CBO Memory Aid in Taxation

MEMORY AID
CBO OVER-ALL CHAIRPERSON: Evangeline Co

ASSISTANT CHAIRPERSON: Rose Lyn Rabanera
ACADEMICS COMMITTEE - HEADS:
Reigel Prado, Omar Gabrieles
SECRETARIAT – HEAD: Romino Arzadon
FINANCE COMMITTEE – HEAD: Kyan Sioco
LOGISTICS COMMITTEE - HEAD: Janis Ruckenbrod
TAXATION COMMITTEE
HEAD: Jocelyn Manalo
CO-HEAD: Marlyn Reyes
GENERAL PRINCIPLES: Marissa Asencion
INCOME TAXATION: Cheryl Hernandez

MEMBERS: Fatima Kristine Franco, Aries Magpantay
TRANSFER TAXATION: Nieves Elegado

MEMBER: Rosevee Paylip
TAX REMEDIES AND LOCAL TAXATION: Marlyn Reyes,

Jocelyn Manalo
MEMBER: Claudine Mayor
SUBJECT ADVISERS:
Justice Japar Dimaampao Atty. Bernard Bandonell

I n s t i t u t e o f L a w
C E N T R A L B A R O P E R A T I O N S 2 0 0 6
U n i t e d P u r s u i t o f E x c e l l e n c e
CBO OVER-ALL CHAIR: Evangeline Co; ASSISTANT CHAIR: Rose Lyn Rabanera; SECRETARIAT - HEAD: Romino Arzadon; ACADEMICS - HEADS:
Reigel Prado, Omar Gabrieles; FINANCE – HEAD: Kyan Sioco; LOGISTICS - HEAD: Janis Ruckenbrod
M E M O R Y A I D I N T A X A T I O N
TABLE OF CONTENTS
Page
General Principles 1
National Taxation
A. Income Taxation 19
B. Transfer Taxes
1. Estate Tax 41
2. Donor’s Tax 49
C. Business Tax
1. Value- Added Tax 54

2. Excise tax 60
3. Percentage tax 61
4. Documentary Stamp Tax 62
Tax Remedies 66
Tariff and Customs Code 83
Local Taxation 94
Court of Tax Appeals 104
T A X A T I O N
ADVISERS: Justice Japar Dimaampao, Atty. Bernard Bandonell
TAXATION - HEAD: Jocelyn Manalo; CO-HEAD: Marlyn Reyes
MEMBERS: Marissa Asencion, Nieves Elegado, Fatima Kristine Franco, Cheryl Hernandez, Aries Magpantay, Claudine Mayor, Rosevee Paylip
Page 1 of 107
I. GENERAL PRINCIPLES It has the right to compel all persons and

property within its limits to contribute.
TAXATION Although the power to tax is almost
unlimited, it must not be exercised in an
is the inherent power of the state to raise arbitrary manner. We may seek redress to
revenues by impositions to defray courts in case of irregularities.
government expenses.
as a process, taxation to the manner by 3. Benefits-Protection Theory
which the government exercises the power
of taxation from the act of levy until final In return for the taxes received, the
collection of the imposition. government only secures to the citizen that
general benefit which results from
TAXES protection to his person and property and
the promotion of those various schemes
enforced proportional contributions from which have for their object the welfare of all.
persons and property, levied by the state by This theory spawned the doctrine of
virtue of its sovereignty for the support of symbiotic relationship.
the government and for all its public needs.
DOCTRINE OF SYMBIOTIC
CHARACTERISTICS OF A TAX: (Code: RELATIONSHIP
CPP SP)
“Taxes are what we pay for a civilized
1. an enforced contribution society. Without taxes, the government would
2. it is levied on persons and property be paralyzed for lack of the motive power to
3. it is a personal liability of the taxpayer activate and operate it. Hence, despite the
4. it is imposed by the state which has natural reluctance to surrender part of one’s
jurisdiction over the person and property, hard-earned income to the taxing authorities,
and every person who is able to must contribute his
5. it is levied for public purpose. share in the burden of running the government.
The government, for its part, is expected to
THEORIES OF TAXATION respond in the form of tangible and intangible
benefits intended to improve the lives of the
1. Lifeblood Theory people and enhance their material and moral
values.”
Taxes are the lifeblood of the government
and their prompt and certain availability is NATURE OF THE TAXING POWER
an imperious need. This implies that:
a. inherent attribute of sovereignty
1) The BIR is justified in availing of the
most expedient remedy in the collection The power of taxation is an incident of
of the tax (CIR vs. Pineda) sovereignty as it is inherent in the State,
2) The BIR is not bound by the mistakes, belonging as a matter of right to every
errors, or omissions of its agents (thus, independent government. It does not need
the Doctrine of Estoppel does not apply of constitutional conferment. Constitutional
to the collection of taxes) (Rivera vs. provisions do not give rise to the power to
Fernandez) tax but merely impose limitations on what
3) No court other than the CTA may enjoin would otherwise be an invincible power.
the collection of taxes.
No attribute of sovereignty is more
2. Necessity Theory pervading and at no point does the power of
government affect more constantly and
The existence of the government is a intimately all the relations of life than
necessity. No government can exist or through the exactions made under it.
continue without means to pay its expenses
and to raise those means.
T A X A T I O N
Page 2 of 107
[Churchill and Tait vs. Concepcion, 34 Phil. 11. Freedom of religion ((Art. III, Sec. 5)
969] 12. Exemption from property tax of
properties of religious, educational,
Being attribute of sovereignty, its charitable institutions (Art. VI, Sec.
relinquishment is never presumed. [Luzon 28[3])
Stevedoring Co. vs. CTA, L-30232, July 29, 13. Tax exemptions granted to non-stock,
1988] non-profit educational institutions (Art.
XIV, Sec. [4,5])
Tax is an attribute of sovereignty which 14. No public money or property used for a
emanates from necessity upon which particular sect, priest, religious minister,
the very existence of the government is etc. (Art. VI, Sec. 29[1])
dependent. 15. Grant of tax exemptions (Art. VI, Sec.
28[4])
b. legislative in character 16. Grant of power of taxation to local
government units (Art. X, Sec. 5)
"the power to tax is exclusively vested in the 17. Money collected for a special purposes
legislature and it cannot be delegated as a shall be considered a special fund (Art.
whole." VI, 29[3])
In short, only the legislature can impose 18. Exclusive appellate jurisdiction of the SC
taxes. This is why a person, activity, or over judgments of lower courts involving
property is subject to tax because and only the legality of taxes, imports,
because the law says so. assessments, fees, penalty. (Art. VIII,
Sec. 5)
Further, about local government, taxation
remains exclusively legislative. Meaning,
only the local legislative body thru an ASPECTS, PROCESS, PHASES OF
ordinance may impose taxes. TAXATION. (Code: LAP – Levying,
Assessment, Payment)
Inherent limitations
a. Levying/Imposition of the tax. This is
1. Public Purpose essentially legislative. It refers to the
2. Inherently Legislative enactment of tax laws or statutes.
3. Territorial
4. International Comity Note: Courts have no power to interfere in
5. Exemption from Taxation of the wisdom, objective, motive or expediency
Government Agencies/Instrumentalities in the passage of a tax law, as this is purely
legislative in character. To do so would be
Constitutional Limitations tantamount to a violation of both the letter
and spirit of the organic laws by which the
1. Due Process Clause (Art. III, Sec. 1) Philippine Government was brought into
2. Equal Protection Clause (Art. III, Sec. 1) existence to invade a coordinate and
3. Uniformity (Art. VI, Sec. 28[1]) independent department of the Government
4. Progressive system of taxation (Art. VI, and to interfere with the legitimate powers
Sec. 28[1]) and functions of the Legislature. [Tolentino,
5. Non-impairment of contracts (Art. III, et al. vs. Secretary of Finance, 235 SCRA
Sec. 10) 630]
6. Non-imprisonment for Non-payment of
b. Assessment and Collection. This is
Poll Tax (Art. III, Sec. 20)
essentially administrative. It is the act
7. Appropriation, revenue and tariff bills
of administration and implementation of
must originate exclusively in the House
tax law by the executive branch through its
of Representatives (Art. III, Sec. 24)
administrative agencies. Nonetheless, the
8. Presidential veto (Art. VI, Sec. 27[2])
delegation must pass the completeness and
9. Presidential power to tax tariff rates
sufficient standard test in order to prevent
(Art. VIII, Sec. 28[2])
the abuse of its exercise.
10. Freedom of the press (Art. III, Sec. 4)
T A X A T I O N
Page 3 of 107
c. Payment. This signifies an act of Taxation shall only be exercised on persons,

compliance by the taxpayer. properties and excises within the taxing
power.
SCOPE OF THE LEGISLATIVE POWER
e. Manner, means and agencies of
TO TAX
collection of the tax.
[Code: SPASM]
Corollary to the sole power to tax is the sole
a. Subjects or Objects of Taxation. power to prescribe the mode or method by
which the tax shall be collected and to
Coverage and the kind or nature of the tax. designate the officers through whom its will
shall be enforced.
They may be persons (natural or juridical),
property (real or personal); tangible or Q. Is the power to tax the power to
intangible), businesses, transactions, rights destroy?
or privileges.
IT DEPENDS. The power to tax includes
It is inherent in the power to tax that a state the power to destroy if it is used validly as an
be free to select the subjects of taxation, and implement of police power in discouraging and
it has been repeatedly held that inequalities in effect, ultimately prohibiting certain things
which result from a singling out of one or enterprises inimical to the public welfare.
particular class for taxation or exemption
infringe no constitutional limitation. But where the power to tax is used solely
[Walter Lutz vs. J. Antonio Araneta, 98 for the purpose of raising revenues, the modern
Phil. 148] view is that it cannot be allowed to confiscate or
destroy.
b. Public Purpose.
Note: While taxation is said to be the power to
The legislature primarily determines the destroy, it is no means unlimited. If so great an
public purpose of taxation although the abuse is manifested as to destroy natural and
courts can inquire as to whether the fundamental rights which no free governmental
purpose is really public or private. could consistently violate, it is the duty of the
However, judicial action is limited to the judiciary to hold such an act unconstitutional.
determination of the validity of the Hence, the modification: “the power to tax is
tax in relation to constitutional precepts or not the power to destroy while the
provisions or the determination in an Supreme Court sits.”
appropriate case of the application of a tax
law. PRINCIPLES OF A SOUND TAX SYSTEM
(Code: FAT)
c. Amount or Tax Rate.
a. Fiscal Adequacy. The taxes envisioned to
The legislature is free to levy a tax on any be collected must be sufficient for
amount, provided, it is exercised within the government expenditures and other public
bounds of constitutional limitations. needs.
Note: Not only is the power to tax unlimited in NOTE: Be careful as sometimes... "an
its reach as to subjects, but in its very nature, it approximate estimate of government
acknowledges no limits and may be carried even expenditures" is sufficient to satisfy the
to the extent of exhaustion and destruction, requirement.
thus becoming in its exercise a power to
destroy. Fiscal adequacy... requires that the sources
of revenues must be adequate to meet
d. Situs of taxation. government expenditures and their
variations" (Chavez v. Ongpin)
T A X A T I O N
Page 4 of 107
b. Administrative Feasibility. The tax law runs contrary to the principle of

must be capable of convenient, just, theoretical justice, such violation will
effective and efficient enforcement and render the law unconstitutional
administration. Likewise, tax laws should considering that under the Constitution,
close-up the loopholes for tax evasion and the rule of taxation should be uniform
deter unscrupulous officials from and equitable. [Sec. 28(1), Art. VI, 1987
committing fraud. Constitution]
Equally applies to taxpayers.. meaning, they Rule that taxes are personal to the
must not have difficulty understanding what taxpayer
the tax law is all about.
GEN. RULE: Taxes are personal to the
c. Theoretical Justice. The tax law or taxpayer. Corporation’s tax delinquency cannot
system must be based on the taxpayer’s be enforced on the stockholder nor transfer
ability to pay. taxes on the estate are assessed on the heirs.
Rule of taxation must be uniform and EXCEPTIONS:

equitable. The State must evolve a
progressive system of taxation. 1. Stockholders may be held liable for unpaid
taxes of a dissolved corporation if corporate
Q. Will a violation of these principles assets have passed into their hands;
invalidate a tax law?
2. Heirs may be held liable for the transfer
IT DEPENDS. A tax law will retain its taxes on the estate if the properties of the
validity even if it is not in consonance with the decedent have been distributed to them
principles of fiscal adequacy and administrative prior to the payment of the required
feasibility because the Constitution does not transfer taxes.
expressly require so. HOWEVER, if a tax law
TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND IMPOSOTIONS
A. Taxation Police Power

Purpose To levied for the To promote public welfare
purpose of raising through regulation
revenues
Amt of Exaction No limits Limited to the cost of
regulation, issuance of the
license or surveillance
Benefits No special or direct No direct benefited, yet a
benefit is received healthy economic standard
by the taxpayer of society is maintained.
other than that the
government secures
the general welfare
of the citizens.
Contracts Recognized the Does not apply to police
obligations imposed power
by of
Transfer Taxes paid form part Allows merely the restraint
of the public funds on the exercise of property
rights.
T A X A T I O N
Page 5 of 107
B. Taxation Eminent Domain

Purpose To raise public fund Taking of property for
public use
Compensation General benefit of the citizens Just compensation is given
to the owner of the
expropriated property
Person Affected Applies to all persons, property Only particular property is
and excises that may be subject comprehended.
thereto
C. Taxation License
Power Exercise of the taxing power Exercise of police power
Purpose To raise government fund Imposed for regulatory

purposes
Amt. of exaction No limits Limited to the cost of
regulation, issuance of the
license or surveillance
EXCEPT: when the fees are
imposed for the purpose of
regulating non-useful
business, occupation, or
activity, the amount may
now exceed the cost of
regulation.
Imposition If the primary purpose is to If the primary purpose is to
generate funds and regulation regulate and to generate
merely incidental funds merely incidental
Scope covers legitimate and only legitimate business
illegitimate business, etc...
Effect of Non-payment Non-payment of tax does not Non-payment of fee renders
render business illegal the business illegal
D. Taxation Special Assessment

