Amusement tax

Tax Rate Not more than 30% of the gross receipt from
admission fees
 Exemption Operas, concerts, dramas, recitals, painting and art
exhibitions, flower shows, musical programs,
literary and oratorical presentation

Exceptions to exemption Pop, rock, or similar concert.

7) Tax on delivery truck/van

Transaction taxed Use of truck, van vehicle in the delivery or

distribution of distilled spirits, fermented liquors,
softdrinks, cigar and cigarettes and other products,
determined by the Sanggunian to sales outlets or
consumers.

Tax rate Not exceeding P500 for every truck, van or any
vehicle used

Exemption Exempt from tax on peddlers.

b. Taxing powers of cities

Cities are authorized specifically to impose taxes, fees and charges that provinces and
municipalities may levy.

Rate: May be above the maximum established for

provinces and municipalities but not exceeding
50% of such maximum rates except the rates of
professional and amusement taxes

c. Taxing powers of municipalities

Municipality may levy taxes, fees and charges not otherwise levied by provinces and cities

1) Tax on various types of businesses

Rate
 Manufacturers, assemblers, repackers
liquors, distilled spirits and wines
of At graduated annual fixed tax based on
gross sales or receipts for the preceding
calendar year in an amount not to exceed
P6.5 M or more, a rate not exceeding 37
of 1% is imposed

Wholesalers, distributors or dealers in any Graduated annual fixed rate based on

article of Commerce gross sales or receipts not exceeding
P2M or more, the rate not exceeding
50% of 1%

Exporters, manufacturers, millers, producers Not exceeding of the rates prescribed

of essential commodities in (a) and (b)

Contractors and other independent Graduated annual fixed rate when the
contractors gross receipts exceeds P2M the rate is
not exceeding 50% of 1%

Banks and other financial institutions Not exceeding 50% of 1% on the gross
receipts of preceding calendar year

Peddlers Not exceeding 50% per peddler annually

Any business not otherwise specified
As the Sanggunian may deem proper.
When subject to excise, VAT or
percentage tax, it shall not exceed 2% of
gross receipts of the preceding calendar
year.

2) Ceiling on business tax impossible on municipalities within

Metro Manila

The municipalities within the Metropolitan Manila Area may levy taxes at rates which shall
not exceed by fifty percent (50%) the maximum rates prescribed in the preceding Section.

3) Tax on retirement on business

A business subject to tax shall, upon termination thereof, submit a sworn statement of its
gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on
said gross sales or receipts of the current year, the difference shall be paid before the business is
considered officially retired.
 If the tax paid during the year be less than the tax due on said gross sales of receipts of the
current year, the difference shall be paid before the business is considered officially retired.

4) Rules on payment of business tax

a. It shall be payable for every separate or distinct establishment or place where the business
subject to the tax is conducted and one line of business does not become exempt by being
conducted with some other business for which such tax has been paid.

b. The tax on a business must be paid by the person conducting the same.

c. In cases where a person conducts or operates 2 or more of the businesses:

1. subject to the same rate of tax - the tax shall be computed on the combined total
gross sales or receipts of the said 2 or more related businesses.

2. subject to different rates of tax - the gross sales or receipts of each business shall
be separately reported for the purpose of computing the tax due from each business.

5) Fees and charges for regulation & licensing

The municipality may impose and collect such reasonable fees and charges on business and
occupation except professional taxes reserved for provinces.

a. Fees for Sealing and Licensing of Weights and Measures

b. Fishery Rentals, Fees and Charges, including the authority to grant fishery privileges
within municipal waters, as well as issue licenses for the operation of fishing vessels of three tons or
less.

c. The sanggunian may penalize the use of explosives, noxious or poisonous substances,
electricity, muro ami, and other deleterious methods of fishing and prescribe a criminal penalty
therefore.
 6) Situs of tax collected

Situation Recognition of sale Payment of tax

The tax shall be
With branch or sales All sales made in the locality where the branch payable to the city or
office or warehouse or office or warehouse is located municipality where the
same is located.

Where there is no The municipality where the sale or transaction is The tax shall accrue to
branch or sales made. the city or
office or warehouse municipality where
. The sale shall be recorded in said principal office is
the principal office along with the sales made by located
said principal office

Branch office a fixed place in a locality which conducts operations of the business as an
extension of the principal office.

Principal office head or main office of the business appearing in pertinent documents submitted
to the SEC and specifically mentioned in the Articles of Incorporation.

Where there is a factory, project Of all sales recorded in the principal

office, plant or plantation in office:
pursuit of business
1. 30% taxable to the city or
municipality where the principal
If plantation is at a place other than office is located.
where the factory is located
All sales shall be 2. 70% taxable to the city or
recorded in the municipality where the factory, plant,
If manufacturer, contractor, etc. principal office etc. is located.
has two or more factories, project
offices, plants or plantations The 70% (above) shall be divided as
located in different localities. follows:

1. 60% to the city or municipality

where the factory is.

2. 40% to the city or municipality

where the
plantation is located.
 d. Taxing powers of barangays

Taxes on stores / retailers with fixed Rate: Not exceeding 1% on such gross sales
business establishment with gross sales or or receipts
receipts of the preceding calendar year of
P50,000 or less in the cities & municipalities

Service Fees/ Charges It may collect reasonable fees or charges for

services rendered in connection with the
regulation or the use of barangay owned
property or service facilities

Barangay Clearance No city municipality may issue any license/

permit for any business / activity is located.
For such clearance, the sangguniang brgy.
may impose reasonable fee.

Other fees & charges The brgy. may levy reasonable fees &
charges

a) On commercials breeding of fighting

cocks & cockpits;

b) On places of recreation w/c charge

admission fees; and

c) On billboards, signs boards, neon signs

and outdoor advertisement
 e. Common revenue raising powers

1) Service fees and charges

LGUs may impose and collect such reasonable fees and charges for services rendered.

2) Public utility charges

LGUs may fix the rates for the operation of public utilities owned, operated and maintained
by them within their jurisdiction.

3) Toll fees or charges

The sanggunian concerned may prescribe the terms and conditions and fix the rates for the
imposition of toll fees or charges for the use of any public road, pier, or wharf,waterway, bridge,
ferry or telecommunication system funded and constructed by the local government unit concerned.

f. Community tax

The community tax, which replaced the residence tax, is essentially a poll or capitalization
tax. It is of fixed amount imposed upon certain inhabitants of the country without regard to the
property/ occupation in which they may be engaged.

Who are authorized to levy Cities or municipalities may levy a

community tax, as well as the rates & accrual
of the proceeds thereof.

Persons liable to tax 1. Individuals

Rate: P5.00 an annual additional tax of P1.00

for every P1,000 income regardless of
whether from business, exercise of
profession or from property w/c in no case
shall exceed P5,000.

2. Corporations -

Rate: Annual community tax of P500 and an

annual additional tax w/c in no case shall
exceed P10,000

Exemptions from the Community Tax 1. Diplomatic and consular representatives

and
 2. Transient visitors when their stay in the
Phil. Does not exceed 3 mos.

Estates of deceased persons, being neither corporations nor individuals, are not subject to
the tax, but the heirs must declare their proportionate shares of their income.

Community Tax Certificate shall be issued to every person or corporation upon payment
of the community tax. It may also be issued to any corporation/person not subject to the
community tax.

6. Common limitations on the taxing powers of LGUs

Unless otherwise provided herein, the exercise of the taxing power of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:
 1. Income tax
2. Documentary Stamp Tax

3. Tax on estates, inheritance, gifts, legacies and other acquisitions mortis causa

4. Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees or
charges on petroleum products.

5. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or

services exchanges or similar transactions on goods or services except as otherwise provided herein

6. Taxes on the gross receipts of transportation of contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water except as
provided by the code.
7. Taxes, fees and charges imposed under the Tariff and Customs Code and other Special
Laws

8. Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues and all
other kinds of customs fees, charges and dues, except wharfage on wharves constructed and
maintained by LGU concerned.

9. Taxes, fees and charges and other Impositions which contravene Existing Government
Policies or which are violative of the Fundamental Principles of Taxation.

10.Taxes, fees, and charges and other impositions upon goods carried into or out of, or
passing through, the territorial jurisdiction of LGU in the guise of charges for wharfage, tolls for
bridges or otherwise, or other taxes, fees or charges in any form whatever upon such goods or
merchandise.

11. Taxes, fees, or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen.

12. Taxes on business enterprises certified to by the Board of Investment as pioneer or non-
pioneer who enjoy tax holidays for a period of 6 and 4 years, respectively from the date of
registration

13. Taxes on premiums paid by way of reinsurance or retrocession.

14. Taxes, fees or other charges on Philippine products actually exported, excepted
otherwise provided herein in the LGC.

15. Taxes, fees or charges on Countryside and Baranggay Business Enterprises and
Cooperative duly registered under RA No. 6810 and RA 6938 otherwise known as the Cooperative
Code of the Phil. Respectively.

16. Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and LGU.
 17. Taxes, fees, and charges imposed under special laws.

18. Taxes, fees or charges for registration of motor vehicles.

7. Collection of business tax

a. Tax period and manner of payment

The calendar year, which may be paid in quarterly installments.

b. Accrual of tax

On the 1st day of January of each year.

New taxes, fees or charges or changes accrue on the 1st day of the quarter next following the
effectively of the ordinance imposing such new rates.

c. Time of payment

Within the first 20 days of January or of each subsequent quarter.

Not exceeding 6 months in case of extension of payment.

d. Penalties on unpaid taxes, fees or charges

A surcharge not exceeding 27% of the amount of taxes, fees or charges and an interest at the
rate not exceeding 2% per month until such amount is fully paid.

In no case the total interest on the unpaid amount or portion thereof exceed 36 months
e. Authority of treasurer in collection and inspection of books
 All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or
barangay treasurer, or their duly authorized deputies. The provincial, city or municipal treasurer may
designate the barangay treasurer as his deputy to collect local taxes, fees, or charges. In case a bond
is required for the purpose, the provincial, city or municipal government shall pay the premiums
thereon in addition to the premiums of bond that may be required under this Code.

The provincial, city, municipal or barangay treasurer may, by himself or through any of his
deputies duly authorized in writing, examine the books, accounts, and other pertinent records of any
person, partnership, corporation, or association subject to local taxes, fees and charges in order to
ascertain, assess, and collect the correct amount of the tax, fee, or charge. Such examination shall be
made during regular business hours, only once for every tax period, and shall be certified to by the
examining official. Such certificate shall be made of record in the books of accounts of the taxpayer
examined. In case the examination herein authorized is made by a duly authorized deputy of the
local treasurer, the written authority of the deputy concerned shall specifically state the name,
address, and business of the taxpayer whose books, accounts, and pertinent records are to be
examined, the date and place of such examination, and the procedure to be followed in conducting
the same. For this purpose, the records of the revenue district office of the Bureau of Internal
Revenue shall be made available to the local treasurer, his deputy or duly authorized representative.

8. Taxpayers remedies

a. Periods of assessment and collection of local taxes, fees or charges

Assessment Collection

- within five years from the date they - within 5 years from the date of assessment
become due. by administrative or judicial action

- within 10 years, in case of fraud of intent to

evade payment

b. Protest of assessment

a. Assessment made by the local Treasurer

b. Taxpayer has 60 days from receipt to file written protest with Treasurer, otherwise it shall
become final and executor.

c. Treasurer has 10 days within which to decide.

c. Claim for refund of tax credit for erroneously or illegally collected

tax, fee or charge
 A written claim for refund or credit is filed with the local Treasurer within 2 years from the
date of payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or
credit

9. Civil remedies by the LGU for collection of revenues

a. Local governments lien for delinquent taxes, fees or charges

1. Superior to all items, charges or encumbrances in favor of any person, enforceable by the
administrative of judicial action
2. Covers not only property or rights subject to the lien but also upon property used in
business.
b. Civil remedies, in general

1) Administrative action

1. Distraint of goods, chattels or effects and other personal property of whatever character
2. Levy upon real property and interest in or rights to real property
2) Judicial action

Either of these remedies or all may be pursued concurrently or simultaneously at the

discretion of local government unit concerned.