Not limited to land Can be levied only on land
As a rule, cannot be made a personal liability of Personal liability
the persons assessed
Is based wholly on benefits
It is exceptional both as to time and locality. A The imposition of a charge on all property in a
charge imposed only on the property owners prescribed area is a tax not an assessment
benefited is a special assessment rather than a although the purpose is to make a local
tax. improvement on street or highway.
E. Taxation Toll
It is a demand of sovereignty for the purpose of It is a demand of proprietorship, an amount
raising public revenues. charged for the cost and maintenance of the
property used
F. Taxation Penalty
It is a civil liability. Person is criminally liable It is a punishment for the commission of a
only when he fails to satisfy his civil obligation crime.
to pay taxes
T A X A T I O N
Page 6 of 107
TAX as distinguished from DEBT
TAX DEBT
Basis
Law Contract or judgment.
Effect of non-payment
Imprisonment (except in case of poll tax) No imprisonment
Mode of Payment
Generally payable in money Payable in money, property or services
Assignability
Not assignable Assignable
Set –off
May not be a subject of compensation or May be a subject of compensation or set-off
set-off
Interest
Does not draw interest unless delinquent Draws interest if stipulated or delayed
Authority
Imposed by public authority It is a private transaction
Taxes are not debts because a tax does not 3. The government and the taxpayers are not
depend upon the consent of the taxpayer and mutually creditors and debtors of each
there is no express or implied contract to pay other.
taxes.
Exception: Where both claims already became
Exceptions: overdue and demandable as well as fully
liquidated, or where the government and the
1. tax collection being enforceable by court taxpayer are in their own right reciprocally
action [ Sambrano v. TA, 101 Phil. ] debtors and creditors of each other,
2. in the application of certain statutes of compensation takes place by operation of law.
limitation [ Rep. Far Eastern American,
Co., 7 SCRA 399] Doctrine of EQUITABLE RECOUPMENT
3. in the matter of deductible items from gross not followed in the Philippines
income [ Commissioner v. Prieto, 109 Phil. Thus, a tax presently being assessed against a
592] ( Vitug Book) taxpayer may not be recouped or set-off
4. when it is secured by a bond, the tax is against an overpaid tax the refund of which is
considered as a bond. already barred by prescription
SET-OFF
REQUISITE OF A VALID TAX. (Code:
General Rule: Taxes cannot be the subject PUJAN)
of compensation or set-off.
Reasons: a. It should be for public purpose
b. The rule of taxation should be uniform
1. Lifeblood theory c. That either the person or property taxed be
2. Taxes are not contractual obligation but within the jurisdiction of the taxing
arise out of duty to the government. authority
T A X A T I O N
Page 7 of 107
d. That the assessment and collection be a. the thing to be furthered by the

in consonance with the due process clause. appropriation of public revenue is
e. The tax must not infringe on the inherent something which is the duty of the
and constitutional limitations of the power government to provide; or
of taxation.
b. When the proceeds of the tax will directly
PURPOSES OF TAXATION promote the welfare of the community in
a. Primary – to raise revenues equal measure
b. Secondary/non-revenue purposes NOTE: Incidental advantage to the public or

(RIPE) to the State, which results from the promotion
of private enterprise or business, does not
1. To reduce social inequality justify their aid by the use of public money.
2. To implement the police power of the
State (regulatory purpose) Q. Who may determine “public
3. To protect our local industries against purpose”?
unfair competition
4. To encourage the growth of local A. This is a legislative prerogative. The power to
industries determine whether the purpose of taxation is
public or private resides in Congress.
EXTENT/SCOPE OF THE TAXING However, this will not prevent the court from
POWER (CUPS) questioning the propriety of such a statute on
the ground that the law enacted is not for public
a. It is comprehensive. It covers persons, purpose; but once it is settled that the law is for
businesses, activities, professions, rights a public purpose, the court may no longer
and privileges. inquire into the wisdom, expediency or
necessity of such tax measure.
b. It is unlimited. “The power to impose
taxes is one so unlimited in force and so It is the purpose which determines the
searching in extent that the courts scarcely public character of the tax law, not the number
venture to declare that it is subject to any of persons benefited. As long as the ultimate
restrictions whatever, except such as rest in result favors the welfare of the public in general,
the discretion of the authority which the appropriation of public revenue is deemed
exercises it done for the public purpose.
c. It is plenary as it is complete. Q. When must public purpose exist?
d. It is supreme. “Taxation, although A. "It must exist at the time the tax proceeds
referred to as the strongest of all the powers are being used or a tax law is being passed for a
of the government, cannot be interpreted to certain purpose, whichever comes first.
mean that it is superior to the other [Pascual vs. Sec. of Public Works]
inherent powers of the government, only
that it is supreme insofar as the selection of 2. International Comity –- principle of
the subject is concerned sovereign equality among states and of
their freedom from suit without their
LIMITATIONS ON THE TAXING POWER consent limit the authority of the
government to effectively impose taxes on a
A. Inherent limitations of the taxing sovereign state and its instrumentalities, as
power well as on its property held, and activities
taken in that capacity.
1. Public purpose
Thus, if a tax law violates certain
Taxation is for public purpose when: international laws, it is not only invalid but
it is also UNCONSTITUTIONAL because
the constitution says " the Philippines....
T A X A T I O N
Page 8 of 107
adopts the generally accepted principles of The territoriality rule does not merely relate
international law as part of the law of the to "geographical" location, but to the jural
land.... etc.." concept or nexus or bond between the
taxing authority and the taxpayers. And this
3. Non-delegation of taxing power nexus depends on the type of taxes imposed,
the personal circumstances of the taxpayers,
GEN. RULE: Power of taxation is vested in and also the location of the subject of
Congress and may not be delegated. taxation.
EXCEPTIONS: Rules Observed in Fixing Tax Situs
a. Local taxing power granted by the a. POLL/CAPITATION/COMMUNITY TAX

Constitution (Art. X, Sec. 5);
Poll or capitation, or community taxes
Suppose this provision does not exist, are based upon the residence of the
may LGU exercise the power of taxpayer, regardless of the source of income
taxation? or location of the property of the taxpayer.
Yes, under the Doctrine of Implied b. PROPERTY TAX

Necessity... meaning, the power to create
municipal corporations carries with it by b.1. Real Property- is subject to taxation
necessary implication the power to compel in the state or country where it is located,
upon it the power to tax. regardless of whether the owner is a
Now, the importance of this provision now resident or a non-resident. [First National
is: in case of doubt as to whether the LGU Bank vs. Marine, 284 U.S. 321. 77 ALR 401]
has the power to tax or not, all doubts must
be resolved in favor of the existence of such b.2. Personal Property- the situs is
power. This is not the rule without such wherever it was actually kept or located, was
provision in the Constitution. held to be the domiciled of its owner,
following the age-old Doctrine of Mobilia
b. Authority of the President, under the sequuntur personam (movables follow
Constitution, to fix tariff rates, import and the person).
export quotas (Art 6, Sec. 28[2])
MOBILIA SEQUUNTUR PERSONAM
c. When delegation relates merely to
administrative implementation that may Although a mere fiction of law, without
call for some degree of discretionary powers any constitutional foundation, it is nevertheless
under a set of sufficient standards expressed applied when convenient, provided it is not
by law. inconsistent with express provisions of the law.
To acquire a situs in a state other than the
NOTE: Some authors often include this domicile of the owner, tangible property must
because when you talk of enforcement, it is no have a definite location there, accompanied by
longer legislative in character; thus, there is some degree of permanency; mere temporary or
nothing to delegate. In the ordinary set-up of transient presence in the state is not sufficient.
our bureaucracy, Congress makes the law
(impose the tax), the Executive (BIR) executes Exception:
the law.
Actual or business situs [Wells Fargo v. CIR]
Whether Congress likes it or not, it can't which has been codified in Section 104, R.A.
collect the tax! So, what's being delegated? 8424 enumerates certain properties which
acquired actual situs in the Philippines, viz:
4. Territoriality or situs of taxation –
persons or property must be within the b.2.1. franchise exercised in the Philippines;
jurisdiction of the taxing power.
b.2.2 shares of stock, obligations, bonds
issued by domestic corporations organized
T A X A T I O N
Page 9 of 107
and constituted in accordance with d. EXCISE TAX- Where the act is performed
Philippine laws; or where occupation is pursued
e. SALES TAX- where the sale is
b.2.3 shares, obligation, bonds issued by
consummated
foreign corporation where 85% of its
f. INCOME TAX- consider citizenship
business is located in the Philippines. It is
residence and sources of income (Sec. 42,
subject to donor’s tax and estate tax;
R.A. 8424)
b.2.4. shares/right in a partnership business g. TRANSFER TAX- residence or citizenship
or industry established in the Philippines; of the taxpayer or location of property
h. FRANCHISE TAX- state which granted the
b.2.5. shares, obligations, bonds, issued by
franchise
foreign corporations which acquired
i. VALUE ADDED TAX- ‘Destination
business situs, when such have been used in
Principle’ is followed
the furtherance of the business of the
foreign corporation.
5. Tax-exemption of the Government –
as a matter of public policy, property of the
Thus, the RULE: irrespective of the owner, State or any of its political subdivisions
donor’s tax or estate tax can be imposed upon devoted to government uses and purposes
these properties. EXCEPT where the foreign are generally exempt from taxation.
corporation grants exemption or does not However, nothing can prevent Congress
impose taxes on intangible properties of from decreeing that even instrumentalities
Filipino citizen. or agencies of the government performing
functions may be subject to tax. [ MCIAA vs.
c. BUSINESS TAX- place of business Marcos, 261 SCRA 667]
Agencies performing governmental functions distinguished from proprietary functions
Agencies performing
Agencies performing proprietary functions
governmental functions
Tax-exempt unless expressly taxed Subject to tax unless expressly exempted.
Government-owned and controlled corporations perform proprietary

functions; hence, they are subject to taxation.
General Rule: government is taxable.

Exception: when there is a law which says that it is exempt from tax.
From these rules, you now make a distinction:
1) agencies performing governmental function as a rule are tax exempt
(by reason of public policy) UNLESS expressly subject to tax; and,
2) agencies performing proprietary function are subject to tax UNLESS
expressly exempt. (Posadas vs. Standard Well)
Now, with respect to government properties, NDC vs. Cebu City,

enunciated these principles:
1. Properties owned by the Republic of the Philippines AND agencies

without separate and distinct personality are exempt from taxation. (In
other words, those agencies with charter are treated for tax purposes in
accordance with the provisions of their respective charters.)
2. The exemption of public properties from taxation does not extend to

the improvements introduced upon them by the present occupants at
their expense.
T A X A T I O N
Page 10 of 107
B. Constitutional limitations of the 2. EQUAL PROTECTION OF THE LAW

taxing power:
“Nor shall any person be denied the equal
protection of the law.” (Art. 3, sec.1 of the
1. DUE PROCESS OF LAW
Constitution)
“No person shall be deprived of life, liberty
Note: it merely requires that all persons
or property without due process of law….”
subjected to such legislation shall be treated
(Art 3, Sec.1 of the Constitution)
alike, under like circumstances and conditions,
Requisites of Due Process: both in the privileges conferred and in the
obligations imposed.
Substantive Limitation- The interests of the
public generally as distinguished from those Requisites for a valid Classification:
of a particular class require the intervention
a. It must be based on SUBSTANTIAL
of the State; and
distinctions
b. It must APPLY to both present and future
Procedural Limitation- The means
conditions
employed must be reasonably necessary to
c. It must be GERMANE to the purposes of the
the accomplishment of the purpose and not
law
unduly oppressive.
d. It must apply EQUALLY to all members of
the same class
The requirement of due process whether
taken from the substantive to the procedural
aspect simply means one thing -- Substantial distinction - it must be real,
reasonableness of the legislation. material and not superficial distinction [See
cases of Punzalan, Association of Customs
Substantive means that it should not be Brokers, Hiu Tsong Pao, Ormoc Sugar, etc...]
harsh, confiscatory, unjust and oppressive.
Procedural means that it must provide
notice and opportunity to be heard. Thus, 3. UNIFORMITY OF TAXATION
they simply mean that the law must be “The rule of taxation shall be uniform and
reasonable. equitable.” (Art. 6, Sec.28(1) of the
Constitution)
There must be evidence to support a claim
of violation of this constitutional provision. Uniformity in taxation is similar to equality
Without proof, the presumption of in taxation, but equitable taxation means
constitutionality of law applies. that the taxes must be reasonable, fair, etc...
and therefore, ... ability to pay. [See case of
However, due process is violation by any of Almanzor to illustrate this.]
these situations: (Code: VCORP)
UNIFORMITY AND EQUALITY
1. where the law is in violation of inherent DISTINGUISHED
limitations EQUALITY IN
TAXATION UNIFORMITY
2. if the tax amounts to a confiscation of
property
A tax is considered
3. if the subject of confiscation is outside the Is accomplished when
uniform when it operates
jurisdiction of the taxing authority the burden of the tax
with the same
falls equally and
4. if the law which is applied retroactively force/effect in every
impartially upon all
imposes unjust and oppressive taxes place where the subject
the persons and
may be found.
5. if the law is imposed for a purpose other property subject to it
than public purpose Equitability All property belonging to
achieved when the the same class shall e
burden of taxation taxed alike.
falls to those better
able to pay.
T A X A T I O N
Page 11 of 107
Constitutional Equality in Taxation 5. NON-IMPAIRMENT CLAUSE
means that all persons who are similarly “No law impairing the obligation of contracts
situated should be treated alike both in the shall be passed.”(Art. 3, Sec.10 of the
privilege conferred and burdens imposed. Constitution)
the application of the concept of equal Non-impairment clause of the

protection of the laws which prohibits Constitution constitutes a limitation on
discrimination other than those instances the power of taxation
where there is valid classification.
The obligation or contract is impaired when
Thus, persons who are similarly situated, or its terms or conditions are changed by law
who belong to the same class, should be or by a party without consent of the other
given by law the same protection and thereby weakening the position of the latter.
privileges as well as imposed the same
burdens and obligations. Thus, there is impairment by law when a tax
exemption based on a contract is revoked by
Uniformity of taxation NOT the same as a later taxing statute.
equality in taxation
It may be well to point out that the non-
Uniformity of taxation means that all impairment clause will only be violated if and
articles or properties of the same class shall when the taxing authority was a party to the
be taxed at the same rate. Different articles contract in question.
or other subjects like transactions, business,
right, etc. may be taxed at different rates Note: The rule, however, does not apply to
provided that the rate (not necessarily the public utility franchises on right since they are
amount) is uniform in the same class subject to amendment, alteration or repeal by
everywhere. the Congress when the public interest so
requires. [Cagayan Electric and Light Co., Inc.
4. PROGRESSIVE SYSTEM OF vs. Commissioner, G.R. no. 60216, September
TAXATION 25, 1985]
“Congress shall evolve a progressive system of NOTE: This provision was NOT REALLY
taxation” (Art.6, Sec.28 (1) of the Constitution) thought of as a limitation on the power of
taxation EXCEPT in case where tax exemption
Tax rate increases as tax base increases. was granted for a valuable consideration. So
the question now should be are tax exemptions
The Constitution provides that the Congress falling under the subject constitutional
shall evolve a progressive system of provision revocable? You have to qualify, if the
taxation. However, this provision is merely exemption is granted via a franchise, it can be
a directive to Congress, NOT a right revoked because of Section 11 Article 12 of the
enforceable before the courts. Constitution. However, if the exemption is via
a contract, it cannot be revoked. Why the
Q. Is a tax adopting a regressive system distinction? Because in the grant of franchise,
of taxation is valid? the government is exercising a governmental
function (thus, in so doing in the first place, it
A. Yes. The Constitution does not really considered public good etc...) while in contract,
prohibit the imposition of indirect tax is which the government merely exercises a proprietary
like the VAT are regressive. The Constitution function (presumably there was no prior
provision means simply that indirect taxes shall determination of public good, etc...)
be minimized. The mandate to Congress is not
to prescribe but to evolve a progressive tax
system. [EVAT En Banc Resolution, Tolentino,
et.al vs. Secretary of Finance, Oct. 30, 1995]
T A X A T I O N
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6. NON-IMPRISONMENT FOR NON- government.”(Art. 8, Sec.28 (2) of the

PAYMENT OF POLL TAX Constitution)
“No person shall be imprisoned for non- The term “FLEXIBLE TARIFF
payment of a debt or poll tax.” (Art 3, Sec.20 of CLAUSE” refers to the authority given to the
the constitution) President to adjust tariff rates under Section
401 of the Tariff and Customs Code, which is
NOTE: But if acts, violative of laws were the enabling law that made effective the
committed in the issuance and payment of the delegation of the taxing power to the President
cedula, imprisonment is allowed. For instance, under the Constitution.
if a taxpayer was issued a cedula thru
misrepresentation or falsification, the taxpayer 10. TAXATION AND THE FREEDOM OF
could be imprisoned for falsification of public THE PRESS
document.
“No law shall be passed abridging the
7. BILLS TO ORIGINATE EXCUSIVELY freedom of speech, of expression or of the
FROM THE HOUSE OF press.”(Art.3, Sec. 4 of the Constitution)
REPRESENTATIVES
There is curtailment of press freedom and
“All appropriation, revenue or tariff bills, bills freedom of thought and expression if a tax is
authorizing the increase of the public debt, bills levied in order to suppress this basic right and
of local application and private bills, shall impose a prior restraint. [Tolentino, et.al vs.
originate exclusively in the House of secretary of Finance, 235 SCRA 630]
Representatives, but the senate may propose or
concur with amendments.” (Art. 3, Sec. 24, of 11. TAXATION AND FREEDOM OF
the Constitution) RELIGION
NOTE: It is the BILL and not the LAW that “No law shall be made respecting an
should originate from the lower house. In other establishment of religion or prohibiting the free
words, if the final version is substantially that exercise thereof. The free exercise and
bill passed by the Senate, for as long as the enjoyment of religious profession and worship
initiatory bill was commenced by the lower without discrimination or preference shall
house, it's totally OK. forever be allowed. No religious test shall be
required for the exercise of civil or political
8. THE VETO POWER OF THE rights.” (Art.3,Sec.5, of the Constitution)
PRESIDENT
The income of such organizations from any
“ The president shall have the power to activity conducted for profit or from any of
veto any particular item or items in an their property, real or personal, regardless
appropriation, revenue or tariff bill but the veto of the disposition made of such income, is
shall not affect the item or items to which he taxable.
does not object.” (Art. 6, Sec. 27(2) of the
Constitution) 12. TAX EXEMPTION OF PROPERTIES
ACTUALLY, DIRECTLY AND
9. PRESIDENT’S DERIVATIVE POWER EXCLUSIVELY USED FOR
TO TAX RELIGIOUS, CHARITABLE AND
EDUCATIONAL PURPOSES (Art.
“The Congress may, by law, authorize the 6,sec.28(3) of the Constitution)
President to fix within specified limits and
subject to such limitations and restrictions it REASON FOR THE RULE:
may impose, tariff rates, import and export
quotas, tonnage and wharfage dues and other Cemeteries are exempt from the payment of
duties or imposts within the framework of the taxes because of the difficulty of collecting a tax
national development program of the thereon and the obvious impropriety of selling
T A X A T I O N
Page 13 of 107
the graves of the dead to defray the expenses of NOTE: The rule remains that it is the USE and
carrying on the government of the living. not ownership that determines the exempt
character of the property. What is meant by
Churches and parsonages or convents "use" remain a litigious issue, but should
appurtenant thereto, etc. are exempt from always be measured under the constitutional
taxation because such institutions perform prescription of Actually-Directly-Exclusively
work which would otherwise have to be carried purposes.
on by the public at the expense of the taxpayers
and that the expenses of such institutions from 13. TAX EXEMPTIONS GRANTED TO
taxation lessens rather than increases the NON-STOCK, NON-PROFIT
burden upon other taxpayers. EDUCATIONAL INSTITUTIONS
CONTROLLING DOCTRINE ON All revenues and assets of non-stock, non-profit

EXEMPTION FROM TAXATION OF educational institution used actually, directly
REAL PROPERTY OF RELIGIOUS, and exclusively for educational purposes shall
CHARITABLE AND EDUCATIONAL be exempt from taxes and duties. Upon the
INSTITYUTIONS dissolution and cessation of the corporate
existence of such institution, their assets shall
In the recent case of Lung Center of the be disposed of in the manner provided by law.
Philippines vs. Q.C and Constantino p. Roxas, (Art. 14, Sec.4 (3) of the Constitution)
City Assessor of Q.C., G.R. no. 144104, June 29,
2004, 433 SCRA 119, the prevailing rule on the Subject to the conditions prescribed by
application of tax exemption to properties law, all grants, endowments, donation or
incidentally used for religious, charitable and contributions used actually, directly and
educational purposes, as enunciated in the case exclusively for educational purposes shall be
of Herrera vs. QC-BAA, 3 SCRA 187, has now exempt from tax. (Art. 14, Sec.4 (4) of the
been ABANDONED. In resolving the issue of Constitution)
whether or not the portions of the real property
of Lung Center that are leased to private entities ART. 14 and ART. 6 OF THE 1987
are exempt from real property taxes, the SC CONSTITUTION DISTINGUINSHED
reexamined the intent of the Constitutional
provision granting tax exemption of properties ART 14, ART 6,
ACTUALLY, DIRECTLY AND EXCLUSIVELY SEC. 4(3) SEC. 28(3)
USED FOR RELIGIOUS, CHARITABLE AND GRANTEE Non-stock, Religious,
EDUCATIONAL PURPOSES. non-profit educational,
educational charitable
Thus, the records of the Constitutional institution institutions
Commission reveal that what is exempted is not TAXES Income tax Property tax
the institution itself; those exempted from real COVERED Custom
estate taxes are lands, buildings and duties
improvements actually, directly and exclusively Property tax (
used for religious, charitable or educational DECS Order
purposes. No. 137-87)
What is meant by actual, direct and

exclusive use of property for charitable, 14. NO PUBLIC MONEY OR PROPERTY
religious and educational institutions is the USED FOR A PARTICULAR SECT,
direct and immediate and actual application of PRIEST, RELIGIOUS MINISTER,
the property itself to the purposes for which the ETC. (Art. 6,Sec.29(1)Constitution)
charitable institution is organized. It is not the
use of the income from the real property that is GEN. RULE: No public money or property
determinative of whether the property is used shall be appropriated, applied, paid or
for tax-exempt purposes. [St. Louis Men’s employed directly or indirectly for the use,
Christian association vs. Genher, 47 benefit or support of any sect, church,
S.W.2d776] denomination, sectarian institution, or system
T A X A T I O N
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of religious or of any priest, preacher, minister, b. The rule does not apply to special taxes
or other religious teacher, or dignitary. relating to special cases and affecting only
special classes of persons;
EXCEPT: when such priest, preacher,
c. In case of property owned by the state an
minister or dignitary is assigned to the armed
express exemption should not be construed
forces or to any penal institution or government
with the same degree of strictness that
orphanage or leprosarium
applies to exemptions contrary to public
policy of the state, since as to such property”
15. GRANT OF TAX EXEMPTIONS
exemption is the rule and taxation the
exemption”
“No law granting any tax exemption shall
be passed without the concurrence of a d. Exemptions to traditional exemptees, such
majority of all the members of Congress.” as religious and charitable institution;
(Art. 6, Sec.28 (4) of the Constitution) e. The rule does not apply in the case of
exemptions in favor of governmental
GEN. RULE: NO EXEMPTION political subdivision or instrumentality
[Maceda vs. Macaraig, jr., 197 SCRA 771]
EXCEPT: When a statute provides that certain
person or property is immune from taxation. f. If the taxpayer falls within the purview of
exemption by clear legislative intent. [CIR
Rule on Construction of Exemption: vs. Arnoldus Carpentry Shop, G.R. no.
71122, March 25, 1988]
1. Exemptions from taxation are not
presumed.
2. He who claims as exemption must be able to TAX AMNESTY TAX EXEMPTION
justify his claim by the clearest grant of
organic or statute law by words too plain to
be mistaken. If ambiguous, there is no Is an immunity from Is an immunity from
exemption. all criminal and civil the civil liability only.
obligations arising
3. He who claims exemption should prove by
from non-payment of
convincing proof that he is exempted.
taxes.
4. Taxation is the rule; tax exemption is the
exception. It is a general pardon
5. Tax exemption must be strictly construed given to all taxpayers
against the taxpayer and liberally in favor of
the taxing authority.
16. GRANT OF POWER OF TAXATION TO
6. Constitutional exemption is self-executing. LOCAL GOVERNMENT UNITS
7. Tax exemptions are personal.
Each local government unit shall have
the power to create its own sources of revenues
STRICT CONSTRUCTION RULE- It simply and to levy taxes, fees and charges subject to
means that if, after the application of all rules of such guidelines and limitations as the Congress
interpretation for the purpose of ascertaining may provide, consistent with the basic policy of
the intention of the legislature, a well founded local autonomy. Such taxes, fees and charges
doubt exists, then the ambiguity occurs which shall accrue exclusively to the local
may be settled by the rule of strict construction. governments. (Art. 10, Sec. 5, Constitution)
EXCEPTION to Strict Construction Rule: Congress cannot abolish the local

government’s power to tax as it cannot
a. The rule on strict construction rule does not abrogate what is expressly granted by the
apply where the statute granting the fundamental law.
exemption expressly provides for liberal
interpretation;
T A X A T I O N
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17. SPECIAL FUND 18. SUPREME COURTS JURISDICTION

OVER TAX CASES (Art. VIII, Sec. 5)
“All money collected on any tax levied for
a special purpose shall be treated as a Supreme Court may review, revise, reverse,
special fund and paid out for such purpose modify or affirm on appeal or certiorari as the
only. If the purpose for which a special fund law or the Rules of Court may provide all cases
was created has been fulfilled or abandoned, involving the legality of any tax, impost,
the balance, if any, shall be transferred to assessment or toll, or any penalty imposed in
the general funds of the government.” (Art. relation thereto.
6, Sec.29 (3), Constitution)
KINDS OF TAXES DIFFERENTIATED
DIRECT INDIRECT
Tax for which a taxpayer is directly liable on the Tax primarily paid by persons who can shift
transaction or business it engages in the burden upon someone else
SPECIFIC AD VALOREM
Imposed and based on weight or volume Based on selling price or other specified value
capacity or any other physical unit of of goods
measurement
GENERAL SPECIAL
Imposed solely to raise revenue for the Imposed and collected to achieve a particular
government legitimate object of government
NATIONAL LOCAL
Imposed by the national government Levied and collected by the local government
PERSONAL PROPERTY
Is of fixed amount imposed on individuals, Imposed on property, real or personal, in

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

amounts to confiscation of property for being DOUBLE TAXATION
unjust, oppressive, unfair, etc... then it is 1. EXEMPTION METHOD - the income or
unconstitutional not on the ground of double capital which is taxable in the state of source or
taxation but for being violative of the due situs is exempted in the state of residence
process clause.
- the focus is on the income or the credit
Note: there is no constitutional prohibition itself
against double taxation. It is not favored but
permissible. [Pepsi Cola Bottling Co. vs. City of 2. CREDIT METHOD – the tax paid in the
Butuan, 24 SCRA 789] state of source is credited against the tax levied
in the state of residence.
Kinds of Double Taxation - focuses upon the tax.
1. DIRECT -Occurs when the FORMS OF ESCAPE FROM TAXATION

same property is (Key: ESCATE)
taxed twice when it
should be taxed 1. Shifting
once 2. Capitalization
3. Transformation
-objectionable or 4. Avoidance
prohibited sense 5. Exemption
6. Evasion-unlawful
2. INDIRECT Allowed it the taxes A. Shifting
are of different
nature or Process by which tax burden is transferred
character, imposed from statutory taxpayer (impact of
by different taxing taxation) to another (incident of taxation)
authority without violating the law.
-permissible Illustration: Value added tax. The seller is
double taxation required by law to pay the tax, but the burden is
actually shifted or passed on to the buyer.
3. DOMESTIC Arises when the Impact of taxation – point on which tax

taxes are Imposed is originally imposed.
by the local or
national Incidents of taxation – point on which
government the tax burden finally rests or settles down.
T A X A T I O N
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B. Capitalization As to form:
Reduction in the price of the taxed object 1. Express: Expressly granted by organic
equal to the capitalized value of future taxes or statute law
which the purchaser expects to be called 2. Implied: When particular persons,
upon to pay. properties, or excises are deemed
exempt as they fall outside the scope of
C. Transformation the taxing provision itself.
The manufacturer or producer upon whom As to extent:

the tax has been imposed, fearing the loss of
his market if he should add the tax to the 1. Total: Connotes absolute immunity.
price, pays the tax and endeavors to recoup 2. Partial: One where a collection of a part of
himself by improving his process of the tax is dispensed with.
production, thereby turning out his units at
a lower cost. As to object:
D. Tax Avoidance 1. Personal: granted directly in favor of

certain persons
exploitation by the taxpayer of legally 2. Impersonal: granted directly in favor of a
permissible alternative tax rates or certain class of property
methods of assessing taxable property or
income, in order to avoid or reduce tax TAX EVASION vs. TAX AVOIDANCE
liability.
E. Tax Evasion TAX EVASION TAX AVOIDANCE
Use by the taxpayer of illegal or

fraudulent means to defeat or lessen the Connotes fraud Legal means used by
payment of the tax. through the use of the taxpayer to
pretenses and reduce taxes
Indicia of Fraud in Tax Evasion forbidden devices to
lessen or defeat taxes
1. failure to declare for taxation purposes
true and actual income derived from Scheme used outside Tax saving device
business for two consecutive years; or of those lawful means within the means
2. substantial under declaration of income sanctioned by law
tax returns of the taxpayer for four
consecutive years coupled with
Rule of “No Estoppel Against the
intentional overstatement of deductions.
Government”
F. Tax Exemption
General Rule: The Government is not
estopped by the mistakes or errors of its agents;
A grant of immunity, express or implied, to
erroneous application and enforcement of law
particular persons or corporations from the
by public officers do not block the subsequent
obligation to pay taxes.
correct application of statutes.
Kinds of Tax Exemptions
Exception: In the interest of justice and fair
As to basis: play, as where injustice will result to the
taxpayer.
1. Constitutional: Immunities from taxation
which originate from the constitution
2. Statutory: Those which emanate from
legislation
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DOCTRINE OF IMPRESCRIPTIBILITY TAXPAYER’S SUIT
As a rule, taxes are imprescriptibly as they ♣ Requires illegal expenditure of public money.
are the lifeblood of the government. However,
tax statutes may provide for statute of
limitations. NATIONAL TAXATION
The rules that have been adopted are as follows:

A. INCOME TAXATION
a. National Internal Revenue Code- the
statute of limitation for assessment of tax if Definitions
a return is filed is within three (3 )years
from the last day prescribed by law for the 1. Income Tax – tax on all yearly profits
filling of the return or if filed after the last arising from property, possessions, trade or
day, within three years from date of actual business, or as a tax on a person’s income,
filling. If no return is filled or the return is emoluments, profits and the like (61 CJS 1559)
false or fraudulent, the period to assess is – tax on income, whether gross
within ten (10) years from discovery of the or net. (27 Am. Jur. 308)
omission, fraud or falsity.
2. Income – all wealth which flows into the
b. Tariff and Customs Code- it does not taxpayer other than as a mere return of capital.
express any general statute of limitation; it
provides, however, that when articles have 3. Capital – resource of person which can be
been entered and passed free of duty of final used in producing goods and services.
adjustments of duties made, with
subsequent delivery, such entry and passage Income Capital
free of duty or settlements of duties will, All wealth which Fund or property which
after the expiration of three (3) years from flows into the can be used in
the date of the final payment of duties, in taxpayer other than producing goods or
the absence of fraud or protest or as a mere return of services
compliance audit pursuant to the provisions capital.
of this code be final and conclusive upon all Flow of Wealth Fund or property
parties, unless the liquidation of the import
Source of wealth Wealth
entry was merely tentative.
c. Local Government Code- Local taxes, fees, Requisites for Income to be Taxable
or charges shall be assessed within five (5) 1. There must be a gain or profit.
years from the date they become due. In 2. The gain must be realized or received.
case of fraud, or intent to evade the payment 3. The gain must not be excluded by law or
of taxes, fees, or charges the same may be treaty from taxation.
assessed within ten (10) years from
discovery of such. They shall also be Tests on Taxability of Income
collected either by administrative or judicial
action within five (5) years from the date of 1. Flow of Wealth Test – The determining
assessment. factor for the imposition of income tax is
whether any gain was derived from the
PRINCIPLE OF PROSPECTIVITY OF TAX transaction.
LAWS
2. Realization Test - unless the income is
The general rule under the Civil Code that deemed "realized," there is no taxable
laws shall have prospective application applies income.
to tax laws.
Retroactive application of revenue laws 3. Economic-Benefit Principle - flow of
may be allowed if it will not amount to denial of wealth realized is taxable only to the extent
due process. that the taxpayer is economically benefited.
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Classification of Taxpayers
3. Resident alien - means an individual
a. Individuals
whose residence is within the Philippines
1) citizens
and who is not a citizen thereof. [Sec.22 (F)]
1.1 resident citizens (RC)
1.2 non-resident citizens (NRC)
4. Non-resident alien engaged in trade
2) aliens
or business within the Philippines.
2.1 resident aliens (RA)
(Key: NRAETB)
2.2 non-resident aliens (NRA)
2.2.1 engaged in trade or business
A non-resident alien means an
within the Philippines. (NRAETB)
individual whose residence is not within the
2.2.2 Not engaged in trade or
Philippines and who is not a citizen thereof.
business within the Philippines
[Sec.22 (G)]
(NRANETB)
b. Corporations The term trade or business includes
1) Domestic (DC) the performance of the functions of a public
2) Foreign office. [Sec. 22 (S)]
2.1 resident foreign corporation (RFC)
The term trade, business or
2.2 non-resident foreign corporation
profession shall not include performance
(NRFC)
of services by the taxpayer as an employee.
c. Estates
[Sec. 22 (CC)]
d. Trusts
e. Partnerships A non-resident alien individual who
shall come to the Philippines and stay
therein for an aggregate period of more than
INDIVIDUALS
180 days during any calendar year shall be
deemed a non-resident alien doing business
in the Philippines Section 22(G)
Situs of Taxation (Who are taxable?)
notwithstanding [Sec. 25(A)(1)]
1. Resident Citizen
5. Non-resident aliens not engaged in
2. Non-resident Citizen
trade or business within the
Philippiness. (Key: NRANETB)
A non-resident citizen means, a
Filipino citizen:
Note: ONLY RESIDENT CITIZENS are
a. who establishes to the satisfaction of the
taxable for income derived from sources within
Commissioner the fact of their physical
and without the Philippines. All other
presence abroad with a definite
individual income taxpayers are taxable only for
intention to reside therein;
income derived from sources within the
b. who leaves the Philippines during the
Philippines.
taxable year to reside abroad, either as
an immigrant or for employment on a Note: An overseas contract worker
permanent basis; (OCW) is taxable only on income derived from
c. who works and derives income from sources within the Philippines. [Sec. 23 (B)(C)]
abroad and whose employment thereat
Note: A seaman is considered as an OCW
requires him to be physically present
provided the following requirements are met:
abroad most of the time during the
taxable year; 1. receives compensation for services
d. who is previously considered as a non- rendered abroad as a member of the
resident and who arrives in the complement of a vessel; and
Philippines at anytime during the 2. such vessel is engaged exclusively in
taxable year to reside thereat international trade.
permanently shall be considered non-
resident for the taxable year in which he
arrives in the Philippines with respect to
his income derived from sources abroad
until the date of his arrival [Sec.22 (E)]
T A X A T I O N
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CORPORATIONS 1. Those enumerated under Sec. 30.

Jurisdiction to Taxation (who are taxable?) • Exempt corporations are subject to
income tax on their income from any of
1. Domestic Corporation – created or their properties, real or personal, or from
organized in the Philippines. or under its any other activities conducted for profit,
law [Sec. 22(C)] regardless of the disposition made of
2. Resident Foreign Corporation – such income.
engaged in trade or business within the
Philippines [Sec. 22(H)] 2. With respect to GOCC’s, the general rule is
3. Non-resident Foreign Corporation – that these corporations are taxable as any
not engaged in trade or business within the other corporation except:
Philippines [Sec. 22(I)] a. GSIS
b. SSS
Corporation c. PHIC
d. PCSO [Sec. 27 (C)]
• Includes:
1. Partnerships, no matter how created or NOTE: Sec. 27 (c) of the NIRC amended by
organized; RA 9337, therefore, PAGCOR is not included
2. Joint-stock companies; in the GOCCC exception and subject to tax.
3. Joint accounts (cuentas en
participacion) 3. Regional or Area Headquarters under Sec.
4. Associations; or 22 (DD)
5. Insurance companies [Sec. 22 (B)].
• Excludes:
NOTE: Regional operating headquarters
1. General professional partnerships;
(ROH) under Sec. 22(EE) shall pay a tax of
2. Joint venture or consortium formed for
10% of their taxable income.
the purpose of undertaking construction
projects or engaging in petroleum, coal,
geothermal and other energy operations Note: ONLY DOMESTIC
pursuant to an operating or consortium CORPORATIONS are taxable for income
agreement under a service contract with derived from sources within and without the
the Government; Philippines. All other corporate income
3. Co-ownership. taxpayers are taxable only for income derived
from sources within the Philippines.
Corporations exempt from income
taxation (for income realized as such)
under RA 8424
T A X A T I O N
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T A X A T I O N
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ESTATES AND TRUSTS Where no such distribution to the

heirs is made during the taxable year that
Estate – refers to the mass of properties left by
the income is earned, and such income is
a deceased person.
subjected to income tax payment by the
Rules on Taxability of Estate: estate, the subsequent distribution thereof
1. An estate under administration or judicial is no longer taxable on the part of the
settlement is a taxable entity. recipient.
2. An estate, the settlement of which is not the

object of judicial testamentary or intestate Estates NOT under judicial
proceedings is not a taxable entity. The income settlement – subject to income tax as co-
there of is taxable directly to the heir or ownership.
beneficiary.
The tax treatment of co-ownership is
similar to general professional partnership.
Hence, the tax liability on income is levied
Estates under Judicial Settlement
directly on the co-owners. The co-ownership
General Rule: An estate under judicial income and deductions are simply apportioned
settlement is subject to income tax in the same to the co-owners to the extent of their respective
manner as individuals. Its status is the same as interests therein, regardless of whether such
the status of the decedent prior to his death. income is distributed or not.
Exceptions:
1. The entitlement to personal exemption is Irrevocable Trusts (irrevocable both
limited only to P20, 000. as to corpus and as to income) – taxed exactly
2. No additional exemption is allowed. in the same way as estates under judicial
3. The distribution to the heirs during the settlement and its status as an individual is that
taxable year of estate income is deductible of the trustor. It is entitled to the minimum
from the taxable income of the estate. Such personal exemption (P20, 000) and
distributed income shall form part of the distribution of trust income during the taxable
respective heirs’ taxable income.
T A X A T I O N
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tear to the beneficiaries is deductible from the (6) Minimum Corporate Income Tax
trust’s taxable income. (7) Fringe Benefits Tax
(8) Optional corporate Income tax
Revocable Trusts – the trustor, not
the trust itself, is subject to the payment of
income tax on the trust income. (1) NET INCOME TAX
Definition: Means gross income less
PARTNERSHIPS deductions and/or personal and additional
exemptions (Sec. 31, RA 8424)
General Rule: Partnerships, no matter how
created, are subject to corporate income tax.
Net Income Tax Formula
General co-partnerships (GCP) are
partnerships which are by law assimilated to be Entire Income
within the context of, and so legally Less: Exclusions and Income subject to Final
contemplated as, corporations. The partnership
Tax(e.g. Passive Income)
itself is subject to corporate taxation. The
individual partners are considered stockholders Gross Income
and, therefore, profits distributed to them by
the partnership are taxable as dividends. Less: Deductions (Personal and/or Additional
Exemptions)
Exception: General Professional Net Taxable Income
Partnerships (GPPs) as such are not subject
to income tax. GPP means: X Tax Rates
Net Income Tax Due
1. a partnership formed by persons for the sole
purpose of exercising their common Less: Tax Credit, if any
profession; and Tax Still due, if any/ Tax Payable
2. no part of the income of which is derived
from engaging in any trade or business [Sec.
22(B)]. GROSS INCOME
GPPs, however, are required to file Definition: Means all income derived from
returns of their income for the purpose of whatever source, including but not limited to
furnishing information as to the share in the net the following (Sec. 32); (Key: CIG2AR2-P2D)
income of the partnership which the partners 1. Compensation;
shall include in their individual returns 2. Gross income from profession, trade
or business;
Members of the GPP are liable for 3. Gains form dealings in property;
income tax only in their separate and 4. Interests;
individual capacity. Each partner shall report 5. Rents;
as gross income his distributive share, actually 6. Royalties;
or constructively received, in the net income of 7. Dividends;
the partnership. 8. Annuities;
9. Prizes and winnings;
10. Pensions;
KINDS OF INCOME TAXES 11. Partner’s share in the net income of
UNDER R.A. 8424 the general professional partnership
(1) Net Income Tax “all income derived from