B. Real Property Taxation

1. Fundamental principles

Real property shall be appraised at its current and fair market value.

Real property shall be classified for assessment purposes on the basis of its actual use.
 Real property shall be assessed on the basis of a uniform standard within each local
government unit.
The appraisal, assessment, and collection of real property tax shall not be let to any
private person; and
e. ) The appraisal and assessment of real property shall be equitable

2. Nature of real property tax

Property taxes are assessed on all property, or all property of a certain class located within a
certain territory on a specified date in proportion to its value or in accordance with some other
reasonable method of apportionment.

In the Philippines, a real property tax is an annual ad valorem tax imposed by LGUs on real
property within their jurisdiction, determined on the basis of a fixed proportion of the value of the
property.

3. Imposition of real property tax

a. Power to levy real property tax

A province or city or a municipality within the Metropolitan Manila Area may levy an annual
ad valorem tax on real property such as land, building, machinery, and other improvement not
hereinafter specifically exempted.

b. Exemption from real property tax

i. Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted to a taxable person;
ii. Charitable institutions, churches, parsonages, or convents appurtenant thereto, mosques,
non profit or religious cemeteries, and all lands, buildings, and improvements actually, directly and
exclusively used for religious, charitable, or educational purposes.

iii. All pieces of machinery and equipment that are actually, directly, and exclusively used by
local water districts, and government owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power.

iv. All real property owned by duly registered cooperatives, and

 v. Machinery and equipment used for pollution control and environmental protection.

4. Appraisal and assessment of real property tax

a. Rule on appraisal of real property at fair market value

All real property, whether taxable or exempt, shall be appraised at the current and fair
market value prevailing in the locality where the property is situated.

b. Declaration of real property

It shall be the responsibility of the owner, administrator or their representatives to declare,

under oath, the true value of real property, taxable or exempt, within 60 days after the acquisition.
The sworn declaration shall be filed once every 3 years before June 30th of the year commencing
1992. The failure or refusal to make that declaration within the prescribed period would authorize
the provincial or city assessor to declare the property in the name of the defaulting owner, if known,
or against an unknown owner as the case may be, and to assess the property for taxation.

c. Listing of real property in assessment rolls

(a) In every province and city, including the municipalities within the Metropolitan Manila
Area, there shall be prepared and maintained by the provincial, city or municipal assessor an
assessment roll wherein shall be listed all real property, whether taxable or exempt, located within
the territorial jurisdiction of the local government unit concerned. Real property shall be listed,
valued and assessed in the name of the owner or administrator, or anyone having legal interest in the
property.

(b) The undivided real property of a deceased person may be listed, valued and assessed in
the name of the estate or of the heirs and devisees without designating them individually; and
undivided real property other than that owned by a deceased may be listed, valued and assessed in
the name of one or more co-owners. Such heir, devisee, or co-owner shall be liable severally and
proportionately for all obligations and the payment of the real property tax with respect to the
undivided property.

(c) The real property of a corporation, partnership, or association shall be listed, valued and
assessed in the same manner as that of an individual.

(d) Real property owned by the Republic of the Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a
taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the
public entity if such property has been acquired or held for resale or lease.

d. Preparation of schedules of fair market value

 Before any general revision of property assessment is made, there shall be prepared a
schedule of fair market values by the provincial, city and municipal assessor of the municipalities
within the Metropolitan Manila Area for the different classes of real property situated in their
respective local government units for enactment by ordinance of the sanggunian concerned. The
schedule of fair market values shall be published in a newspaper of general circulation in the
province, city or municipality concerned or in the absence thereof, shall be posted in the provincial
capitol, city or municipal hall and in two other conspicuous public places therein.

1) Authority of assessor to take evidence

For the purpose of obtaining information on which to base the market value of any real
property, the assessor of the province, city or municipality or his deputy may summon the owners of
the properties to be affected or persons having legal interest therein and witnesses, administer oaths,
and take deposition concerning the property, its ownership, amount, nature, and value.

2) Amendment of schedule of fair market value

The provincial, city or municipal assessor may recommend to the sanggunian concerned
amendments to correct errors in valuation in the schedule of fair market values. The sanggunian
concerned shall, by ordinance, act upon the recommendation within ninety (90) days from receipt
thereof.

e. Classes of real property

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

commercial, industrial, mineral, timberland or special.

The city or municipality within the Metropolitan Manila Area, through their respective
sanggunian, shall have the power to classify lands as residential, agricultural, commercial, industrial,
mineral, timberland, or special in accordance with their zoning ordinances.

f. Actual use of property as basis of assessment

Regardless of where located, whoever owns it, and whoever uses it.

g. Assessment of real property

1) Assessment levels

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

(a) On Lands:

CLASS ASSESSMENT LEVELS

 Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%

(b) On Buildings and Other Structures:

(1) Residential
Fair market Value

Over Not Over Assessment Levels

P175,000.00 0%
P175,000.00 300,000.00 10%
300,000.00 500,000.00 20%
500,000.00 750,000.00 25%
750,000.00 1,000,000.00 30%
1,000,000.00 2,000,000.00 35%
2,000,000.00 5,000,000.00 40%
5,000,000.00 10,000,000.00 50%
10,000,000.00 60%

(2) Agricultural

Fair Market Value

Over Not Over Assessment Levels

P300,000.00 25%
P300,000.00 500,000.00 30%
500,000.00 750,000.00 35%
750,000.00 1,000,000.00 40%
1,000,000.00 2,000,000.00 45%
2,000,000.00 50%

(3) Commercial / Industrial

Fair Market Value

Over Not Over Assessment Levels

P300,000.00 30%
P300,000.00 500,000.00 35%
500,000.00 750,000.00 40%
750,000.00 1,000,000.00 50%
1,000,000.00 2,000,000.00 60%
2,000,000.00 5,000,000.00 70%
5,000,000.00 10,000,000.00 75%
10,000,000.00 80%

(4) Timberland

Fair Market Value

Over Not Over Assessment Levels

P300,000.00 45%
P300,000.00 500,000.00 50%
500,000.00 750,000.00 55%
750,000.00 1,000,000.00 60%
5,000,000.00 2,000,000.00 65%
2,000,000.00 70%

(c) On Machineries

Class Assessment Levels

Agricultural 40%
Residential 50%
Commercial 80%
Industrial 80%

(d) On Special Classes: The assessment levels for all lands

buildings, machineries and other improvements;

Actual Use Assessment Level

Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned or controlled corporations engaged in
the supply and distribution of water and/or generation and
transmission of electric power
10%
 2) General revisions of assessments and property
classification

Within two (2) years after the effectivity of this Code and every three (3) years thereafter, the
provincial, city or municipal assessor shall undertake a general revision of real property assessments.
3) Date of effectivity of assessment or reassessment

Made after the first (1st) day of January of any year - shall take effect on the first (1st) day of
January of the succeeding year.

4) Assessment of property subject to back taxes

Real property declared for the first time shall be assessed for taxes for the period during
which it would have been liable but in no case of more than ten (10) years prior to the date of initial
assessment. Such taxes shall be computed on the basis of the applicable schedule of values in force
during the corresponding period.

5) Notification of new or revised assessment

When real property is assessed for the first time or when an existing assessment is increased
or decreased, the provincial, city or municipal assessor shall within thirty (30) days give written
notice of such new or revised assessment to the person in whose name the property is declared. The
notice may be delivered personally or by registered mail or through the assistance of the punong
barangay to the last known address of the person to be served.

h. Appraisal and assessment of machinery

The fair market value of a brand-new machinery shall be the acquisition cost.

(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and
other charges, brokerage, arrastre and handling, duties and taxes, plus charges at the present site.

5. Collection of real property tax

a. Date of accrual of real property tax

On the first day of January.

b. Collection of tax
 1) Collecting authority

The responsibility of the city or municipal treasurer concerned.

The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on
real property located in the barangay: Provided, the barangay treasurer is properly bonded for the
purpose and the premium on the bond shall be paid by the city or municipal government concerned.

2) Duty of assessor to furnish local treasurer with assessment

rolls

The provincial, city or municipal assessor shall prepare and submit to the treasurer of the
local government unit, on or before the thirty-first (31st) day of December each year, an assessment
roll containing a list of all persons whose real properties have been newly assessed or reassessed and
the values of such properties.

3) Notice of time for collection of tax

On or before the thirty-first (31st) day of January each year or any other date to be
prescribed by the sanggunian concerned/

Said notice shall likewise be published in a newspaper of general circulation in the locality
once a week for two (2) consecutive weeks.

c. Periods within which to collect real property tax

Within five (5) years from the date they become due.

Within ten (10) years from discovery - in case there is fraud or intent to evade payment of
the tax.
d. Special rules on payment

1) Payment of real property tax in installments

The owner of the real property or the person having legal interest therein may pay the basic
real property tax and the additional tax for Special Education Fund (SEF) due thereon without
interest in four (4) equal installments; the first installment to be due and payable on or before March
Thirty-first (31st); the second installment, on or before June Thirty (30); the third installment, on or
before September Thirty (30); and the last installment on or before December Thirty-first (31st),
except the special levy the payment of which shall be governed by ordinance of the sanggunian
concerned.

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

2) Interests on unpaid real property tax

 Two percent (2%) per month, until the delinquent tax shall have been fully paid.

In no case shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36)
months.

3) Condonation of real property tax

In case of a general failure of crops or substantial decrease in the price of agricultural or agri-
based products, or calamity in any province, city or municipality, the sanggunian concerned, by
ordinance passed prior to the first (1st) day of January of any year and upon recommendation of the
Local Disaster Coordinating Council, may condone or reduce, wholly or partially, the taxes and
interest thereon for the succeeding year or years in the city or municipality affected by the calamity.

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

e. Remedies of LGUs for collection of real property tax

1) Issuance of notice of delinquency for real property tax

payment

To be posted at the main hall and in a publicly accessible and conspicuous place in each
barangay of the local government unit concerned. The notice of delinquency shall also be published
once a week for two (2) consecutive weeks, in a newspaper of general circulation in the province,
city, or municipality.

2) Local governments lien

The basic real property tax and any other tax levied constitutes a lien on the property subject
to tax, superior to all liens, charges or encumbrances in favor of any person, irrespective of the
owner or possessor thereof, enforceable by administrative or judicial action, and may only be
extinguished upon payment of the tax and the related interests and expenses.

3) Remedies in general

The local government unit concerned may avail of the remedies by administrative action
thru levy on real property or by judicial action.

4) Resale of real estate taken for taxes, fees or charges

The sanggunian concerned may, by ordinance duly approved, and upon notice of not less than
twenty (20) days, sell and dispose of the real property acquired at public auction. The proceeds of
the sale shall accrue to the general fund of the local government unit concerned.
 5) Further levy until full payment of amount due

Levy may be repeated if necessary until the full amount due, including all expenses, is
collected.

6. Refund or credit of real property tax

a. Payment under protest

(a) 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". The protest in writing must be filed
within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal
treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest
within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his
existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty (60) day period
prescribed in subparagraph (a), the taxpayer may appeal.

b. Repayment of excessive collections

When an assessment of basic real property tax or any other tax levied is found to be illegal or
erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a written claim for
refund or credit for taxes and interests with the provincial or city treasurer within two (2) years from
the date the taxpayer is entitled to such reduction or adjustment.