(2) Gross Income Tax whatever source” - embraces all income not
(3) Final Income Tax expressly exempted within the class of taxable
(4) Preferential Rates or Special Rates of income under the law, irrespective of the
Income Tax voluntary or involuntary action of the taxpayer
(5) Improperly Accumulated Earnings Tax
T A X A T I O N
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in producing the gains, and whether derived 3. separation pay because of death, sickness,
from legal or illegal sources, such as: or other physical disability or for any cause
beyond the control of the official or
1. Gains arising from expropriation of
employee (e.g. retrenchment);
property which constitute income from
4. social security benefits, retirement
dealings in property;
gratuities, pensions and other similar
2. Income derived from illegal sources,
benefits received by citizens and aliens who
such as gambling, theft, embezzlement,
come to reside permanently here from
and smuggling;
foreign sources private or public;
3. Compensation for damages if it
represents payment for loss of expected 5. benefits due to residents under the laws of
profits; the U.S. administered by the U.S. Veterans
4. Bad debts previously charged-off but Administration
afterwards recovered; 6. SSS benefits; and
5. Contest awards and prizes for 7. GSIS benefits.
commercial or non-commercial
contests; and Miscellaneous Items
6. Taxes previously deducted as an
expense and subsequently refunded. 1. Passive income derived by foreign
government in the Philippines;
2. Income derived from any public utility or
Exclusions from Gross Income from the exercise of any governmental
1. proceeds of life insurance function;
NOTE: if the proceeds are retained by the 3. Prizes and awards made primarily in
insurer, the interest thereon is taxable; recognition of charitable, civic achievement,
literary, artistic, religious, educational, and
2. Return of insurance premium; scientific. (Code: C2LARES)
3. Gift, bequest or devise
NOTE: income there from is taxable; Requisites:
4. Compensation for personal injuries or a. recipient selected without any action
sickness, whether by suit or agreement on his part; and
NOTE: The phrase “personal injuries” b. recipient not required to render
should be given a restrictive meaning to substantial future services.
refer only to physical injuries;
4. Prizes and awards granted to athletes in
5. Income exempt under Treaty;
sports competitions and sanctioned by their
6. Retirement benefits, pension, gratuities, etc.
national sports association ;
7. Miscellaneous items
5. 13th month pay and other benefits up to
P30,000.00;
Retirement Benefits, Pension, 6. GSIS,SSS, Medicare and union dues of
Gratuities, Etc. individuals;
7. Gains derived from debt securities with a
1. those derived under R.A. 7641 (pertains to
maturity of more than 5 years;
private firms without retirement trust
8. Gains from redemption of shares in Mutual
fund);
Fund.
2. those received by officials and employees of
private employers in accordance with a
reasonable private benefit plan; DEDUCTIONS
Requisites:
Definition: Items or amounts which the law
a) in the service of the same employer allows to be deducted from gross income in
for at least 10 years; order to arrive at the taxable income.
b) at least 50 years old;
c) must be availed of only once
d) plan approved by the BIR (R.R.2- Basic Principles governing Deductions
98);
T A X A T I O N
Page 26 of 107
1. The taxpayer seeking a deduction must (j) pension trust contributions of

point to some specific provisions of the employees; and
statute authorizing the deduction; and (k) premium payments on health and/or
2. He must be able to prove that he is entitled hospitalization insurance. (This is the
to the deduction authorized or allowed. only deduction which a compensation
(Atlas Consolidated Mining & Dev. Corp. income earner may claim as a
vs. Comm.) deduction.)
3. Any amount paid or payable which is 3. Personal and additional exemptions
otherwise deductible from, or taken into Available only to individuals (business
account in computing gross income or for income and compensation income earners).
which depreciation or amortization may be
NRAETB may be entitled to personal
allowed, shall be allowed as deduction only
exemptions (only) subject to reciprocity, i.e.,
if it is shown that the tax required to be
deducted and withheld there from has been (a) the country of which he is a subject
paid to the BIR. (Sec. 34[K]) or citizen has an income tax law; and
(b) the income tax law of his country
Note: Deductions for income tax purposes allows personal exemption to citizens of the
partake of the nature of tax exemptions; hence, Philippines not residing therein, but
if tax exemptions are to be strictly construed, deriving income there from and not to
then it follows that deductions must also be exceed the amount allowed in CTRP.
strictly construed. The personal exemption shall the be
equal to that allowed by the income tax law
of his country to a citizen of the Philippines
Taxpayers who cannot avail of
not residing therein, or the amount
deductions from gross income
provided in the CTRP, whichever is lower.
1. Citizens and resident aliens whose income is
4. Special deductions – applicable only to
purely compensation income (except for
Insurance companies, whether domestic or
premium payments on health and/or
foreign. (Sec. 37, CTRP).
hospitalization insurance);
2. Non-resident aliens not engaged in trade or
business in the Philippines; and ITEMIZED DEDUCTIONS
3. Non-resident foreign corporation
a. ORDINARY AND NECESSARY
EXPENSE
Kinds of Deductions
• Necessary Expense - appropriate and
1. Optional standard deductions (OSD) helpful in the development of taxpayer's
–10% of the gross income. business.
• Ordinary Expense - normal or usual in
NOTE: The OSD may be availed of only by the line of business.
individuals (except nonresident alien) who
are not purely compensation income Requisites of Business Expense to be
earners. deductible
2. Itemized deductions 1. ordinary and necessary;

(Key: ELIT-BD2CP2R) 2. paid or incurred w/in the taxable year;
(a) ordinary AND necessary expenses 3. paid or incurred in carrying on a trade or
(b) interests business;
(c) taxes 4. Substantiated with official receipts or other
(d) losses adequate records.
(e) bad debts 5. if subject to withholding taxes proof of
(f) depreciation of property; payment to the BIR must be shown.
(g) depletion of oil and gas wells and mines; 6. must be reasonable under the
(h) charitable and other contributions; circumstances.
(i) research and development;
T A X A T I O N
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• Capital Expenditure - An expenditure Optional Treatment of Interest Expense

that benefits not only the current period but At the option of the taxpayer, interest
also future periods. It is not deductible but incurred to acquire property used in trade or
depreciable, EXCEPT, if the taxpayer is a non- business may be allowed as a deduction or
profit proprietary educational institution which treated as capital expenditure. [Sec 34 (B)(3)]
may elect either to deduct the capital expense or
depreciate it. Interest Payments not Deductible
b. INTEREST 1. interest paid on indebtedness to finance

Interest – payment for the use of forbearance or petroleum explorations;
detention of money, regardless of the name it is 2. interest on transactions by related parties
called or denominated. [Sec. 34 (B)(2)]
3. interest to purchase or carry tax-exempt
Requisites for deductibility: obligations;
4. dividend payments cannot be deducted as
1. there must be an indebtedness; interest; and
2. an interest expense paid or incurred on such 5. interest paid in advance thru discount or
indebtedness; otherwise, HOWEVER it is deductible in the
3. indebtedness that of taxpayer; year indebtedness is paid.
4. indebtedness connected with the taxpayer’s
trade, business or exercise of profession; c. TAXES
5. interest expense paid or incurred during the
taxable year; Requisites to be deductible
6. interest stipulated in writing;
7. interest legally due; Must be in connection with taxpayer’s
8. interest arrange not between related business; tax must be imposed by law on,
taxpayers; and payable by, taxpayer (direct tax); and
9. interest not incurred to finance petroleum paid or incurred during the taxable year.
operations, and
10. interest incurred to acquire property used in Taxes not deductible
trade, business or exercise of profession, the
same was not treated as capital expenditure. 1. income tax;
2. estate and donor’s tax;
Rules on Deductibility of Interest Expense 3. special assessments;
4. excess electric consumption tax;
1. General Rule – the amount of interest 5. foreign income tax, war profits and excess
expense paid/ incurred within a taxable year of profits tax, if the taxpayer makes use of tax
indebtedness in connection with the taxpayer’s credit; and
trade, business or exercise of profession (TBE) 6. final taxes, being in the nature of income
shall be allowed as a deduction from the tax.
taxpayer’s gross income.
TAX BENEFIT RULE
2. Limitation – the amount of interest (in
connection with TBE) shall be reduced by an Taxes allowed as deductions, when
amount equal the following percentages of refunded or credited, shall be included as part
interest income earned w/c had been of gross income in the year of receipt to the
subjected to final withholding depending on the extent of the income tax benefit of said
year when the interest income earned, viz: deduction.
41% - beginning January 1, 1998 For NRAETB and RFC, taxes paid or
39% - beginning January 1, 1999 incurred are allowed as deductions only if and
38 % - beginning January 1, 2000 and to the extent that they are connected from
thereafter income within the Philippines.
T A X A T I O N
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d. LOSSES shares is held by or on behalf of

the same persons; or
Requisites to be deductible b. not less than 75% of the paid up
capital is held by or on behalf of
1. actually sustained during the taxable year; the same person.
2. connected with the business, trade or
exercise of profession; 3. Of property connected with the
3. evidenced by a close and completed trade, business or profession, if the loss arises
transaction; from fires, storms, other casualties.
4. not compensated by insurance or otherwise.
5. not been claimed as deduction for estate tax Total Destruction – total book value (cost
purposes; and less accum. depr.) less any amount of insurance
6. Notice of loss must be filed with the BIR or compensation received
w/in 45 days form the date of discovery of the
casualty/robbery/theft/embezzlement. Partial Destruction – the replacement cost
to restore the property to its normal operating
The taxpayer’s failure to record in condition, but in no case shall the deductible
his books the alleged loss proves that the loss be more than the net book value of the
loss had not been suffered, hence, not property before the casualty.
deductible. (City Lumber vs.
Commissioner) The excess over the net book value immediately
before the casualty should be capitalized,
subject to depreciation over the remaining
CATEGORY AND TYPES OF LOSSES
useful life of the property.
1. Ordinary Losses- incurred in trade.
3. Capital losses – deductible only to
Business or exercise/practice of profession
the extent of capital gains
2. Net operating loss carry-over
a. Losses from sale/ exchange of capital assets.
(NOLCO)
b. Losses resulting from securities becoming
worthless and which are capital assets.
• Refers to the excess of allowable deductions
c. Losses from short sale of properties.
over gross income of the business for any
d. Losses due to failure to exercise privilege or
taxable year which had not been previously
option to buy/ sell property.
offset as deduction from gross income.
• Can be carried over as a deduction from
Special Kinds of Losses
gross income for the next 3 consecutive years
immediately following the year of such loss.
a. Wagering Losses – deductible only to the
• For mines, other that oil and gas well, net extent of gain/ winnings. [Sec. 34(D)(6)]
operating loss incurred in any of the first ten
years of operation may be carried over for the b. Losses on Wash Sales of Stocks – not
next 5 years. deductible because these are artificial loss
Wash sales – a sale or other disposition of
Requirements: stock or securities where substantially identical
securities are acquired or purchased within 61-
1. The taxpayer was not exempt from day period, beginning 30 days before the sale
income tax in the year of such net and ending 30 days after the sale. [Sec. 38]
operating loss;
2. There has been no substantial change in General rule: Losses from wash sales are not
the ownership of the business or deductible.
enterprise.
There is no substantial change in the Exception: When the sale is made by a dealer
ownership of the business when: in stock or securities and with respect to a
a. not less than 75% in nominal transaction made in the ordinary course of the
value of the outstanding issued
T A X A T I O N
Page 29 of 107
business of such dealer, losses from such sale is Requisites to be deductible

deductible. 1. Valid, subsisting and legally demandable
(NOTE: the taxpayer is the CREDITOR);
Elements of Wash Sales 2. Debt must be actually ascertained to be
worthless and uncollectible as of the end
a. The sale or other disposition of stock of the taxable year;
resulted to a loss; 3. Obligation is not between related parties
b. There was an acquisition or contract or [Sec. 36(B)];
option for acquisition of stock or 4. Debt is expensed within the year
securities within 30 days before the sale (actually charged off from the books of
or 30 days after the sale; and accounts of the taxpayer) and
c. The stock or securities sold were 5. Debt is connected with taxpayer’s
substantially the same as those acquired profession, trade or business.
within the 61-day period.
Equitable Doctrine of Tax Benefit
c. Abandonment losses in petroleum A recovery of bad debts previously
operation and producing well. [Sec. 34 (D) deducted from gross income constitutes
(7)] taxable income if in the year the account was
a. In case a contract area where petroleum written off, the deduction resulted in a tax
operations are undertaken is partially or benefit.
wholly abandoned, all accumulated
exploration and development f. DEPRECIATION
expenditures pertaining thereto shall be
allowed as a deduction. Includes
b. In case a producing well is abandoned,
the unamortized cost thereof, as well as 1. The gradual diminution in the service or
the undepreciated cost of equipment useful value of tangible property due from
directly used therein, shall be allowed as exhaustion, wear and tear and normal
deduction in the year the well, obsolescence.
equipment or facility is abandoned. 2. Amortization of the value of intangible
assets with definitely limited duration.
d. Losses of mines other than oil and gas
wells Requisites to be deductible
e. Losses due to voluntary removal of 1. Must be reasonable;
building incident to renewal/ 2. Must be on property used in the conduct of
replacements – deductible expense from the business;
gross income. 3. Must be expensed (charged off) during the
taxable year; and
f. Loss of useful value of capital assets 4. Schedule of allowance must be attached to
due to changes in business conditions – the return.
deductible up to the extent of actual loss
sustained (after adjustment for improvement, g. DEPLETION OF OIL AND GAS WELLS
depreciation and salvage value). AND MINES
g. Losses from sales or exchanges of - same requisites as depreciation
property between related taxpayers –
losses of this nature are not deductible but gains Depletion – exhaustion of natural resources
are taxable. as mines, oil and gas wells. The natural
resources are called “wasting assets”. As the
h. Losses of farmers – if incurred in the physical units representing such resources are
operation of farm business, it is deductible. extracted and sold, such assets move towards
exhaustion.
e. BAD DEBTS
T A X A T I O N
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Known as cost of depletion allowance for - not in excess of 10% of the taxable income in
mines, oil gas wells and other natural deposits. case of an individual
To whom allowed – only mining entities Deductible in Full

owning economic interest in mineral deposits.
Donations to the following shall be
Economic Interest – interest in minerals in allowed FULL deductibility:
place investment therein or secured by
operating or contract agreement for which 1. Philippine government or to any of its
income is derived, and return of capital agencies, or political subdivisions, including
expected from the extraction of mineral. fully-owned government corporations
undertaking priority activities;
Mere economic/ pecuniary advantage to be 2. Foreign institutions or international
derived when there is no capital investment is organizations, pursuant to agreements,
involve, does not amount to economic interest. treaties or commitments entered into by the
Phil. Government or special laws;
3. Donations to certain accredited NGO’s.
h. CHARITABLE AND OTHER
CONTRIBUTIONS
i. RESEARCH AND DEVELOPMENT
Requisites to be deductible (R&D)
1. The contribution/ gift must be actually paid. Requisites to be deductible