The provincial or city treasurer shall decide the claim for tax refund or credit within sixty
(60) days from receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer may
appeal.
 7. Taxpayers remedies

a. Contesting an assessment of value of real property

1) Appeal to the Local Board of Assessment Appeals

(LBAA)

Within sixty (60) days from the date of receipt of the written notice of assessment, any
owner or person having legal interest in the property who is not satisfied with the action of the
provincial, city or municipal assessor in the assessment of his property may appeal to the Board of
Assessment Appeals of the provincial or city by filing a petition under oath in the form prescribed
for the purpose, together with copies of the tax declarations and such affidavits or documents
submitted in support of the appeal.

2) Appeal to the Central Board of Assessment Appeals

(CBAA)

Within thirty (30) days after receipt of the decision of said Board, the owner of the property
or the person having legal interest therein or the assessor who is not satisfied with the decision of
the Board, may appeal to the Central Board of Assessment Appeals. The decision of the Central
Board shall be final and executory.

3) Effect of payment of tax

Appeal on assessments of real property shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or city assessor,
without prejudice to subsequent adjustment depending upon the final outcome of the appeal.

b. Payment of real property under protest

1) File protest with local treasurer

2) Appeal to the Local Board of Assessment Appeals

3) Appeal to the Central Board of Assessment Appeals

4) Appeal to the CTA

By filing a petition for review with the CTA within thirty (30) days from the receipt of the
decision or ruling or in the case of inaction, from the expiration of the period fixed by law to act
thereon.

5) Appeal to the SC
 By filing with the said Court of Appeals a notice of appeal and with the Supreme Court a
petition for review, within thirty (30) days from the date he receives notice of the ruling, order or
decision. If, within the aforesaid period, he fails to perfect his appeal, the said ruling, order or
decision shall become final and conclusive against him.
If no decision is rendered by the Court within thirty days from the date a case is submitted
for decision, the party adversely affected by said ruling, order or decision may file with said Court a
notice of his intention to appeal to the Supreme Court, and if, within thirty (30) days from the filing
of said notice of intention to appeal, no decision has as yet been rendered by the Court, the
aggrieved party may file directly with the Supreme Court an appeal from said ruling, order or
decision, notwithstanding the foregoing provisions of this section.
If any ruling, order or decision of the Court of Tax Appeals be adverse to the Government,
the Collector of Internal Revenue, the Commissioner of Customs, or the provincial or city Board of
Assessment Appeals concerned may likewise file an appeal therefrom to the Supreme Court in the
manner and within the same period as above prescribed for private parties.

IV. Tariff and Customs Code of 1978, as amended (TCC)

A. Tariff and duties, defined

Custom duties Tariff

Duties which are one charged upon A book of rates, a table or catalogue drawn
commodities on their being imported into or usually in alphabetical order containing the
exported out of a country. names of several kinds of merchandise with
the duties to be paid for the same as settled
or agreed upon between several states that
holds commerce together.

B. General rule: All imported articles are subject to duty. Importation by the
government taxable.
 All articles when imported from a foreign country including those previously exported from
the Philippines are subject to duty unless otherwise specifically provided for in the Tariff and
Customs Code or other laws.

C. Purpose for imposition

For the protection of consumers and manufacturers, as well as Phil. products from undue
competition posed by foreign-made products.

D. Flexible tariff clause

A provision in the Tariff and Customs Code, which implements the constitutionally
delegated power to the Congress to further delegate to the President of the Philippines, in the
interest of national economy, general welfare and/or national security upon recommendation of the
NEDA (a) to increase, reduce or remove existing protective rates of import duty, provided the
increase should not be higher than 100% ad valorem; (b) to establish import quota or to ban imports
of any commodity, and (c) to impose additional duty on all imports not exceeding 10% ad valorem,
among others.

E. Requirements of importation

1. Beginning and ending of importation

Importation begins when the carrying vessel or aircraft enters the jurisdiction of the
Philippines with the intention to unload therein.

Importation is deemed terminated upon payment of duties, taxes and other charges due
upon the articles or secured to be paid at a port of entry and the legal permit for withdrawal shall
gave been granted or in case said articles are free of duties, taxes and other charges, until they have
legally left the jurisdiction of the customs.

2. Obligations of importer

a. Cargo manifest

A cargo manifest shall in no case be changed or altered, except after entry of the vessel, by
means of an amendment by the master, consignee, or agent thereof, under oath, and attached to the
original manifest.
 b. Import entry

It is a declaration to the BOC showing particulars of the imported article that will enable the
customs authorities to determine the correct duties. An importer is required to file an import entry.
It must be accomplished from disembarking of last cargo from vessel.

c. Declaration of correct weight or value

The declaration, ascertainment or verification of the correct weight of the cargo at the port
of loading is the duty or obligation of the master, pilot, owner, officer or employee of the vessel. If
he omits or disregards this duty and a punishable discrepancy between the declared weight and
actual weight of the cargo exists, the inevitable conclusion is that he is negligent or careless.
Similarly, if in the exercise or performance of this duty, he is negligent or careless resulting in the
commission of excessive discrepancy in the weight of the ship's cargo penalized under the law,
carelessness or incompetency is, nonetheless, imputable to him.

d. Liability for payment of duties

The liability for duties, taxes, fees and other charges attaching on importation constitutes a
personal debt due from the importer to the government which can be discharged only by payment
in full of all duties, taxes, fees and other charges legally accruing. It also constitutes a lien upon the
articles imported which may be enforced while such articles are in custody or subject to the control
of the government.

e. Liquidation of duties

If the Collector shall approve the returns of the appraiser and the report of the weights,
gauge or quantity, the liquidation shall be made on the face of the entry showing the particulars
thereof, initiated by the liquidating clerk, approved by the chief liquidator, and recorded in the
record of liquidations.

A daily record of all entries liquidated shall be posted in the public corridor of the
customhouse, stating the name of the vessel or aircraft, the port from which she arrived, the date of
her arrival, the name of the importer, and the serial number and date of the entry. A daily record
must also be kept by the Collector of all additional duties, taxes and other charges found upon
liquidation, and notice shall promptly be sent to the interested parties.

If to determine the exact amount due under the law, some future action is required, the
liquidation shall be deemed to be tentative as to the item or items affected and shall to that extent be
subject to future and final readjustment and settlement. The entry in such case shall be stamped
"Tentative liquidation".

When articles have been entered and passed free of duty or final adjustment of duties made,
with subsequent delivery, such entry and passage free of duty or settlement of duties will, after the
expiration of one year, from the date of the final payment of duties, in the absence of fraud or
protest, be final and conclusive upon all parties, unless the liquidation of the import entry was
merely tentative.

In determining the total amount of duties, taxes, surcharges, wharfage and/or other charges
to be paid on entries, a fraction of a peso less than fifty centavos shall be disregarded, and a fraction
of a peso amounting to fifty centavos or more shall be considered as one peso. In case of
overpayment or underpayment of duties, taxes, surcharges, wharfage and/or other charges paid on
entries, where the amount involved is less than five pesos, no refund or collection shall be made.

f. Keeping of records

F. Importation in violation of TCC

1. Smuggling

a. An act of any person who shall:

1. Fraudulently import any article contrary to law, or

2. Assist in so doing, or
3. Receive, conceal, buy, sell, facilitate, transport, conceal or sell such article
knowing its illegal importation.
4. Export contrary to law.

b. The Philippines is divided into various ports of entry entry other than port of entry, will
be smuggling.

2. Other fraudulent practices

Any person who makes or attempts to make any entry of imported or exported article by
means of any false or fraudulent invoice, declaration, affidavit, letter, paper, or by means of any false
statement, written or verbal, or by means of any false or fraudulent practice whatsoever, or shall be
guilty of any willful act or omission by means of whereof the Government might be deprived of the
lawful duties, taxes and other charges accruing from the article or any portion thereof, embraced or
referred to in such invoice, declaration, affidavit, letter, paper, or statement, or affected by such act
or omission, shall, for each offense, be punished by a fine of not less than six hundred pesos nor
more than five thousand pesos and by imprisonment for not less than six months nor more than
two (2) years. If the offender is an alien, he shall be deported after serving the sentence.

G. Classification of goods

1. Taxable importation
 All articles imported from any foreign country into the Philippines, upon each importation,
even though previously exported from the Philippines, except as otherwise specifically provided.

2. Prohibited importation
a. Dynamite, gunpowder, ammunitions and other explosives, firearm and weapons of war,
and detached parts thereof, except when authorized by law.1awphil
b. Written or printed article in any form containing any matter advocating or inciting
treason, rebellion, insurrection or sedition against the Government of the Philippines, of forcible
resistance to any law of the Philippines, or containing any threat to take the life of or inflict bodily
harm upon any person in the Philippines.
c. Written or printed articles, photographs, engravings, lithographs, objects, paintings,
drawings or other representation of an obscene or immoral character.
d. Articles, instruments, drugs and substances designed, intended or adapted for preventing
human conception or producing unlawful abortion, or any printed matter which advertises or
describes or gives directly or indirectly information where, how or by whom human conception is
prevented or unlawful abortion produced.
e. Roulette wheels, gambling outfits, loaded dice, marked cards, machines, apparatus or
mechanical devices used in gambling, or in the distribution of money, cigars, cigarettes or other
articles when such distribution is dependent upon chance, including jackpot and pinball machines or
similar contrivances.
f. Lottery and sweepstakes tickets except those authorized by the Philippine Government,
advertisements thereof and lists of drawings therein.
g. Any article manufactured in whole or in part of gold silver or other precious metal, or
alloys thereof, the stamps brands or marks of which do not indicate the actual fineness or quality of
said metals or alloys.
h. Any adulterated or misbranded article of food or any adulterated or misbranded drug in
violation of the provisions of the "Food and Drugs Act."
i. Marihuana, opium poppies, coca leaves, or any other narcotics or synthetic drugs which are
or may hereafter be declared habit forming by the President of the Philippines, any compound,
manufactured salt, derivative, or preparation thereof, except when imported by the Government of
the Philippines or any person duly authorized by the Collector of Internal Revenue, for medicinal
purposes only.
j. Opium pipes and parts thereof, of whatever material.
k. All other articles the importation of which is prohibited by law.

H. Classification of duties

1. Ordinary/Regular duties
 Imposed on imported articles that enter the country of the Philippines in avoidance with the
schedules and classifications provided under the Tariff and Customs Code.

a. Ad valorem; Methods of valuation

1) Transaction value

The price actually paid or payable for the goods when sold for export to the Philippines,
adjusted by adding:

a. The following to the extent that they are incurred by the buyer but are not included in the
price actually paid or payable for the imported goods:

1. Commissions and brokerage fees;

2. Cost of containers;

3. The cost of packing, whether for labour or materials;

4. The value, apportioned as appropriate, of the following goods and services:

materials, components, parts and similar items incorporated in the imported goods; tools;
dies; moulds and similar items used in the production of imported goods; materials
consumed in the production of the imported goods; and engineering, development, artwork,
design work and plans and sketches undertaken elsewhere than in the Philippines and
necessary for the production of imported goods, where such goods and services are supplied
directly or indirectly by the buyer free of charge or at a reduced cost for use in connection
with the production and sale for export of the imported goods;

5. The amount of royalties and license fees related to the goods being valued that the
buyer must pay, either directly or indirectly, as a condition of sale of the goods to the buyer;

b. The value of any part of the proceeds of any subsequent resale, disposal or use of the
imported goods that accrues directly or indirectly to the seller;

c. The cost of transport of the imported goods from the port of exportation to the port of
entry in the Philippines;

d. Loading, unloading and handling charges associated with the transport of the imported
goods from the country of exportation to the port of entry in the Philippines; and

e. The cost of insurance.

2) Transaction value of identical goods

Where the dutiable value cannot be determined under method one, the dutiable value shall
be the transaction value of identical goods sold for export to the Philippines and exported at or
about the same time as the goods being valued.
 "Identical goods" shall mean goods which are the same in all respects, including physical
characteristics, quality and reputation. Minor differences in appearances shall not preclude goods
otherwise conforming to the definition from being regarded as identical.

3) Transaction value of similar goods

Where the dutiable value cannot be determined under the preceding method, the dutiable
value shall be the transaction value of similar goods sold for export to the Philippines and exported
at or about the same time as the goods being valued.
"Similar goods" shall mean goods which, 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. The quality of the goods, their reputation and the existence of a
trademark shall be among the factors to be considered in determining whether goods are similar. xxx
4) Deductive value
Based on the unit price at which the imported goods or identical or similar imported goods
are sold in the Philippines, in the same condition as when imported, in the greatest aggregate
quantity, at or about the time of the importation of the goods being valued, to persons not related to
the persons from whom they buy such goods, subject to deductions for the following:
(1) Either the commissions usually paid or agreed to be paid or the additions usually made
for profit and general expenses in connection with sales in such country of imported goods of the
same class or kind;
(2) The usual costs of transport and insurance and associated costs incurred within the
Philippines; and
(3) Where appropriate, the costs and charges referred to in subsection (A) (3), (4) and (5);
and
(4) The customs duties and other national taxes payable in the Philippines by reason of the
importation or sale of the goods. xxx
5) Computed value
The sum of:
(1) The cost or the value of materials and fabrication or other processing employed in
producing the imported goods;
(2) The amount for profit and general expenses equal to that usually reflected in the sale of
goods of the same class or kind as the goods being valued which are made by producers in the
country of exportation for export to the Philippines;
(3) The freight, insurance fees and other transportation expenses for the importation of the
goods;
(4) Any assist, if its value is not included under paragraph (1) hereof; and
(5) The cost of containers and packing, if their values are not included under paragraph (1)
hereof. xxx
6) Fallback value
 If the dutiable value cannot be determined under the preceding methods described above, it
shall be determined by using other reasonable means and on the basis of data available in the
Philippines.

If the importer so requests, the importer shall be informed in writing of the dutiable value
determined under Method Six and the method used to determine such value.

No dutiable value shall be determined under Method Six on the basis of:

(1) The selling price in the Philippines of goods produced in the Philippines;
(2) A system that provides for the acceptance for customs purposes of the higher of two
alternative values;
(3) The price of goods in the domestic market of the country of exportation;
(4) The cost of production, other than computed values, that have been determined for
identical or similar goods in accordance with Method Five hereof;
(5) The price of goods for export to a country other than the Philippines;
(6) Minimum customs values; or
(7) Arbitrary or fictitious values.
b. Specific

Duty based on the dutiable weight of goods number or measurement.

2. Special duties

Imposed in addition to regular or ordinary duties principally in order to protect local

industries against unfair competition from foreign manufacturers or procedures; consumer against
possible deceptions; and national interest.

a. Dumping duties

Imposed by the Secretary of Finance, upon the recommendation of the Tariff Commission
when:

The price of the imported article is deliberately or continually fixed at less than the
fair market value or cost of production; and

Importation would cause or likely cause and injury to local industries engaged in the
manufacture or production of the same or similar articles or prevent their
establishment.

Amount of special duty: extent of the underpricing.

 b. Countervailing duties

Special duty imposed on imported articles which are granted any kind or form of subsidy by
the government in the country or origin or exportation, the importation of which has caused or
threatens to cause material injury to a domestic industry or has materially relaided the growth or,
prevents the establishment of a domestic industry.

c. Marking duties

Special duty of five percent (5%) ad valorem imposed or articles properly marked, collected by
the commissioner, except when such article is exported or destroyed under the customs supervision
and prior to final liquidation of the corresponding entry.

d. Retaliatory/Discriminatory duties

Imposed on imported goods whenever it is found as a fact that the country of origin
discriminates against the commerce of the Philippines in such a manner as to place the commerce of
the Philippines at a disadvantage compared with the commerce of any foreign country.

e. Safeguard

Safeguard measures are emergency measures, including tariffs, to protect domestic industries
and producers from increased imports which inflict or could inflict serious injury on them.

The CTA is vested with jurisdiction to review decisions of the Secretary of Trade and
Industry imposing safeguard measures.

The DTI Secretary cannot impose the safeguard measures if the Tariff Commission does not
favorably recommend its imposition.

I. Remedies

1. Government

a. Administrative/Extrajudicial

1) Search, seizure, forfeiture, arrest

For the enforcement of the customs and tariff laws, the following persons are authorized to
effect searches, seizures and arrests conformably with the provisions of said laws:

a. Officials of the Bureau of Customs, collectors, assistant collectors, deputy collectors,

surveyors, security and secret-service agents, inspectors, port patrol officers and guards of the
Bureau of Customs.

b. Officers of the Philippine Navy when authorized by the Commissioner.

c. Any person especially authorized in writing by the Commissioner.

 d. Officers generally empowered by law to effect arrests and execute processes of courts,
when acting under direction of the Collector.

e. Any person especially authorized by a Collector, subject to restrictions.

Persons exercising the powers hereinabove conferred shall, in the exercise thereof, have the
same authority, be entitled to the proper protection, and shall be governed by the same law as other
officers exercising police authority in general.

Persons acting under authority conferred pursuant to subsection (e) may exercise their
authority within the limits of the collection district only and in or upon the particular vessel or
aircraft, or in the particular place, or in respect to the particular article specified in the appointment.
All such appointments shall be in writing, and the original shall be filed in the customhouse of the
district where made.

All other persons exercising the powers hereinabove conferred may exercise the same at any
place within the jurisdiction of the Bureau of Customs.

It shall be within the power of a customs official or person authorized as aforesaid, and it
shall be his duty, to make seizure of any vessel, aircraft, cargo, articles, animal or other movable
property when the same is subject to forfeiture or liable for any fine imposed under customs and
tariff laws, and also to arrest any person subject to arrest for violation of any customs and tariff laws.

It shall be the duty of any person exercising authority as aforesaid, upon being questioned at
the time of the exercise thereof, to make known his official character as an officer or official of the
Government, and if his authority is derived from special authorization in writing to exhibit the same
for inspection, if demanded.

Any person exercising police authority under the customs and tariff laws may demand
assistance of any police officer when such assistance shall be necessary to effect any search, seizure
or arrest which may be lawfully made or attempted by him. It shall be the duty of any police officer
upon whom such requisition is made to give such lawful assistance in the matter as may be required.

For the more effective discharge of his official duties, any person exercising the powers
herein conferred, may at anytime enter, pass through, or search any land or enclosure or any
warehouse, store or other building, not being a dwelling house.

A warehouse, store or other building or enclosure used for the keeping of storage of articles
does not become a dwelling house within the meaning hereof merely by reason of the fact that a
person employed as watchman lives in the place, nor will the fact that his family stays there with him
alter the case.

A dwelling house may be entered and searched only upon warrant issued by a judge or
justice of the peace, upon sworn application showing probable case and particularly describing the
place to be searched and person or thing to be seized.
 It shall be lawful for any official or person exercising police authority under these provisions
to go aboard any vessel or aircraft within the limits of any collection district, and to inspect, search
and examine said vessel or aircraft and any trunk, package, box or envelope on board, and to search
any person on board the said vessel or aircraft and to this end to hail and stop such vessel or aircraft
if under way, to use all necessary force to compel compliance; and if it shall appear that any breach
or violation of the customs and tariff laws of the Philippines has been committed, whereby or in
consequence of which such vessels or aircrafts, or the article, or any part thereof, on board of or
imported by such vessel or aircraft, is liable to forfeiture, to make seizure of the same or any part
thereof.

The power of search shall extend to the removal of any false bottom, partition, bulkhead or
other obstruction, so far as may be necessary to enable the officer to discover whether any dutiable
or forfeitable articles may be concealed therein.

No proceeding herein shall give rise to any claim for the damage thereby caused to article or
vessel or aircraft.

It shall also be lawful for a person exercising authority as aforesaid to open and examine any
box, trunk, envelope or other container, wherever found where he has reasonable cause to suspect
the presence therein of dutiable or prohibited article or articles introduced into the Philippines
contrary to law, and likewise to stop, search and examine any vehicle, beast or person reasonably
suspected of holding or conveying such article as aforesaid.

All persons coming into the Philippines from foreign countries shall be liable to detention
and search by the customs authorities under such regulations as may be prescribed relative thereto.

Female inspectors may be employed for the examination and search of persons of their own
sex.

Upon making any seizure, the Collector shall issue a warrant for the detention of the
property; and if the owner or importer desires to secure the release of the property for legitimate
use, the Collector may surrender it upon the filing of a sufficient bond, in an amount to be fixed by
him, conditioned for the payment of the appraised value of the article and/or any fine, expenses and
costs which may be adjudged in the case. The articles the importation of which is prohibited by law
shall not be released under bond.

When a seizure is made for any cause, the Collector of the district wherein the seizure is
effected shall immediately make report thereof to the Commissioner and to the Auditor General.

The Collector shall give the owner or importer of the property or his agent a written notice
of the seizure and shall give him an opportunity to be heard in reference to the delinquency which
was the occasion of such seizure.

For the purpose of giving such notice and of all other proceedings in the matter of such
seizure, the importer, consignee or person holding the bill of lading shall be deemed to be the
"owner" of the article included in the bill.
 For the same purpose, "agent" shall be deemed to include not only any agent in fact of the
owner of the seized property but also any person having responsible possession of the property at
the (missing) of the seizure, if the owner or his agent in fact is unknown or cannot be reached.

Notice to an unknown owner shall be effected by posting a notice for fifteen days in the
public corridor of the customhouse of the district in which the seizure was made, and, in the
discretion of the Commissioner, by publication in a newspaper or by such other means as he shall
consider desirable.

The Collector shall also cause a list and particular description of the property seized to be
prepared and an appraisement or classification of the same at its wholesale value in the local market
in the usual wholesale quantities to be made by at least two appraising officials, if there are such
officials at or near the place of seizure; in the absence of such officials, then by two competent and
disinterested citizens of the Philippines, to be selected by him for that purpose, residing at or near
the place of seizure, which list and appraisement shall be properly attested to by such Collector and
the persons making the appraisal.

If, within fifteen days after the notification prescribed in section twenty-three hundred and
four of this Code, no owner or agent can be found or appears before the Collector, the latter shall
declare the property forfeited to the government to be sold at auction in accordance with law.

If, in any seizure case, the owner or agent shall, while the case is yet before the Collector of
the district of seizure, pay to such Collector the fine imposed by him or, in case of forfeiture, shall
pay the appraised value of the property, or, if after appeal of the case, he shall pay to the
Commissioner the amount of the fine as finally determined by him, or, in case of forfeiture, shall pay
the appraised value of the property, such property shall be forthwith surrendered, and all liability
which may or might attach to the property by virtue of the offense which was the occasion of the
seizure and all liability which might have been incurred under any bond given by the owner or agent
in respect to such property shall thereupon be deemed to be discharged.

Redemption of forfeited property shall not be allowed in any case where the importation is
absolutely prohibited or where the surrender of the property to the person offering to redeem the
same would be contrary to law.

b. Judicial

1) Rules on appeal including jurisdiction

The party aggrieved by a ruling of the Commissioner in any matter brought before him upon
protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals.