2. Given to the organizations specified in the
code. 1. if incurred in connection with the trade,
3. The Net Income of the organization must not business or profession of the taxpayer; and
inure to the benefit of any private stockholder/ 2. if not charged to capital account
individual.
Treatment of the R&D Expenditures
Valuation – acquisition cost of property
contributed At the option of the taxpayer, the R&D
expenditures may be treated as deferred
Partial Deduction expenses:
Donations to the following shall be allowed 1. if incurred in connection with the trade,
LIMITED deductibility: business or profession of the taxpayer;
2. if not treated as expense; and
1. Phil. Government or any of its agencies or 3. if chargeable to capital account not subject
any political subdivision thereof exclusively to depreciation.
for public purposes; If treated as deferred expense, the R&D
2. accredited domestic corporation or shall be amortized over a period of not less than
associations organized and operated 60 months.
exclusively for religious, charitable,
scientific, youth and sports development, Expenses not considered as R&D
cultural or educational purposes or for the
rehabilitation of veterans, 1. Expenditures for the acquisition or
3. social welfare institutions, or improvement of land, or for the
4. non-government organizations (Sec 34[H]) improvement of property to be used in
connection with R&D of a character which is
The aforementioned donations shall be subject to depreciation and depletion; and
deductible only to the extent: 2. Expenditures paid or incurred for the
purpose of ascertaining the existence,
- not in excess of 5% of taxable income in case location, extent, or quantity of any deposit
of a corporation or ore or other mineral including oil or gas.
T A X A T I O N
Page 31 of 107
j. PENSION TRUST CONTRIBUTION c. individual taxpayer earning compensation

and business/ practice of profession during the
A deduction applicable only to the year
employer on account of its contribution to a
private pension plan for the benefits of its PERSONAL EXEMPTIONS
employees. This deduction is purely business in
character. Amounts of Personal Exemptions [Sec.
35]
Requisites to be deductible
1. Single individual or married individual
1. The employer must have established a judicially decreed as legally separated with
pension or retirement plan to provide for no qualified dependents: P20,000
the payment of reasonable pensions to his 2. Head of the family: P25,000
employees; 3. Each married person: P32,000
2. The pension plan is reasonable and
actuarially sound;
3. It must be funded by the employer; Head of the Family
4. The amount contributed must be no longer
subject to the control and disposition of the 1. Unmarried or legally separated person with
employer; one or both parents, or one or more
5. The payment has not yet been allowed as a brothers or sisters, or one or more
deduction; and legitimate, recognized natural or legally
6. The deduction is apportioned in equal parts adopted children living with and dependent
over a period of 10 consecutive years upon the taxpayer for their chief support;
beginning with the year in which the and
transfer or payment is made. 2. Where such brother / sister or children are
not more than 21 years of age, unmarried
and not gainfully employed, or where such
k. PREMIUM PAYMENTS ON HEALTH dependents regardless of age, are incapable
AND/OR HOSPITALIZATION of self – support because of mental or
INSURANCE physical defect.
Requisites to be deductible Additional Exemption for Dependents-

P8, 000 for each dependent not to exceed four
1. The taxpayer must be an individual; (4).
2. The amount of premiums shall not exceed
P2,400 per family; Qualifications of a dependent
3. Such family must have a gross income of not
more than P250,000 for the taxable year; 1. legitimate, illegitimate or legally adopted
and child of the taxpayer
4. In the case of married taxpayers, only the 2. chiefly dependent upon and living with the
spouse claiming the additional exemption taxpayer
for dependents shall be entitled to this 3. not more than 21 years old, unmarried AND
deduction. not gainfully employed or where such
dependents regardless of age are incapable
Who may avail of the deduction of self-support because of mental of physical
defect.
a. individual taxpayers earning purely
compensation income during the year. Note: The P8, 000 additional exemptions is
b. individual taxpayer earning business income given only for dependent children. It cannot be
or in the practice of his profession whether claimed for dependent parents, brothers, or
availing of itemized or optional standard sisters. The taxpayer must be either married or
deductions during the year. head of the family. Furthermore, according to
the Senior Citizens Law, may include an
individual above 60 years old as dependent
T A X A T I O N
Page 32 of 107
provided all the requisites provided by the said Transactions between related parties
law are present.
1. Between members of the family;
Clarificatory Illustrations: ‘Family’ includes only the brothers,
sisters (whether by the whole or half blood),
1. If only 19 years old but married, not spouse, ancestors, and lineal descendants of
qualified as a dependent. the taxpayer.
2. Even if 25 years old but physically 2. Except in the case of distributions in
incapacitated, qualified as a dependent. liquidation:
3. If there is any change of status at any time a. between an individual and a corporation
during the taxable year, the law expressly more than 50% in value of the
favors the taxpayer. outstanding stock of which is owned,
directly or indirectly, by or for such
NRAETB may deduct personal exemption individual;
(not additional exemption), but only to the b. between two corporations more than
extent allowed by his country to Filipinos not 50% in value of the outstanding stock of
residing therein, and shall not exceed the each of which is owned, directly or
aforementioned amounts. indirectly, by or for the same individual,
if either one of such corporations, with
ITEMS NOT DEDUCTIBLE FROM GROSS respect to the taxable year of the
INCOME corporation preceding the date of the
sale of exchange was a personal holding
Reasons for non-deductibility: company or a foreign personal holding
company; or
1. Personal Expenses 3. Between the grantor and a fiduciary of any
2. Capital Expenditures trust;
3. Items not normally subject to income tax and 4. Between the fiduciary of a trust and the
therefore not deductible fiduciary of another trust if the same person
4. Items taken advantage of by the taxpayer to is a grantor with respect to each trust;
avoid payment of income tax. 5. Between a fiduciary of a trust and a
beneficiary of such trust.
The following are NOT deductible from
gross income Consequences
1. Personal, living or family expenses; 1. Interest expense is not allowed as a

2. Amount paid out for new buildings or for deduction if both the taxpayer and the
permanent improvements, or betterment person to whom the payment was made are
made to increase the value of any property persons specified above. [Sec. 34 (B)(2)]
or estate, 2. Bad debts sustained in a transaction entered
EXCEPT that intangible drilling and into between parties mentioned above are
development cost incurred in petroleum not deductible. [Sec. 34 (E)(1)]
operations are deductible; 3. Losses from sales or exchanges of property
3. Amount expended in restoring property or between persons specified above are not
in making good the exhaustion thereof for deductible. [Sec 36 (B)]
which an allowance has been made;
4. Premiums paid on any life insurance policy
covering the life of any officer or employee,
or of any person financially interested in
any trade or business carried on by the
taxpayer, individual or corporate, when the
taxpayer is directly or indirectly a
beneficiary under such policy. [Sec. 36]
5. Losses from sales or exchanges of property
between related taxpayers. [Sec. 36]
T A X A T I O N
Page 33 of 107
(2) GROSS INCOME TAX

PREFERENTIAL OR SPECIAL RATES
Gross Income Tax (GIT) Formula Pertains to income derived by a
particular individual or corporation belonging
Entire Income to a class of income taxpayer that is subject to
Less: Exclusions and Income subject to Final either a preferential or special rate. Please
refer to Annex A.
Tax (e.g. Passive Income)
Gross Income (5) IMPROPERLY ACCUMULATED
EARNINGS (IAE) TAX
X Tax Rates
Net Income Tax Due Definition: “Improperly accumulated
earnings (IAE)” are the profits of a corporation
that are permitted to accumulate instead of
GIT applies to being distributed by a corporation to its
shareholders for the purpose of avoiding the
1. Non-resident alien not engaged in trade income tax with respect to its shareholders or
or business; and the shareholders of another corporation.
2. Non-resident foreign corporation.
Rate: 10% of the Improperly Accumulated
Tax Rates: Please refer to Annex A. Taxable Income (in addition to other taxes).
“Improperly Accumulated Taxable

(3) FINAL INCOME TAX Income” means taxable income
General Principles Adjusted by:
1. Income exempt from tax
1. It is constituted as a full and final payment 2. Income excluded from gross income
of the income tax due from the payee on a 3. Income subject to final tax
particular type of income subject to final 4. The amount of net operating loss carry-over
withholding tax (FWT). deducted.
The finality of the withholding tax is limited And reduced by the sum of:
only to the payee’s income tax liability and does 1. Dividends actually or constructively paid;
not extend to other taxes that may be imposed and
on said income. 2. Income tax paid for the taxable year
2. The income subjected to final income tax is Exclusions
no longer subject to the net income tax;
otherwise, there would be a violation of • For corporations using the calendar basis
prohibited double taxation. the accumulated earnings tax shall not
3. The liability for the payment of the tax rests apply on IAE as of Dec. 31, 1997.
primarily on the payor as withholding agent. • For fiscal year basis, the tax shall not apply
4. The payee is not required to file an income to the 12-month period of fiscal year 1997-
tax return for the particular income 1998.
subjected to FWT.
5. The rate of the final tax is multiplied to the
IAE as of the end of a calendar or fiscal year
gross income. Thus, deductions and/or
period on or after Dec. 31, 1998 shall be subject
personal and additional exemptions are not to the 10% tax on such IAE
allowed.
Who are covered?
Tax Rates: Please refer to Annex A.
General Rule: The IAE tax shall apply to
every corporation formed or availed for the
(4) INCOME SUBJECT TO
T A X A T I O N
Page 34 of 107
purpose of avoiding the income tax with respect Limitations

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

INCOME TAX (MCIT)
A. Trading or Merchandising Concern
Who are covered? Gross Income Cost of Sales =
= gross sales/ Invoice cost of the
MCIT is imposed on domestic and resident receipts less sales goods sold, plus import
foreign corporations returns, duties, freight in
discounts and transporting the goods
a. Whenever such corporation has zero or allowances and to the place where the
negative taxable income; or cost of goods sold goods are actually sold,
b. Whenever the amount of MCIT is greater including insurance
than the normal income tax due from such while the goods are in
corporation determined under Section transit.
27[A] of the CTRP.
T A X A T I O N
Page 35 of 107
B. • The excess can be credited against the

Manufacturing Cost of Sales = All normal income tax due in the next 3
Gross Income cost of production of immediately succeeding taxable years.
(Same) finished goods, such as • Any amount of the excess MCIT which
raw materials used, cannot be credited against the normal
direct labor and income tax due in the next 3-year period
manufacturing shall be forfeited.
overhead, freight cost,
insurance premiums (7) FRINGE BENEFIT TAX (FBT)
and other costs
incurred to bring the Definitions: “Fringe Benefit Tax” is a final
raw materials to the income tax on the employee which shall be
factory or warehouse. withheld and paid by the employer on a
C. Services quarterly basis.
Gross Income
= Gross receipts Cost of Services = All
less sales returns, direct costs and “Fringe benefit” means any good,
allowances, expenses necessarily service, or other benefit furnished or granted by
discounts and incurred to provide the an employer, in cash or in kind, in addition to
costs of services services required by the basic salaries, to an individual employee (except
customers and clients rank and file employees) such as, but not
including: limited to the following:
a. Salaries and 1. Housing
employee benefits
2. Expense Account
of personnel,
3. Vehicle of any kind
consultants and
4. Household personnel, such as maid, driver
specialists directly
and others
rendering the 5. Interest on loan at less than market rate to
service; the extent of the difference between the
b. Cost of facilities market rate and actual rate granted.
directly utilized in
6. Membership fees, dues and other expenses
providing the
borne by the employer for the employee in
service.
social and athletic clubs and similar
It shall not organizations
include interest 7. Expenses for foreign travel
expense except for 8. Holiday and vacation expenses
banks and other
9. Educational assistance to the employee or
financial institutions.
his dependents; and
10. Life or health insurance and other non-lire
• Gross income excludes passive income insurance premiums or similar amounts on
subject to final tax. excess of what the law allows.
• Other income and Extraordinary Income
are included since RR 9-98 provides that Persons liable
gross sales include sales contributory to
income taxable under the regular corporate • the EMPLOYER (as a withholding agent),
tax. whether individual, professional
partnership or a corporation, regardless of
Carry Forward of the Excess Minimum whether the corporation is taxable or not, or
Tax the government and its instrumentalities
• Any excess of MCIT over the normal income Tax rate: 32% (from January 1, 2000
tax can be carried forward on an annual onwards) of the Grossed up Monetary Value
basis. (GMV) of fringe benefits.
T A X A T I O N
Page 36 of 107
In the case of aliens, the tax rates to be 3. Benefits given to the Rank and File
applied on fringe benefit shall be as follows: Employees, whether granted under a
1. NRANEBT 25% collective bargaining agreement or
2. Aliens employed by regional HO 15 % not; and
3. Aliens employed by OBU 15% 4. The De minims benefits – benefits
4. Aliens employed by Petroleum Service which are relatively small in value
5. Contractors and Subcontractors offered by the employer as a means
of promoting goodwill, contentment,
“GMV” of the fringe benefit represents efficiency of Employees
1. the whole amount of income realized by the The term “Rank and File
employee which includes the net amount of Employees” shall mean all employees
money or net monetary value of property who are holding neither managerial nor
which has been received; plus supervisory position as defined in the
2. the amount of fringe benefit tax thereon Labor Code
otherwise due from the employee but paid
by the employer for and in behalf of the In the case of rank and file
employee. employees, fringe benefits other than
those excluded from gross income under
“GMV” of the fringe benefit shall be the Tax Code and other special laws, are
determined by dividing the monetary value of taxable under the individual normal tax
the fringe benefit by the Grossed up divisor. rate.
The Grossed up divisor is the difference
between 100% and the applicable rates. Deductibility to the Taxable income of
the EMPLOYER
GROSSED UP
YEAR RATE
DIVISOR General Rule: The amount of taxable fringe
1998 66% 34% FWT benefit and the fringe benefits tax shall
1999 67% 33% FWT constitute allowable deductions from gross
2000 32% FWT income of the employer.
68%
onwards
Exception:
Fringe Benefits not subject to FBT
If the basis for computation of the fringe
A. Fringe benefits not considered as gross benefits tax is the depreciation value, the zonal
income - value or the fair market value, only the actual
1. if it is required or necessary to the fringe benefits tax paid shall constitute a
business of employer deductible expense for the employer. The value
2. if it is for the convenience or of the fringe benefit shall not be deductible and
advantage of employer shall be presumed to have been tacked on or
B. Fringe Benefit that is not taxable under actually claimed as depreciation expense by the
Sec. 32 (B) – Exclusions from Gross employer. Provided, however, that if the
Income aforesaid zonal value or fair market value of the
C. Fringe benefits not taxable under Sec. said property is greater than its cost subject to
33 Fringe Benefit Tax: depreciation, the excess amount shall be
1. Fringe Benefits which are authorized allowed as a deduction from the employer's
and exempted under special laws, gross income as fringe benefit expense. (Sec.
such as the 13th month Pay and 2.33[D], Rev. Reg. No. 3-98)
Other Benefits with the ceiling of
P30, 000.
2. Contributions of the employer for
the benefit of the employee to
retirement, insurance and
hospitalization benefit plans;
T A X A T I O N
Page 37 of 107
(8) OPTIONAL CORPORATE on the gross selling price or the fair market
INCOME TAX value at the time of sale, whichever is
higher, regardless of gain or loss
Optional Rate: 15% of Gross income 2. Shares of stock of Domestic Corporation not
traded thru a local exchange taxed at the
Requisites
rate of 5% for net capital gains not over
A. Authorized by the President (effective P100T, and 10% in excess of P100T.
January 1, 2000), upon
recommendation of the Secretary of Capital Gains and Losses
Finance. 1. Ordinary assets
B. Conditions precedent to grant of a. Stock in trade of the taxpayer or
President’s authority other properties of a kind which
1. A tax effort ratio of 20% of GNP; would properly be included in the
2. A ratio of 40% of income tax to total inventory of the taxpayer;
tax revenue; b. Property held by the taxpayer
3. A VAT tax effort of 4% of GNP primarily for sale to customers in the
4. A 0.9% ratio of Consolidated Public ordinary course of business;
Sector Financial Position to GNP. c. Property used in trade or business
C. Option available only to corporations and subject to depreciation; and
with the following ratio: d. Real property used in trade or
business.
Cost of sales
Gross sales or receipts =55% 2. Capital Assets include all property
from all sources held by the taxpayer whether or not
connected in trade or business but not
including those enumerated above (#1)
D. Once elected, option is irrevocable for 3 as ordinary assets.
consecutive years
Capital Gain Capital Loss
INCOME TAX INCIDENCE The gain derived The loss incurred
ON SALES OR EXCHANGES OF from the sale or from the sale or
PROPERTY exchange of capital exchange of capital
assets. assets.
Sale on Exchange of Ordinary Assets
Requisites for recognition of Capital
General rules of income taxation apply Gain/Loss
to both as to the gain and as to the loss.
1. The transaction must involve property
Transaction Resulting in Taxable Gains classified as capital asset; and
but Non-Recognition of Losses 2. The transaction must be a sale or
exchange or one considered as
a. Sale or exchange between related parties; equivalent to a sale or exchange.
b. Wash sales by non-dealers of securities and
when not subject to the stock transfer tax; Net Capital Gain Net Capital Loss
c. Exchanges not solely in kind in merger and
The excess of the The excess of the
consolidation; and
gains from losses from sales or
d. Sales or exchanges that are not at arms
sales/exchanges of exchanges of capital
length. capital assets over assets over the
the gains from such gains from such
Sale or Exchange of Real Property, and
sales/exchanges. sales or exchanges.
Shares of Stocks of Domestic
Corporation Held as Capital Assets
Subject to Capital Gains Tax
1. On real property – each independent