Unless an appeal is made to the Court of Tax Appeals, the action or ruling of the
Commissioner shall be final and conclusive.

2) Taxpayer

a. Protest
 When a ruling or decision of the Collector is made whereby liability for duties, fees, or other
money charge is determined, except the fixing of fines in seizure cases, the party adversely affected
may protest such ruling or decision by presenting to the Collector at the time when payment of the
amount claimed to be due the Government is made, or within thirty (30) days thereafter, a written
protest setting forth his objections to the ruling or decision in question, together with the reasons
therefor. No protest shall be considered unless payment of the amount due after final liquidation has
first been made.

In all cases subject to protest, the interested party who desires to have the action of the
Collector reviewed, shall make a protest, otherwise, the action of the Collector shall be final and
conclusive against him, except as to matters correctible for manifest error.

Every protest shall point out the particular decision or ruling of the Collector to which
exception is taken or objection made, and shall indicate with reasonable precision the particular
ground or grounds upon which the protesting party bases his claim for relief.

The scope of a protest shall be limited to the subject matter of a single adjustment or other
independent transaction; but any number of issues may be raised in a protest with reference to the
particular item or items constituting the subject matter of the protest.

"Single adjustment" refers to the entire content of one liquidation, including all duties, fees,
surcharges or fines incident thereto.

If the nature of the articles permit, importers filing protests involving questions of fact must,
upon demand, supply the Collector with samples of the articles which are the subject matter of the
protests. Such samples shall be verified by the custom official who made the classification against
which the protest are filed.

When a protest in proper form is presented in a case where protest in required, the Collector
shall reexamine the matter thus presented, and if the protest is sustained, in whole or in part, he shall
enter the appropriate order, the entry reliquidated if necessary.

In seizure cases, the Collector, after a hearing, shall in writing make a declaration of
forfeiture or fix the amount of the fine or take such other action as may be proper.

The person aggrieved by the decision or action of the Collector in any matter presented
upon protest or by his action in any case of seizure may, within fifteen (15) days after notification in
writing by the Collector of his action or decision, give written notice to the Collector of his desire to
have the matter reviewed by the Commissioner. Thereupon the Collector shall forthwith transmit all
the records of the proceedings to the Commissioner, who shall approve, modify or reverse the
action or decision of the Collector and take such steps and make such orders as may be necessary to
give effect to his decision.

Notice of the decision of the Commissioner shall be given to the party by whom the case
was brought before him for review, and in seizure cases such notice shall be effected by personal
service if practicable.
 If in any case involving the assessment of duties the importer shall fail to protest the ruling
of the Collector, and the Commissioner shall be of the opinion that the ruling was erroneous and
unfavorable to the Government, the latter may order a reliquidation; and if the ruling of the
Commissioner in any unprotested case should, in the opinion of the department head, be erroneous
and unfavorable to the Government, the department head may require the Commissioner to order a
reliquidation.

b. Abandonment

Express - when it is made direct to the Collector by the interested party in writing.
Implied when an intention to abandon can be clearly inferred from the action or omission
of the interested party.
The failure of any interested party to file the import entry within fifteen days or any
extension thereof from the discharge of the vessel or aircraft shall be implied abandonment.

An implied abandonment shall not be effective until the article is declared by the Collector
to have been abandoned after notice thereof is given to the interested party as in seizure cases.

Any person who abandons an imported article renounces all his interests and property rights
therein.

The owner or importer of any articles may, within ten (10) days after filing of the import
entry, abandon to the Government all or a part of the articles included in an invoice, and, thereupon,
he shall be relieved from the payment of duties, taxes and all other charges and expenses due
thereon.

The portion so abandoned is not less than ten per cent (10%) of the total invoice and is not
less than one package, except in cases of articles imported for personal or family use. The article so
abandoned shall be delivered by the owner or importer at such place within the port of arrival as the
Collector shall designate, and upon his failure to so comply, the owner or importer shall be liable for
all expenses that may be incurred in connection with the disposition of the articles.

Nothing shall be construed as relieving such owner or importer from any criminal liability
which may arise from any violation of law committed in connection with the importation of the
abandoned article.

The owner or importer of an article impliedly abandoned may, at any time before it is sold or
otherwise disposed of, reclaim such article provided all legal requirements regarding its importation
are complied with and the corresponding duties, taxes and other charges as well as all expenses
incurred as a consequence of the abandonment, are paid.

c. Abatement and refund

No abatement of duties shall be made on account of damage incurred or deterioration
suffered during the voyage of importation; and duties will be assessed on the actual quantity
imported, as shown by the return of weighers, gaugers, measures, examiners or appraisers, as the
case may be.
 When any package or packages appearing on the manifest or bill of lading are missing, a
remission or refund of the duty thereon shall be made if it is shown by proof satisfactory to the
Collector that the package or packages in question have not been imported into the Philippines.
If, upon opening any package, a deficiency or absence of any article, or of part of the
contents thereof, as called for by the invoice shall be found to exist, such deficiency shall be certified
to the Collector by the appraiser; and upon the production of proof satisfactory to the Collector
showing that the shortage occurred before the arrival of the article in the Philippines, the proper
abatement or refund of the duty shall be made.
A Collector may abate or refund the amount of duties accruing or paid, and may likewise
make a corresponding allowance or credit on the entry bond, or other document, upon satisfactory
proof of the injury, destruction, or loss by theft, fire or other causes of any article as follows:
a. While within the limits of any port of entry prior to unlading under customs supervision.
b. While remaining in customs custody after unlading.
c. While in transit under bond from the port of entry to any port in the Philippines.
d. While released under bond to export, except in case of loss by theft.

Where it is satisfactorily shown to the Collector that an animal which is the subject of
importation dies or suffers injury before arrival, or while in customs custody, the duty shall be
correspondingly abated by him, provided the carcass of any dead animal remaining on board or in
customs custody be removed in the manner required by the Collector and at the expense of the
importer.
The Collector shall in all cases of allowances, abatements or refunds of duties, cause an
examination and report in writing to be made as to any fact discovered during such examination
which tends to account for the discrepancy or difference and cause the corresponding adjustment to
be made on the import entry.
Manifest clerical errors made in an invoice or entry, errors in return of weight, measure and
gauge, when duly certified to by the surveyor or examining official and errors in the distribution of
charges on invoices not involving any question of law and certified to by the examining official, may
be corrected in the computation of duties, if such errors be discovered before the payment of duties,
or, if discovered within one year after the final liquidation, upon written request and notice of error
from the importer, or upon statement of error certified by the Collector.
For the purpose of correcting the specified errors, the Collector is authorized to reliquidate
entries and collect additional charges, or to make refunds on statement of error within the statutory
time limit.
All claims for refund of duties shall be made in writing, and forwarded to the Collector to
whom such duties are paid, who upon receipt of such claim shall verify the same by the records of
his office, and if found to be correct and in accordance with law, shall certify the same to the
Commissioner with his recommendation together with all necessary papers and documents. Upon
receipt by the Commissioner of such certified claim he shall cause the same to be paid if found
correct.
V. Judicial Remedies

A. Jurisdiction of the Court of Tax Appeals

1. Exclusive appellate jurisdiction over civil tax cases

a. Cases within the jurisdiction of the Court en banc

(a) Decisions or resolutions on motions for reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive appellate jurisdiction over:

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

(2) Local tax cases decided by the Regional Trial Courts in the exercise of their
original jurisdiction; and
 (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their
original jurisdiction involving final and executory assessments for taxes, fees, charges and
penalties, where the principal amount of taxes and penalties claimed is less than one million
pesos;

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

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

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

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

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

(g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court
in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in
the preceding subparagraph; and

(h) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their
appellate jurisdiction over criminal offenses mentioned in subparagraph (f).

b. Cases within the jurisdiction of the Court in divisions

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

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

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
or other applicable law provides a specific period for action.

In case of disputed assessments, the inaction of the Commissioner of Internal

Revenue within the one hundred eighty day-period under Section 228 of the National
Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to
appeal his case to the Court and does not necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case.

Should the taxpayer opt to await the final decision of the Commissioner of Internal
Revenue on the disputed assessments beyond the one hundred eighty day-period
abovementioned, the taxpayer may appeal such final decision to the Court under Section
3(a), Rule 8 of these Rules.

In the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of the two-year
period under Section 229 of the National Internal Revenue Code;

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

(4) Decisions of the Commissioner of Customs in cases involving liability for

customs duties, fees or other money charges, seizure, detention or release of property
affected, fines, forfeitures of other penalties in relation thereto, or other matters arising
under the Customs Law or other laws administered by the Bureau of Customs;

(5) Decisions of the Secretary of Finance on customs cases elevated to him

automatically for review from decisions of the Commissioner of Customs adverse to the
Government under Section 2315 of the Tariff and Customs Code; and

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

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

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

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

(c) Exclusive jurisdiction over tax collections cases, to wit:

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

(2) Appellate jurisdiction over appeals from the judgments, resolutions or orders of
the Regional Trial Courts in tax collection cases originally decided by them within their
respective territorial jurisdiction.

2. Criminal cases

a. Exclusive original jurisdiction

Over all criminal cases arising from violations of the NIRC or Tariff and Customs Code and
other laws administered by the BIR or the Bureau of Customs

Where the principal amount of taxes and fees, exclusive of charges and penalties claimed is
less than one million pesos (P1,000, 000. 00) or where there is no specified amount claimed - the
offenses or penalties shall be tried by the regular courts and the jurisdiction of the CTA shall be
appellate.

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

b. Exclusive appellate jurisdiction in criminal cases

Over appeals from the judgments, resolutions or orders of the RTC in tax cases originally
decided by them, in their respective territorial jurisdiction.

Over petitions for review of the judgments, resolutions, or orders of the RTC in the exercise
of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts in their respective jurisdiction.

B. Judicial Procedures

1. Judicial action for collection of taxes

a. Internal revenue taxes

Upon the issuance of any ruling, order or decision by the CTA favorable to the national
government, the CTA shall issue an order authorizing the Bureau of Internal Revenue, through the
Commissioner to seize and distraint any goods, chattels, or effects, and the personal property,
including stocks and other securities, debts, credits, bank accounts, and interests in and rights to
personal property and/or levy the real property of such persons in sufficient quantity to satisfy the
tax or charge together with any increment thereto incident to delinquency. This remedy shall not be
exclusive and shall not preclude the Court from availing of other means under the Rules of Court.
 b. Local taxes

1) Prescriptive period

Five (5) years from date of assessment.

2. Civil cases

a. Who may appeal, mode of appeal, effect of appeal

Any party adversely affected by a decision, ruling or inaction of the Commissioner of
Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade
and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the
Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of
such decision or ruling or after the expiration of the period fixed by law for action as referred to in
Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30)
days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the
expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the appeal:
With respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional
Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for
review under a procedure analogous to that provided for under Rule 43 of the 1997 Rules of Civil
Procedure with the CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in
Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of
a Division of the CTA may file a motion for reconsideration of new trial before the same Division
of the CTA within fifteens (15) days from notice thereof: Provide, however, That in criminal cases,
the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise
apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or
the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or
the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the
case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer
for the satisfaction of his tax liability as provided by existing law. When in the opinion of the Court
the collection by the aforementioned government agencies may jeopardize the interest of the
Government and/or the taxpayer the Court any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for
not more than double the amount with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the
Government may directly file the said cases with the CTA covering amounts within its exclusive and
original jurisdiction.
1) Suspension of collection of tax

a) Injunction not available to restrain collection

 Sec. 11 of RA No. 1125 grants CTA power to suspend collection of tax if such collection
works to serious prejudice of either taxpayer or government.

However, Sec. 218 of the Tax Code provides that no court may grant injunction to restrain
collection of any tax, fee or charge imposed by Tax Code.

Appeal to the CTA does not automatically suspend collection unless CTA issues suspension
order at any stage of proceedings.

2) Taking of evidence

The Court may direct that a case, or any issue thereof, be assigned to one of its members for
the taking of evidence, when the determination of a question of fact arises upon motion or
otherwise in any stage of the proceedings, or when the taking of an account is necessary, or when
the determination of an issue of fact requires the examination of a long account. The hearing before
such member shall proceed in all respects as though the same had been made before the Court.

Upon the recommendation of such hearing of such member, he shall promptly submit to the
Court his report in writing, stating his findings and conclusions; and thereafter, the Court shall
render its decisions on the case, adopting, modifying, or rejecting the report or the Court may
recommit it with instructions, or receive further evidence.

3) Motion for reconsideration or New trial

A party adversely affected by a decision or resolution of a Division of the Court on a motion

for reconsideration or new trial may appeal to the Court by filing before it a petition for review
within fifteen days from receipt of a copy of the questioned decision or resolution. Upon proper
motion and the payment of the full amount of the docket and other lawful fees and deposit for costs
before the expiration of the reglementary period herein fixed, the Court may grant an additional
period not exceeding fifteen days from the expiration of the original period within which to file the
petition for review.

An appeal from a decision or resolution of the Court in Division on a motion for

reconsideration or new trial shall be taken to the Court by petition for review. The Court en banc
shall act on the appeal.

b. Appeal to the CTA, en banc

No civil proceeding involving matter arising under the National Internal Revenue Code, the
Tariff and Customs Code or the Local Government Code shall be maintained, until and unless an
appeal has been previously filed with the CTA and disposed of.
"A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
 c. Petition for review on certiorari to the Supreme Court

A party adversely affected by a decision or ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on certiorari.
3. Criminal cases

a. Institution and prosecution of criminal actions

1) Institution on civil action in criminal action

In cases within the jurisdiction of the Court, the criminal action and the corresponding civil
action for the recovery of civil liability for taxes and penalties shall be deemed jointly instituted in
the same proceeding. The filing of the criminal action shall necessarily carry with it the filing of the
civil action. No right to reserve the filing of such civil action separately from the criminal action shall
be allowed or recognized.

b. Appeal and period to appeal

1) Solicitor General as counsel for the People and

government officials sued in their official capacity

The Solicitor General shall represent the People of the Philippines and government officials
sued in their official capacity in all cases brought to the Court in the exercise of its appellate
jurisdiction. He may deputized the legal officers of the Bureau of Internal Revenue in cases brought
under the National Internal Revenue Code or other laws enforced by the Bureau of Internal
Revenue, or the legal officers of the Bureau of Customs in cases brought under the Tariff and
Customs Code of the Philippines or other laws enforced by the Bureau of Customs, to appear in
behalf of the officials of said agencies sued in their official capacity. Such duly deputized legal
officers shall remain at all times under the direct control and supervision of the Solicitor General.

c. Petition for review on certiorari to the Supreme Court

A party adversely affected by a decision or ruling of the Court en banc may appeal therefrom
by filing with the Supreme Court a verified petition for review on certiorari within fifteen (15) days
from receipt of a copy of the decision or resolution. If such party has filed a motion for
reconsideration or for new trial, the period herein fixed shall run from the partys receipt of a copy
of the resolution denying the motion for reconsideration or for new trial.

C. Taxpayers suit impugning the validity of tax measures or acts of taxing authorities

a. Taxpayers suit, defined

 A case where the act complained of directly involves the illegal disbursement of public funds
derived from taxation.

b. Distinguished from citizens suit

The plaintiff in a taxpayers suit is in a different category from the plaintiff in a citizens suit.
In the former, the plaintiff is affected by the expenditure of public funds, while in the latter, he is
but the mere instrument of the public concern.

c. Requisites for challenging the constitutionality of a tax measure or

act of taxing authority

1) Concept of locus standi as applied in taxation

It is a partys personal and substantial interest in the case, such that the party has sustained
or will sustain direct injury as a result of the government act being challenged. It calls for more than
just a generalized grievance.

A party need not be a party to the contract to challenge its validity.

2) Doctrine of transcendental importance

The Court has adopted a rule that even where the petitioners have failed to show direct
injury, they have been allowed to sue under the principle of "transcendental importance."
The doctrine applies when paramount public interest is involved.

3) Ripeness for judicial determination

In our jurisdiction, the issue of ripeness is generally treated in terms of actual injury to the
plaintiff. Hence, a question is ripe for adjudication when the act being challenged has had a direct
adverse effect on the individual challenging it. An alternative road to review similarly taken would be
to determine whether an action has already been accomplished or performed by a branch of
government before the courts may step in.
To be ripe for judicial adjudication, the petitioner must show a personal stake in the
outcome of the case or an injury to himself that can be redressed by a favorable decision of the
Court.
 Reference

National Internal Revenue Code of the Phils.

Sec. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax
Administration and Enforcement.

xxx

(F) Authority of the Commissioner to inquire into Bank Deposit Accounts. - Notwithstanding
any contrary provision of Republic Act No. 1405 and other general or special laws, the Commissioner is
hereby authorized to inquire into the bank deposits of:

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

(2) any taxpayer who has filed an application for compromise of his tax liability under Sec. 204 (A) (2)
of this Code by reason of financial incapacity to pay his tax liability.

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

Sec. 24

Sec. 32 (B)(6)(a)

Retirement benefits received under Republic Act No. 7641 and those received by officials and employees
of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by
the employer: Provided, That the retiring official or employee has been in the service of the same employer for at
least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: Provided, further, That
the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purposes
of this Subsection, the term 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing
plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions
are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials
and employees the earnings and principal of the fund thus accumulated, and wherein its is provided in said plan that
at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than
for the exclusive benefit of the said officials and employees.

SEC. 33. Special Treatment of Fringe Benefit.-

(A) Imposition of Tax.- A final tax of thirty-four percent (34%) effective January 1, 1998; thirty-three
percent (33%) effective January 1, 1999; and thirty-two percent (32%) effective January 1, 2000 and thereafter, is
hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except
rank and file employees as defined herein) by the employer, whether an individual or a corporation (unless the fringe
benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the
fringe benefit is for the convenience or advantage of the employer). The tax herein imposed is payable by the
employer which tax shall be paid in the same manner as provided for under Section 57 (A) of this Code. The
grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the
fringe benefit by sixty-six percent (66%) effective January 1, 1998; sixty-seven percent (67%) effective January 1,
1999; and sixty-eight percent (68%) effective January 1, 2000 and thereafter: Provided, however, That fringe benefit
furnished to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the
applicable rates imposed thereat: Provided, further, That the grossed -Up value of the fringe benefit shall be
determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred
percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25.
(B) Fringe Benefit defined.- For purposes of this Section, the term "fringe benefit" means any good,
service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except
rank and file employees as defined herein) such as, but not limited to, the following:
(1) Housing;
(2) Expenseaccount;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference between the market rate and
actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for the employee in social and
athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what
the law allows.

(C) Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:
(1) fringe benefits which are authorized and exempted from tax under special laws;
(2) Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans;
(3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement
or not; and
(4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.
SEC. 58. Returns and Payment of Taxes Withheld at Source. -
(A) Quarterly Returns and Payments of Taxes Withheld. - Taxes deducted and withheld under Section 57
by withholding agents shall be covered by a return and paid to, except in cases where the Commissioner otherwise
permits, an authorized Treasurer of the city or municipality where the withholding agent has his legal residence or
principal place of business, or where the withholding agent is a corporation, where the principal office is located.
The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the
government until paid to the collecting officers.
The return for final withholding tax shall be filed and the payment made within twenty-five (25) days from
the close of each calendar quarter, while the return for creditable withholding taxes shall be filed and the payment
made not later than the last day of the month following the close of the quarter during which withholding was made:
Provided, That the Commissioner, with the approval of the Secretary of Finance, may require these withholding
agents to pay or deposit the taxes deducted or withheld at more frequent intervals when necessary to protect the
interest of the government.
(B) Statement of Income Payments Made and Taxes Withheld. - Every withholding agent required to
deduct and withhold taxes under Section 57 shall furnish each recipient, in respect to his or its receipts during the
calendar quarter or year, a written statement showing the income or other payments made by the withholding agent
during such quarter or year, and the amount of the tax deducted and withheld therefrom, simultaneously upon
payment at the request of the payee, but not late than the twentieth (20th) day following the close of the quarter in
the case of corporate payee, or not later than March 1 of the following year in the case of individual payee for
creditable withholding taxes. For final withholding taxes, the statement should be given to the payee on or before
January 31 of the succeeding year.
(C) Annual Information Return. - Every withholding agent required to deduct and withhold taxes under
Section 57 shall submit to the Commissioner an annual information return containing the list of payees and income
payments, amount of taxes withheld from each payee and such other pertinent information as may be required by the
Commissioner. In the case of final withholding taxes, the return shall be filed on or before January 31 of the
succeeding year, and for creditable withholding taxes, not later than March 1 of the year following the year for
which the annual report is being submitted. This return, if made and filed in accordance with the rules and
regulations approved by the Secretary of Finance, upon recommendation of the Commissioner, shall be sufficient
compliance with the requirements of Section 68 of this Title in respect to the income payments.
The Commissioner may, by rules and regulations, grant to any withholding agent a reasonable extension of
time to furnish and submit the return required in this Subsection.
(D) Income of Recipient. - Income upon which any creditable tax is required to be withheld at source under
Section 57 shall be included in the return of its recipient but the excess of the amount of tax so withheld over the tax
due on his return shall be refunded to him subject to the provisions of Section 204; if the income tax collected at
source is less than the tax due on his return, the difference shall be paid in accordance with the provisions of Section
56.
All taxes withheld pursuant to the provisions of this Code and its implementing rules and regulations are
hereby considered trust funds and shall be maintained in a separate account and not commingled with any other
funds of the withholding agent.
(E) Registration with Register of Deeds. - No registration of any document transferring real property shall
be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that
such transfer has been reported, and the capital gains or creditable withholding tax, if any, has been paid: Provided,
however, That the information as may be required by rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, shall be annotated by the Register of Deeds in the Transfer
Certificate of Title or Condominium Certificate of Title: Provided, further, That in cases of transfer of property to a
corporation, pursuant to a merger, consolidation or reorganization, and where the law allows deferred recognition of
income in accordance with Section 40, the information as may be required by rules and regulations to be prescribed
by the Secretary of Finance, upon recommendation of the Commissioner, shall be annotated by the Register of
Deeds at the back of the Transfer Certificate of Title or Condominium Certificate of Title of the real property
involved: Provided, finally, That any violation of this provision by the Register of Deeds shall be subject to the
penalties imposed under Section 269 of this Code.
Sec.. 75.
Declaration of Quarterly Corporate Income Tax. - Every corporation shall file in duplicate a quarterly
summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters
upon which the income tax, as provided in Title II of this Code, shall be levied, collected and paid. The tax so
computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and
shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year,
whether calendar or fiscal year.
Sec. 106

(a) Export Sales. - The term "export sales" means:

 (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the
goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the
said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);

(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.

(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" means sale to
a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

(c) Sales to persons or entities whose exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects such sales to zero rate.

Sec. 108

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate.

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; `

(4) Services rendered to vessels engaged exclusively in international shipping; and

(5) Services performed by subcontractors and/or contractors in processing, converting, of manufacturing goods
for an enterprise whose export sales exceed seventy percent (70%) of total annual production.

SEC. 111. Transitional/Presumptive Input Tax Credits. -

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations
prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent for eight percent (8%) of the value of such
inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall
be creditable against the output tax.

(B) Presumptive Input Tax Credits. -

(1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing
refined sugar and cooking oil, shall be allowed a presumptive input tax, creditable against the output tax, equivalent
to one and one-half percent (1 1/2%) of the gross value in money of their purchases of primary agricultural products
which are used as inputs to their production.

As used in this Subsection, the term "processing" shall mean pasteurization, canning and activities which
through physical or chemical process alter the exterior texture or form or inner substance of a product in such
manner as to prepare it for special use to which it could not have been put in its original form or condition.

(2) Public works contractors shall be allowed a presumptive input tax equivalent to one and one-half
percent (1 1/2%) of the contract price with respect to government contracts only in lieu of actual input taxes
therefrom.

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-Rated or Effectively Zero-Rated Sales. - any VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.
(B) Capital Goods. - A VAT-registered person may apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have
not been applied against output taxes. The application may be made only within two (2) years after the close of the
taxable quarter when the importation or purchase was made.
(C) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may,
within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused
input tax which may be used in payment of his other internal revenue taxes.

(D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of compete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.-

(E) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by
his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on
audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds
under this paragraph shall be subject to post audit by the Commission on Audit.
SEC. 113.

Invoicing and Accounting Requirements for VAT-Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt.
In addition to the information required under Section 237, the following information shall be indicated in the invoice
or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number
(TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that
such amount includes the value-added tax.

(B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary of Finance.
Sec. 143. Tax on Business. - The municipality may impose taxes on the following businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature,
in accordance with the following schedule:
With gross sales or receipts for the precedingAmount of Tax Per
calendar year in the amount of: Annum
Less than 10,000.00 165.00
P 10,000.00 or more but less than 15,000.00 220.00
15,000.00 or more but less than 20,000.00 202.00
20,000.00 or more but less than 30,000.00 440.00
30,000.00 or more but less than 40,000.00 660.00
40,000.00 or more but less than 50,000.00 825.00
50,000.00 or more but less than 75,000.00 1,320.00
75,000.00 or more but less than 100,000.00 1,650.00
100,000.00 or more but less than 150,000.00 2,200.00
150,000.00 or more but less than 200,000.00 2,750.00
200,000.00 or more but less than 300,000.00 3,850.00
300,000.00 or more but less than 500,000.00 5,500.00
500,000.00 or more but less than 750,000.00 8,000.00
750,000.00 or more but less than 1,000,000.00 10,000.00
1,000,000.00 or more but less than 2,000,000.00 13,750.00
2,000,000.00 or more but less than 3,000,000.00 16,500.00
3,000,000.00 or more but less than 4,000,000.00 19,000.00
4,000,000.00 or more but less than 5,000,000.00 23,100.00
5,000,000.00 or more but less than 6,500,000.00 24,375.00
6,000,000.00 or more at a rate not exceeding thirty-seven and a half percent
(37%) of one percent (1%)
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in
accordance with the following schedule:
With gross sales or receipts for the preceding Amount of Tax Per
calendar year in the amount of: Annum
Less than 1,000.00 18.00
P 1,000.00 or more but less than 2,000.00 33.00
2,000.00 or more but less than 3,000.00 50.00
3,000.00 or more but less than 4,000.00 72.00
4,000.00 or more but less than 5,000.00 100.00
5,000.00 or more but less than 6,000.00 121.00
6,000.00 or more but less than 7,000.00 143.00
 7,000.00 or more but less than 8,000.00 165.00
8,000.00 or more but less than 10,000.00 187.00
10,000.00 or more but less than 15,000.00 220.00
15,000.00 or more but less than 20,000.00 275.00
20,000.00 or more but less than 30,000.00 330.00
30,000.00 or more but less than 40,000.00 440.00
40,000.00 or more but less than 50,000.00 660.00
50,000.00 or more but less than 75,000.00 990.00
75,000.00 or more but less than 100,000.00 1,320.00
100,000.00 or more but less than 150,000.00 1,870.00
150,000.00 or more but less than 200,000.00 2,420.00
200,000.00 or more but less than 300,000.00 3,300.00
300,000.00 or more but less than 500,000.00 4,400.00
500,000.00 or more but less than 750,000.00 6,600.00
750,000.00 or more but less than 1,000,000.00 8,800.00
1,000,000.00 or more but less than 2,000,000.00 10,000.00
2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one
percent (1%).
(c) On exporters, and on manufacturers , millers, producers, wholesalers, distributors, dealers or retailers of
essential commodities enumerated hereunder at a rate not exceeding one-half () of the rates prescribed under
subsection (a), (b) and (d) of this Section:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved
food, sugar, salt and other agricultural, marine, and fresh water products, whether in their original
state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements. equipment and post-harvest facilities, fertilizers, pesticides,
insecticides, herbicides and other farm inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
(d) On retailers.
With gross sales or receipts for the preceding calendar Rate of Tax Per
year in the amount of: Annum
P400,000.00 or less 2%
more than P400,000.00 1%
Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section
152 hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00)
or less, in the case of cities, and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities.
(e) On contractors and other independent contractors, in accordance with the following schedule:
With gross sales or receipts for the preceding Amount of Tax Per
calendar year in the amount of: Annum
Less than 5,000.00 27.50
P 5,000.00 or more but less than P 10,000.00 61.60
10,000.00 or more but less than 15,000.00 104.50
15,000.00 or more but less than 20,000.00 165.00
20,000.00 or more but less than 30,000.00 275.00
30,000.00 or more but less than 40,000.00 385.00
40,000.00 or more but less than 50,000.00 550.00
 50,000.00 or more but less than 75,000.00 880.00
75,000.00 or more but less than 100,000.00 1,320.00
100,000.00 or more but less than 150,000.00 1,980.00
150,000.00 or more but less than 200,000.00 2,640.00
200,000.00 or more but less than 250,000.00 3,630.00
250,000.00 or more but less than 300,000.00 4,620.00
300,000.00 or more but less than 400,000.00 6,160.00
400,000.00 or more but less than 500,000.00 8,250.00
500,000.00 or more but less than 750,000.00 9,250.00
750,000.00 or more but less than 1,000,000.00 10,250.00
1,000,000.00 or more but less than 2,000,000.00 11,500.00
2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one
percent (1%)
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%)
on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from
lending activities, income from financial leasing, dividends, rentals on property and profit from exchange
or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding
Fifty pesos (P50.00) per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned
may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage
tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent
(2%) of gross sales or receipts of the preceding calendar year.
The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the
rates prescribed herein.

SEC. 236. Registration Requirements. -

(A) Requirements. - Every person subject to any internal revenue tax shall register once with the appropriate
Revenue District Officer:

(1) Within ten (10) days from date of employment, or

(2) On or before the commencement of business,or

(3) Before payment of any tax due, or

(4) Upon filing of a return, statement or declaration as required in this Code.

The registration shall contain the taxpayer's name, style, place of residence, business and such other information as
may be required by the Commissioner in the form prescribed therefor.

A person maintaining a head office, branch or facility shall register with the Revenue District Officer having
jurisdiction over the head office, brand or facility. For purposes of this Section, the term "facility" may include but
not be limited to sales outlets, places of production, warehouses or storage places.

(B) Annual Registration Fee. - An annual registration fee in the amount of Five hundred pesos (P500) for every
separate or distinct establishment or place of business, including facility types where sales transactions occur, shall
be paid upon registration and every year thereafter on or before the last day of January: Provided, however, That
cooperatives, individuals earning purely compensation income, whether locally or abroad, and overseas workers are
not liable to the registration fee herein imposed.
The registration fee shall be paid to an authorized agent bank located within the revenue district, or to the Revenue
Collection Officer, or duly authorized Treasurer of the city of municipality where each place of business or branch is
registered.

(C) Registration of Each Type of Internal Revenue Tax. - Every person who is required to register with the Bureau
of Internal Revenue under Subsection (A) hereof, shall register each type of internal revenue tax for which he is
obligated, shall file a return and shall pay such taxes, and shall updates such registration of any changes in
accordance with Subsection (E) hereof.

(D) Transfer of Registration. - In case a registered person decides to transfer his place of business or his head office
or branches, it shall be his duty to update his registration status by filing an application for registration information
update in the form prescribed therefor.

(E) Other Updates. - Any person registered in accordance with this Section shall, whenever applicable, update his
registration information with the Revenue District Office where he is registered, specifying therein any change in
type and other taxpayer details.

(F) Cancellation of Registration. - The registration of any person who ceases to be liable to a tax type shall be
cancelled upon filing with the Revenue District Office where he is registered an application for registration
information update in a form prescribed therefor.

(G) Persons Commencing Business. - Any person, who expects to realize gross sales or receipts subject to value-
added tax in excess of the amount prescribed under Section 109(z) of this Code for the next 12-month period from
the commencement of the business, shall register with the Revenue District Office which has jurisdiction over the
head office or branch and shall pay the annual registration fee prescribed in Subsection (B) hereof.

(H) Persons Becoming Liable to the Value-added Tax. - Any person, whose gross sales or receipts in any 12-month
period exceeds the amount prescribed under Subsection 109(z) of this Code for exemption from the value-added tax
shall register in accordance with Subsection (A) hereof, and shall pay the annual registration fee prescribed within
ten (10) days after the end of the last month of that period, and shall be liable to the value-added tax commencing
from the first day of the month following his registration.

(I) Optional Registration of Exempt Person. - Any person whose transactions are exempt from value-added tax
under Section 109(z) of this Code; or any person whose transactions are exempt from the value-added tax under
Section 109(a), (b), (c), and (d) of this Code, who opts to register as a VAT taxpayer with respect to his export sales
only, may update his registration information in accordance with Subsection (E) hereof, not later than ten (10) days
before the beginning of the taxable quarter and shall pay the annual registration fee prescribed in Subsection (B)
hereof.

In any case, the Commissioner may, for administrative reasons, deny any application for registration including
updates prescribed under Subsection (E) hereof.

For purposes of Title IV of this Code, any person who has registered value-added tax as a tax type in accordance
with the provisions of Subsection (C) hereof shall be referred to as VAT-registered person who shall be assigned
only one Taxpayer Identification Number.

(J) Supplying of Taxpayer Identification Number (TIN). - Any person required under the authority of this Code to
make, render or file a return, statement or other document shall be supplied with or assigned a Taxpayer
Identification Number (TIN) which he shall indicate in such return, statement or document filed with the Bureau of
Internal Revenue for his proper identification for tax purposes, and which he shall indicate in certain documents,
such as, but not limited to the following:

(1) Sugar quedans, refined sugar release order or similar instruments;

(2) Domestic bills of lading;
(3) Documents to be registered with the Register of Deeds of Assessor's Office;
(4) Registration certificate of transportation equipment by land, sea or air;
 (5) Documents to be registered with the Securities and Exchange Commission;
(6) Building construction permits;
(7) Application for loan with banks, financial institutions, or other financial intermediaries;
(8) Application for mayor's permit;
(9) Application for business license with the Department of Trade & Industry; and
(10) Such other documents which may hereafter be required under rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.

In cases where a registered taxpayer dies, the administrator or executor shall register the estate of the
decedent in accordance with Subsection (A) hereof and a new Taxpayer Identification Number (TIN) shall be
supplied in accordance with the provisions of this Section.

In the case of a nonresident decedent, the executor or administrator of the estate shall register the estate
with the Revenue District Office where he is registered: Provided, however, That in case such executor or
administrator is not registered, registration of the estate shall be made with the Taxpayer Identification Number
(TIN) supplied by the Revenue District Office having jurisdiction over his legal residence.

Only one Taxpayer identification Number (TIN) shall be assigned to a taxpayer. Any person who shall
secure more than one Taxpayer Identification Number shall be criminally liable under the provision of Section 275
on 'Violation of Other Provisions of this Code or Regulations in General'.

Sec. 237.

Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal revenue tax shall,
for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue
duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of
transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the
case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of the
amount, where the sale or transfer is made by a person liable to value-added tax to another person also liable to
value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or
fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the
purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to
the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN)
of the purchaser.

The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same
in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or
receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a
like period.

The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from
compliance with the provisions of this Section.

SEC. 248. Civil Penalties.

xxx
 (B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and
regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent
(50%) of the tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the
discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income,
or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or
fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty
percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.

SEC. 282.

Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code
and in the Discovery and Seizure of Smuggled Goods. -

(A) For Violations of the National Internal Revenue Code. - Any person, except an internal revenue official
or employee, or other public official or employee, or his relative within the sixth degree of consanguinity, who
voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue,
leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof,
thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the
imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues,
surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000) per
case, whichever is lower. The same amount of reward shall also be given to an informer where the offender has
offered to compromise the violation of law committed by him and his offer has been accepted by the Commissioner
and collected from the offender: Provided, That should no revenue, surcharges or fees be actually recovered or
collected, such person shall not be entitled to a reward: Provided, further, That the information mentioned herein
shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his
deputies, agents or examiners, or the Secretary of Finance or any of his deputies or agents: Provided, finally, That
the reward provided herein shall be paid under rules and regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner.

(B) For Discovery and Seizure of Smuggled Goods. - To encourage the public to extend full cooperation in
eradicating smuggling, a cash reward equivalent to ten percent (10%) of the fair market value of the smuggled and
confiscated goods or One Million Pesos (P1,000,000) per case, whichever is lower, shall be given to persons
instrumental in the discovery and seizure of such smuggled goods.

The cash rewards of informers shall be subject to income tax, collected as a final withholding tax, at a rate
of ten percent (10%).
The provisions of the foregoing Subsections notwithstanding, all public officials, whether incumbent or retired, who
acquired the information in the course of the performance of their duties during their incumbency, are prohibited
from claiming informer's reward.

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RULES OF COURT

RULE 42
Petition for Review From the Regional Trial Courts to the Court of Appeals
Section 1. How appeal taken; time for filing. A party desiring to appeal from a decision of the Regional
Trial Court rendered in the exercise of its appellate jurisdiction may file a verified petition for review with the Court
of Appeals, paying at the same time to the clerk of said court the corresponding docket and other lawful fees,
depositing the amount of P500.00 for costs, and furnishing the Regional Trial Court and the adverse party with a
copy of the petition. The petition shall be filed and served within fifteen (15) days from notice of the decision sought
to be reviewed or of the denial of petitioner's motion for new trial or reconsideration filed in due time after
judgment. Upon proper motion and the payment of the full amount of the docket and other lawful fees and the
deposit for costs before the expiration of the reglementary period, the Court of Appeals may grant an additional
period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted
except for the most compelling reason and in no case to exceed fifteen (15) days. (n)
Section 2. Form and contents. The petition shall be filed in seven (7) legible copies, with the original
copy intended for the court being indicated as such by the petitioner, and shall (a) state the full names of the parties
to the case, without impleading the lower courts or judges thereof either as petitioners or respondents; (b) indicate
the specific material dates showing that it was filed on time; (c) set forth concisely a statement of the matters
involved, the issues raised, the specification of errors of fact or law, or both, allegedly committed by the Regional
Trial Court, and the reasons or arguments relied upon for the allowance of the appeal; (d) be accompanied by clearly
legible duplicate originals or true copies of the judgments or final orders of both lower courts, certified correct by
the clerk of court of the Regional Trial Court, the requisite number of plain copies thereof and of the pleadings and
other material portions of the record as would support the allegations of the petition.
The petitioner shall also submit together with the petition a certification under oath that he has not
theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or
different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state
the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or
agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5)
days therefrom. (n)
Section 3. Effect of failure to comply with requirements. The failure of the petitioner to comply with any
of the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof
of service of the petition, and the contents of and the documents which should accompany the petition shall be
sufficient ground for the dismissal thereof. (n)
Section 4. Action on the petition. The Court of Appeals may require the respondent to file a comment on
the petition, not a motion to dismiss, within ten (10) days from notice, or dismiss the petition if it finds the same to
be patently without merit, prosecuted manifestly for delay, or that the questions raised therein are too insubstantial to
require consideration. (n)
Section 5. Contents of comment. The comment of the respondent shall be filed in seven (7) legible
copies, accompanied by certified true copies of such material portions of the record referred to therein together with
other supporting papers and shall (a) state whether or not he accepts the statement of matters involved in the
petition; (b) point out such insufficiencies or inaccuracies as he believes exist in petitioner's statement of matters
involved but without repetition; and (c) state the reasons why the petition should not be given due course. A copy
thereof shall be served on the petitioner. (a)
Section 6. Due course. If upon the filing of the comment or such other pleadings as the court may allow
or require, or after the expiration of the period for the filing thereof without such comment or pleading having been
submitted, the Court of Appeals finds prima facie that the lower court has committed an error of fact or law that will
warrant a reversal or modification of the appealed decision, it may accordingly give due course to the petition. (n)
Section 7. Elevation of record. Whenever the Court of Appeals deems it necessary, it may order the
clerk of court of the Regional Trial Court to elevate the original record of the case including the oral and
documentary evidence within fifteen (15) days from notice. (n)
Section 8. Perfection of appeal; effect thereof. (a) Upon the timely filing of a petition for review and the
payment of the corresponding docket and other lawful fees, the appeal is deemed perfected as to the petitioner.
The Regional Trial Court loses jurisdiction over the case upon the perfection of the appeals filed in due time and the
expiration of the time to appeal of the other parties.
However, before the Court of Appeals gives due course to the petition, the Regional Trial Court may issue orders for
the protection and preservation of the rights of the parties which do not involve any matter litigated by the appeal,
approve compromises, permit appeals of indigent litigants, order execution pending appeal in accordance with
section 2 of Rule 39, and allow withdrawal of the appeal. (9a, R41)
(b) Except in civil cases decided under the Rule on Summary Procedure, the appeal shall stay the judgment or final
order unless the Court of Appeals, the law, or these Rules shall provide otherwise. (a)
Section 9. Submission for decision. If the petition is given due course, the Court of Appeals may set the
case for oral argument or require the parties to submit memoranda within a period of fifteen (15) days from notice.
The case shall be deemed submitted for decision upon the filing of the last pleading or memorandum required by
these Rules or by the court itself. (n)

RULE 43
Appeals From the Court of Tax Appeals and Quasi-Judicial Agencies to the Court of Appeals
Section 1. Scope. This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the
exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central Board of
Assessment Appeals, Securities and Exchange Commission, Office of the President, Land Registration Authority,
Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer,
National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission,
Department of Agrarian Reform under Republic Act No. 6657, Government Service Insurance System, Employees
Compensation Commission, Agricultural Invention Board, Insurance Commission, Philippine Atomic Energy
Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators
authorized by law. (n)
Section 2. Cases not covered. This Rule shall not apply to judgments or final orders issued under the
Labor Code of the Philippines. (n)
Section 3. Where to appeal. An appeal under this Rule may be taken to the Court of Appeals within the
period and in the manner herein provided, whether the appeal involves questions of fact, of law, or mixed questions
of fact and law. (n)
Section 4. Period of appeal. The appeal shall be taken within fifteen (15) days from notice of the award,
judgment, final order or resolution, or from the date of its last publication, if publication is required by law for its
effectivity, or of the denial of petitioner's motion for new trial or reconsideration duly filed in accordance with the
governing law of the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper
motion and the payment of the full amount of the docket fee before the expiration of the reglementary period, the
Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for
review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen
(15) days. (n)
Section 5. How appeal taken. Appeal shall be taken by filing a verified petition for review in seven (7)
legible copies with the Court of Appeals, with proof of service of a copy thereof on the adverse party and on the
court or agency a quo. The original copy of the petition intended for the Court of Appeals shall be indicated as such
by the petitioner.
Upon the filing of the petition, the petitioner shall pay to the clerk of court of the Court of Appeals the docketing and
other lawful fees and deposit the sum of P500.00 for costs. Exemption from payment of docketing and other lawful
fees and the deposit for costs may be granted by the Court of Appeals upon a verified motion setting forth valid
grounds therefor. If the Court of Appeals denies the motion, the petitioner shall pay the docketing and other lawful
fees and deposit for costs within fifteen (15) days from notice of the denial. (n)
Section 6. Contents of the petition. The petition for review shall (a) state the full names of the parties to
the case, without impleading the court or agencies either as petitioners or respondents; (b) contain a concise
statement of the facts and issues involved and the grounds relied upon for the review; (c) be accompanied by a
clearly legible duplicate original or a certified true copy of the award, judgment, final order or resolution appealed
from, together with certified true copies of such material portions of the record referred to therein and other
supporting papers; and (d) contain a sworn certification against forum shopping as provided in the last paragraph of
section 2, Rule 42. The petition shall state the specific material dates showing that it was filed within the period
fixed herein. (2a)
Section 7. Effect of failure to comply with requirements. The failure of the petitioner to comply with any
of the foregoing requirements regarding the payment of the docket and other lawful fees, the deposit for costs, proof
of service of the petition, and the contents of and the documents which should accompany the petition shall be
sufficient ground for the dismissal thereof. (n)
Section 8. Action on the petition. The Court of Appeals may require the respondent to file a comment on
the petition not a motion to dismiss, within ten (10) days from notice, or dismiss the petition if it finds the same to be
patently without merit, prosecuted manifestly for delay, or that the questions raised therein are too unsubstantial to
require consideration. (6a)
Section 9. Contents of comment. The comment shall be filed within ten (10) days from notice in seven
(7) legible copies and accompanied by clearly legible certified true copies of such material portions of the record
referred to therein together with other supporting papers. The comment shall (a) point out insufficiencies or
inaccuracies in petitioner's statement of facts and issues; and (b) state the reasons why the petition should be denied
or dismissed. A copy thereof shall be served on the petitioner, and proof of such service shall be filed with the Court
of Appeals. (9a)
Section 10. Due course. If upon the filing of the comment or such other pleadings or documents as may
be required or allowed by the Court of Appeals or upon the expiration of the period for the filing thereof, and on the
records the Court of Appeals finds prima facie that the court or agency concerned has committed errors of fact or
law that would warrant reversal or modification of the award, judgment, final order or resolution sought to be
reviewed, it may give due course to the petition; otherwise, it shall dismiss the same. The findings of fact of the
court or agency concerned, when supported by substantial evidence, shall be binding on the Court of Appeals. (n)
Section 11. Transmittal of record. Within fifteen (15) days from notice that the petition has been given
due course, the Court of Appeals may require the court or agency concerned to transmit the original or a legible
certified true copy of the entire record of the proceeding under review. The record to be transmitted may be abridged
by agreement of all parties to the proceeding. The Court of Appeals may require or permit subsequent correction of
or addition to the record. (8a)
Section 12. Effect of appeal. The appeal shall not stay the award, judgment, final order or resolution
sought to be reviewed unless the Court of Appeals shall direct otherwise upon such .terms as it may deem just. (10a)
Section 13. Submission for decision. If the petition is given due course, the Court of Appeals may set
the case for oral argument or require the parties to submit memoranda within a period of fifteen (15) days from
notice. The case shall be deemed submitted for decision upon the filing of the last pleading or memorandum
required by these Rules or by the court of Appeals. (n)