transaction is subject to the final tax of 6%
T A X A T I O N
Page 38 of 107
Rules on the recognition of capital gains a. Between the corporations which are
or losses parties to the merger or consolidation
(property for stocks);
Individual Corporation b. Between a stockholder of a corporation
Non-deductibility of Net Capital party to a merger or consolidation and
losses the other party corporation (stock for
Capital losses shall be deducted only stock);
to the extent of the capital gains; hence, c. Between a security holder of a
the net capital loss is not deductible. corporation party to a merger or
Ordinary losses are deductible from consolidation and the other party
capital gains but net capital loss cannot be corporation (securities for securities)
deducted from ordinary gain or income; 2. Exchange of property for stocks resulting in
Holding acquisition of corporate control by a person,
Period Capital gains alone or together with others not exceeding
The percentages and losses are four.
of gain or loss to be recognized to the “Control” means ownership of stocks in
taken into account extent of 100%. a corporation amounting to at least 51% of
shall be the ff.: (There is no the total voting power of all classes of stocks
a. 100% if the holding period) entitled to vote.
capital assets has
been held for 12 FILING OF TAX RETURN AND
mos. or less; and PAYMENT OF THE TAX
b. 50% if the capital
asset has been held Tax Return – A report prepared by the
for more than 12 taxpayer showing to internal revenue officers an
mos. enumeration of taxable amounts and
Net Capital Loss Carry-Over description of taxable transactions, allowable
There is a “net The net capital deductions, amounts subject to tax and the tax
capital loss carry loss carry-over is payable by the taxpayer to the government
over,” i.e., a net not applicable correct (Self-assessment). There is pain of
capital loss perjury if the return is not.
sustained in a
taxable year in an Persons Required to File Income Tax
amount not in Return
excess of the net
income (before A. Individual
exemptions) for
such year may be 1. Resident citizen;
deducted as a 2. Non-resident citizen on income from
short-term capital within the Phil.;
loss (at 100%) from 3. Resident alien on income from within
the net capital gains the Phil.;
of the next or 4. NRAETB on income from within the
succeeding taxable Phil.
year but not beyond 5. An individual (citizens / aliens) engaged
such period. in business or practice of a profession
within the Phil. regardless of the amount
Tax Exempt Exchanges of gross income;
6. Individual deriving compensation
Sales or exchanges resulting in non- income concurrently from two or more
recognition of gains or losses: employers at any time during the
taxable year;
1. Exchange solely in kind in legitimate 7. Individual whose pure compensation
mergers and consolidation; includes: income derived from sources within the
Phil. exceeds P60, 000.
T A X A T I O N
Page 39 of 107
B. Taxable Estate and Trust equal to the tax withheld) resulting to

C. General Professional Partnership collectible or refundable return.
D. Corporation 3. Employees whose monthly gross
compensation income does not exceed P5,
1. Not exempt from income tax; 000 or the statutory minimum wage,
2. Exempt from income tax under Sec. 30 whichever is higher, and opted for non-
of NIRC but has not shown proof of withholding of tax on said income.
exemption. 4. Individuals deriving other non-business,
non-profession-related income in
Individuals Exempt From Filing Income addition to compensation income not
Tax Return otherwise subject to final tax.
5. Individuals receiving purely
1. Individual whose gross income does not compensation income from a single
exceed total personal and additional employer although the income tax of
exemptions; which has been correctly withheld, but
2. Individual with respect to pure whose spouse falls under 1 to 4 above.
compensation income derived from sources 6. Non-resident aliens engaged in trade or
within the Philippines, the income tax on business in the Philippines deriving
which has been correctly withheld; purely compensation income, or
3. Individual whose sole income has been compensation income and other non-
subjected to final withholding income tax; business, non-profession-related income.
4. Individual who is exempt from income tax.
Note: Non-filing of ITR, for employees who
Substituted filing of Income tax Returns
are qualified for the substituted filing shall be
by Employees Receiving Purely
OPTIONAL for the taxable year 2001, the
Compensation Income. [Section 4, RR
returns for which shall be filed on or before
3-2002]
April 15, 2002. Thereafter, substituted filing
Individuals receiving purely where applicable shall be MANDATORY. [Sec 5
compensation income, regardless of RR 3-2002
amount, from only one employer, the
income tax of which has been withheld INCOME TAX vs. TRANSFER TAXES
correctly by the said employer (tax due equal’s
tax withheld), shall not be required to file
an income tax return. TRANSFER TAX INCOME TAX
In lieu of the ITR, the Annual Tax on transfer of Tax on income
Information Return of Income Taxes Withheld property.
on Compensation and Final Withholding Taxes Rates are lower Rates are higher
filed by their respective employers, duly --5% to 20% - -- 5% to 32%
stamped “received” by the BIR, shall estate tax
tantamount to the substituted filing of income -- 2% to 15 % -
tax returns by said employees. donor’s tax
Lesser exemptions More exemptions
Individuals not qualified for substituted

filing (still required to file)
1. Individuals deriving compensation from 2
or more employers concurrently or
successively during the taxable year.
2. Employees deriving compensation
income, regardless of the amount,
whether from a single or several
employers during the calendar year, the
income tax of which has not been
withheld correctly (i.e. tax due is not
T A X A T I O N
Page 40 of 107
TRANSFER TAXES
4. it is an excise tax and its object is to the
ESTATE TAX: shifting of economic benefits and enjoyment
of property from the dead to the living.
Tax which the state exacts where the
property left by the decedent, considered as Reasons justifying the imposition of
a unit, departs from the dead on its way to estate tax
the living
1. Benefit-Received Theory -considers the
It is also the tax on the right to transmit service rendered by the government in the
property at death and on certain transfers distribution of the estate of the decedent,
which are made by law equivalent of either by law or in accordance with his
testamentary disposition. wishes. For the performance of these
services and other benefits that accrue to
Accrues as of the death of the decedent and the estate and the heirs, the State collects
the accrual of the tax is distinct from the the tax.
obligation to pay the same.
2. Privilege Theory/State Partnership
The statute in force at the time of death Theory – inheritance is not a right but a
governs the estate taxation. privilege granted by the state, and large
estate have been acquired only with the
ESTATE TAX FORMULA protection of the State. Consequently, the
State as a passive and silent partner in the
Gross Estate (Sec. 85) accumulation of property has the right to
Less: Deductions (Sec. 86) collect the share which is properly due to it.
Net share of the surviving spouse
Net taxable Estate 3. Ability to Pay Theory – receipt of
X Tax rate (Sec.84) inheritance which is in the nature of an
Estate Tax Due unearned wealth or windfall, place assets
Less: Tax credit, if any (Sec.86 [E] or 110 [B] into the hands of the heirs and beneficiaries
Estate Tax Due hereby creating an ability to pay the tax and
thus contributes to government income.
Rate: first 200,000 pesos – exempt
Over 200,000 – graduated rate of 5%- 4. Redistribution of Wealth Theory - the
20% receipt of inheritance is a contributing
factor to the inequalities in wealth and
THE LAW THAT GOVERNS THE incomes. The imposition of death tax
IMPOSITION OF ESTATE TAX: reduces the property received by the
The statute in force at the time of death of successor, thus helping bring about a more
the decedent shall govern estate taxation equitable distribution of wealth in society.
The tax base is the value of the property and
Nature of Estate Tax: the progressive scheme of taxation is
precisely motivated by the desire to mitigate
1. tax on the right to transfer property at death the evils of inheritance in the present form.
and on certain transfers which are made by
law equivalent to testamentary dispositions I. GROSS ESTATE (GE):
and is measured by the value of the
property; A. Resident alien and Filipino decedent:
All properties, real or personal,
2. it is imposed on the basis of the net estate tangible or intangible, wherever
considered as a unit. The first Php200,000 situated.
of the net estate is exempt
B. Non-resident alien shall:
3. estate tax is not a property tax but rather an Only properties situated in the
excise tax. Philippines
T A X A T I O N
Page 41 of 107
With respect to intangible personal 4. Transfer under General Power of

property, its inclusion is subject to the Appointment
rule of reciprocity 5. Proceeds of life insurance
6. Transfer for Insufficient Consideration
No tax shall be collected in respect of 7. Prior Interests
intangible personal property:
a. if the decedent at the time of his death 1. DECEDENT’S INTEREST

was a citizen and resident of a To the extent of the interest in property
foreign country which at the time of of the decedent at the time of his death.
his death did not impose a transfer
tax in respect of intangible personal
property of citizens of the 2.TRANSFER IN CONTEMPALTION OF
Philippines not residing in that DEATH
foreign country, OR
b. if the laws of the foreign country of it is the thought of death as the
which the decedent was a citizen and controlling motive which induces the
resident at the time of is death disposition of the property for the
allows a similar exemption from purpose of avoiding the tax.
transfer taxes in respect of intangible
personal property owned by Filipino Includes:
citizens not residing in that foreign 1. transfer by trust or otherwise, in
country. contemplation of, or intended to take
effect in possession or enjoyment at or
Intangible personal property having after his death; or
situs in the Philippines:
2. transfer by trust or otherwise, with
a. Franchise which must be exercised in the retention or reservation of
Philippines; a. the possession or enjoyment of
or the right to the income from
b. Shares, obligations, or bonds issued by the property, or
any corporation or sociedad anonima b. the right, either alone or in
organized or constituted in the Philippines conjunction with any person, to
in accordance with its laws; designate the person who shall
possess or enjoy the property or
c. Shares, obligations, or bonds issued by any the income there from.
foreign corporation, 85% of the business is
located in the Philippines; Exception: in case of bona fide sale for
an adequate and full consideration in
d. Shares, obligations, or bonds issued by money or money's worth
any foreign corporation if such shares,
obligations or bonds have acquired business Amount included in the GE: interest
situs (i.e., they are used in furtherance of its therein
business in the Philippines. by any foreign
corporation) in the Philippines. Circumstances taken into account
e. Shares or rights in any partnership, 1. Age and state of health of the decedent at
business or industry established within the the time of gift, especially where he was
Philippines. aware of a serious illness;
2. Length of time between the gift and the date
INCLUSIONS IN THE GROSS ESTATE of death;
3. Concurrent making of a will or making a will
1. Decedent’s Interests within a short time after the transfer.
2. Transfer in Contemplation of Death
3. Revocable Transfer
T A X A T I O N
Page 42 of 107
3. REVOCABLE TRANSFER Exception: in case of bona fide sale for

an adequate and full consideration in
1. with reserved power to alter, amend, money and money’s worth
revoke or terminate - transfer, by trust
or otherwise, where the enjoyment Amount included in the GE: interest
thereof was subject to any change therein
through the exercise of a power (in
whatever capacity exercisable) by the Kinds:
decedent alone or by the decedent in
conjunction with any other person 1. General power of appointment – when
(without regard to when or from what it authorizes the donee to appoint any
source the decedent acquired such person he pleases, including himself, his
power), to alter, amend, revoke or spouse, his estate, his executor or
terminate; administrator, and his creditor thus having
full dominion over the property as though
2. or where any such power is he owned it.
relinquished in contemplation of the
decedent's death. 2. Special power of appointment – when
the donee can appoint only among a
Except: in case of bona fide sale for an restricted or designated class or persons
adequate and full consideration in other than himself.
money or money’s worth
5.PROCEEDS OF LIFE INSURANCE
Amount included in the GE: interest
therein Beneficiary is the estate of the deceased, his
executor or administrator, irrespective of
4.TARNSFER UNDER GENERAL POWER whether or not the insured retained the
OF APPOINMENT power of revocation; or
A power of appointment is the right to Beneficiary is other than the decedent’s

designate the person or persons who will estate, executor or administration, when
succeed to the property of the prior decedent. designation of beneficiary is revocable, that
is, when the designation of the beneficiary is
It may be exercised by the decedent: not expressly made irrevocable.
(a) by will; or The proceeds of life insurance are NOT

(b) by deed executed in contemplation taxable in the following cases:
of, or intended to take effect in
possession or enjoyment at, or after 1. Proceeds of a group insurance policy taken
his death; out by the company for its employees;
(c) by deed under which he has retained
for his life or any period not 2. Accident insurance proceeds;
ascertainable without reference to
his death or for any period which 3. Amount receivable by any beneficiary
does not in fact end before his death: irrevocably designated in the policy of
insurance by the insured;
(1) the possession or enjoyment of, or the
right to the income from, the property; or 4. Proceeds of insurance policies issued by the
GSIS to the government official and
(2) the right, either alone or in conjunction employees;
with any person, to designate the persons
who shall possess or enjoy the property or 5. Benefits accruing under the SSS law;
the income there from; except in case of a
bona fide sale for an adequate and full 6. Proceeds of life insurance payable to heirs of
consideration in money or money's worth. deceased members of military personnel
T A X A T I O N
Page 43 of 107
6. TRANSFER FOR INSUFFICIENT II. DEDUCTIONS:

CONSIDERATION
When the decedent’s property is A. For resident aliens and citizens:
transferred 1. expenses, losses, indebtedness, taxes,
a. in contemplation of death, etc. (E-L-I-T)
b. revocable transfers, or a. funeral expenses;
c. passed under a general power of b. judicial expenses;
appointment for a consideration in c. claims against estate;
money or money's worth d. claims against insolvent
person;
Exception: bona fide sale e. unpaid mortgages;
f. taxes;
Amount to be included in the GE: the g. losses
excess of the fair market value (FMV), at 2. transfers for public use;
the time of death, of the property 3. vanishing deduction;
otherwise to be included on account of 4. family home;
such transaction, over the value of the 5. standard deduction of P1 million;
consideration received therefore by the 6. medical expenses;
decedent. 7. amounts received by heirs under RA
4917 (Retirement Benefits)
FMV(time of death) less value received 8. Share of surviving spouse in conjugal or
community property.
7.PRIOR INTEREST
B. For non-resident alien-decedent:
All transfers, trusts, estates, interests, 1. expenses, losses, indebtedness, taxes,
rights, powers and relinquishment of powers etc. (E-L-I-T)
made, created, arising, existing, exercised or 2. transfers for public use (T.P.U);
relinquished before or after the effectivity of the 3. vanishing deduction;
Tax Code. 4. Share of surviving spouse in conjugal or
community property.
EXEMPT Acquisition and transmission: Funeral Expenses:
(Sec. 87)
Actual funeral expenses or 5% of the gross
1. the merger of usufruct of the owner of the estate; or P200, 000, WHICHEVER IS
naked title; LOWEST
2. the transmission or delivery of the Must be duly supported by receipts or
inheritance or legacy of the fiduciary heir or other evidence to show that they were
legatee to the fideicommissary; actually incurred.
3. the transmission from the first heir, legatee Not confined to its ordinary or usual
or donee in favor of another beneficiary, in meaning. They include:
accordance with the will of the predecessor;
a. mourning apparel of the surviving spouse
4. all bequests, devises, legacies, or transfers to and unmarried minor children of the
social welfare, cultural and charitable deceases bought and used on the occasion of
institutions no part of the net income of the burial;
which inures to the benefit of any b. expenses for the deceased’s wake, including
individual; provided that not more that 30% food and drinks;
of said bequests, legacies or transfers shall c. publication charges for death notices;
be used by such institutions for d. telecommunication expenses incurred in
administration purposes. informing relatives of the deceased;
e. cost of burial plot, tombstones, monument
or mausoleum but not their upkeep. In case
T A X A T I O N
Page 44 of 107
the deceased own a family estate or several deceased in his lifetime and could have been
burial lots, only the value corresponding to reduced to simple money judgments.
the plot where he is buried is deductible;
f. interment and/or cremation fees and Requisites for deductibility:
charges; and
g. all other expenses incurred for the 1. the liability represents a personal obligation
performance of the rites and ceremonies of the deceased existing at the time of his
incident to interment. death except unpaid obligations incurred
incident to his death;
Expenses incurred after the interment, such
as for prayers, masses, entertainment, or 2. it was contracted in good faith and for
the like are not deductible. adequate and full consideration in money or
money’s worth;
Any portion of the funeral and burial
expenses borne or defrayed by relatives and 3. the claim must be valid in law and
friends of the deceased are not deductible. enforceable in court;
Judicial Expenses: 4. the indebtedness must not have been

condoned by the creditor or the action to
Those incurred during the settlement of the collect must not have been prescribed.
estate but not beyond the last day 5. the debt instrument must be notarized;
prescribed by law, or the extension thereof,
for the filing of the estate tax return (6 6. if the loan was contracted within three (3)
months after death) years before the death of the decedent, the
administrator or executor shall submit a
Those incurred in the: statement under oath showing the
a. inventory taking of assets comprising disposition of the proceeds of the loan.
the GROSS ESTATE,
b. their administration, Claims against insolvent persons:
c. the payment of debts of the estate
d. the distribution of the estate among the The amount of said claims has been initially
heirs. included as part of the GE;
Any unpaid amount should be supported by The incapacity of the debtors to pay their
a sworn statement of account issued and obligations is proven, not merely alleged.
signed by the creditor.
Unpaid mortgages:
It may include the following
1. The value of the property mortgaged to the
1. Fees of executor or administrator extent of the decedent’s interest therein,
2. Attorney’s fees undiminished by such mortgage or
3. Court Fees indebtedness, is included in the GE;
4. Appraiser’s fee
5. Clerk hire 2. The indebtedness must have been
6. Costs of preserving and distributing the contracted bona fide and for an adequate
estate and full consideration in money or money’s
7. Costs of storing or maintaining property of worth;
the estate; and
8. Brokerage fees for selling property of the 3. Verification must be made as to who was the
estate. beneficiary of the loan proceeds.
Claims against the estate: 4. If found to be merely an accommodation

loan, the value of the unpaid loan must be
Debts or demands of a pecuniary nature included as a receivable of the estate.
which could have been enforced against the
T A X A T I O N
Page 45 of 107
5. If there is a legal impediment to recognize

the same as receivable, said unpaid 4. Identity of the property - the property
mortgage shall not be allowed as a must be identified as the one received from
deduction. the prior decedent, or something acquired
in exchange therefore; and
Taxes:
5. No previous vanishing deduction on
Accrued as of the death of the decedent the property was allowed to the estate of the
Unpaid as of the time of death prior decedent.
The following are not deductible: Limitations as to amount of deduction

allowable:
1. income tax on income received after the
death of the decedent; a. Value of property – limited by the value
2. property taxes not accrued after death; of the property previously taxed as finally
3. estate tax. determined for the purpose of the prior
transfer tax or the value of the property in
Losses: the present decedent’s GE, WHICHEVER IS
LOWER.
Requisites for deductibility:
b. Deduction for mortgage or other lien
1. arising from fire, storm, shipwreck or other – the initial value in #1 above shall be
casualty, robbery, theft or embezzlement; reduced by the total amount paid, if any, by
2. not compensated by insurance or otherwise; the present decedent on any mortgage or
3. not claimed as deduction in an income tax other lien on the property
return of the taxable estate;
4. incurred during the settlement of the estate c. Deduction for E-L-I-T and T.P.U – the
5. incurred before the last day for the payment value as reduced in #2 above shall be
of the estate tax (6 months after the further reduced by an amount which bears
decedent’s death) the ratio to the amounts allowed as
deductions for E-L-I-T and T.P.U as the
Vanishing deductions/Property amount otherwise deductible for property
Previously taxed: (VD/PPT) previously taxed bears to the value of the
decedent’s GE.
Operates to ease the harshness of successive d. Percentage of deductions – the
taxation of the same property within a vanishing deduction shall be the value in #3
relatively short period of time (up to 5 multiplied by the following percentage of
years) occasioned by the untimely death of deduction:
the transferee
100% - if the 1st transfer is within 1 year
REQUISITES (D-I-P-I-N) prior to the death of the present
decedent;
1. Death - the present decedent died within 80% - more than 1 year but not more
five years from transfer of the property from than 2 years;
a prior decedent; 60% - more than 2 years but not more
than 3 years;
2. Inclusion of the property - the property 40% - more than 3 years but not more
formed part of the GE located in the than 4 years;
Philippines of the prior decedent, or of the 20% - more than 4 years but not more
taxable gift of the donor within 5 years prior than 5 years.
to the present decedent’s death;
In outline form, the computation of
3. Previous taxation of the property - the vanishing deduction is:
estate tax or donor’s tax on the gift must
have been finally determined and paid;
T A X A T I O N
Page 46 of 107
1. Value taken (value of property at the 2. said fact must be certified to by the
time of the first transfer or at the barangay captain of the locality where it is
time of the present decedent’s located;
death, whichever is lower)
Less: Mortgage debt paid, if any 3. the total value of the family home must be
Equals: Initial Basis included as part of the GE of the decedent;
and
2. Initial basis x (ELIT+TPU) = 2nd deduction
4. the amount deductible is the current FMV
Gross Estate
but not to exceed 1 million pesos.
3. Initial Basis
Less: 2nd deduction Standard Deduction:
Final Basis 1 million pesos

X Percentage Without need of substantiation
Vanishing deduction
Medical Expenses:
Transfer for Public Use (TPU):
Requisites
Requisites
1. incurred within one year prior to his
1. the disposition is in a last will and death;
testament; 2. substantiated with receipts; and
2. to take effect after death; 3. maximum of Php500,000
3. in favor of the government of the
Philippines or any political subdivision Approval of the court where a
thereof; and probate/intestate proceeding is pending is
4. for exclusive public purpose. not a mandatory requirement in the
collection of estate taxes. On the contrary,
This should also include bequests, devices, or the probate/intestate court is prohibited
transfers to social welfare, cultural and from delivering any distributive share to any
charitable institutions. party unless there is certification from the
Commissioner that the estate taxes are
Family Home: already paid.
The dwelling house including the land on AMOUNT RECEIVED BY HEIRS UNDER
which it is situated, where the husband and REPUBLIC ACT NO. 4917
wife, or head of the family, and members of
Any amount received by the heirs from the
their family reside, as certified to by the
decedent’s employer as a consequence of the
Barangay Captain of the locality.
death of the decedent employee in
Characterized by permanency, that is, the accordance with R.A. 4917 is allowed as a
deduction provided that the amount of the
place to which, whenever absent for
business or pleasure, one still intends to separation benefit is included as part of the
return (Domicile). gross estate of the decedent.
One person may constitute only one family NET SHARE OF THE SURVIVING
home SPOUSE IN THE CONJUGAL
PARTNERSHIP OR COMMUNITY
Requisites PROPERTY.
1. said family home must be the actual After deducting the allowable deductions
residential home of the decedent and his appertaining to the conjugal or community
family at the time of his death; properties included in the gross estate, the
share of the surviving spouse must be removed
T A X A T I O N
Page 47 of 107
to ensure that only the decedent’s interest in the 2. The itemized deductions from the gross
estate is taxed. estate;
3. the amount of tax due, whether paid or still
SETTLEMENT OF THE ESTATE TAX due and outstanding.
NOTICE OF DEATH Where to file:
filed in all cases where the gross value of the a. resident decedent:
estate exceeds twenty thousand pesos accredited agent bank, or Revenue
(P20,000), District Officer, Collection Officer, or
duly authorized Treasurer of the city or
the executor, administrator or any of the municipality in which the decedent was
legal heirs, as the case may be, within two domiciled at the time of his death
(2) months after the decedent's death, or or if there be no legal residence in the
within a like period after qualifying as such Philippines, with the Office of the
executor or administrator, shall give a Commissioner.
written notice thereof to the Commissioner.
b. non-resident decedent:
ESTATE TAX RETURN the Revenue District Office (RDO)
where the executor or administrator
filed within six (6) months from the is registered
decedent's death.
if not registered, with the RDO
Extension of time to file: The Commissioner having jurisdiction over the executor or
or any Revenue Officer shall have authority administrator’s legal residence
to grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for if there is no executor or
filing the return. administrator, with the Office of the
Commissioner
An estate tax return is required to be
filed: PAYMENT OF THE ESTATE TAX
1. When the estate is subject to estate tax; GEN RULE: at the time the return is filed.
2. When the estate is not subject to estate tax
but the gross estate exceeds P200,000; or EXCEPT: When the Commissioner finds that
3. regardless of the amount of the gross estate, the payment on the due date of the estate tax or
where the gross estate consists of registered of any part thereof would impose undue
or registrable property such as motor hardship upon the estate or any of the heirs he
vehicle or shares of stock or other similar may extend the time for payment of such tax or
property for which clearance from the BIR any part thereof
is required as a condition precedent for the
transfer of ownership thereof in the name of not to exceed five (5) years, in case the
the transferee. estate is settled through the courts,
When the gross estate exceeds P2, 000, or two (2) years in case the estate is
000 the estate tax return shall be accompanied settled extrajudicially.
by a statement which is CERTIFIED by an
INDEPENDENT CERTIFIED PUBLIC Note: The CIR shall deny the application for
ACCOUNTANT stating: extension where the request for extension is by
reason of:
1. The itemized assets of the decedent with its negligence,
corresponding gross value at the time of his intentional disregard of rules
death, or in the case of a non-resident, not and regulations,
citizen of the Philippines, that part of his or fraud on the part of the
gross estate situated in the Philippines; taxpayer,
T A X A T I O N
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Liability for payment

DONOR’S TAX
1. Primarily liable: executor or administrator
before distributing the net estate to the heirs Not a property tax, but is a tax
imposed on the transfer of property
2. Subsidiary liable: the heir or beneficiary to by way of gift inter vivos
the extent of his share in the inheritance
Does not apply unless and until
3. The liability of 2 or more executors of there is a completed gift
administrators shall be severally.
The transfer is perfected from the
moment the donor knows of the
Tax credit for estate taxes paid to a acceptance of the donee
foreign country:
It is completed by the delivery of the
General: the estate tax shall be credited donated property, either actual or
with the amounts of any estate tax imposed constructive
by the foreign country
Renunciation by the surviving
spouse of his/her share in the
Limitations conjugal partnership or absolute
community after the dissolution of
a. For estate taxes paid to one foreign the marriage is subject to donor’s tax
country
General renunciation by an heir,
The amount of the credit in respect including the surviving spouse, of
to the tax paid to any country shall his/her share in the hereditary estate
not exceed the same proportion of is not subject to tax, unless
the tax against which such credit is specifically and categorically done in
taken, which the decedent’s net favor of identified heir/s to the
estate situated within such country exclusion or disadvantage of the
taxable under the NIRC bears his other co-heirs in the hereditary
entire net estate. estate.
Net estate, DONATION
Foreign country x Philippine. =Tax
An act of liberality whereby a person
credit
disposed gratuitously of a thing or right
Entire net estate state tax limit
in favor of another who accepts it.
b. For estate taxes paid to two or more
Requisites (C-I-D-A)
foreign countries
1. capacity of the donor to make
The total amount of the credit shall
donation;
not exceed the same proportion of
2. donative intent or intent to make a gift
the tax against which such credit is
on the part of the donor;
taken, which the decedent’s net
3. delivery, whether actual or
estate situated outside the
constructive; and
Philippines taxable under the NIRC
4. acceptance of the gift by the donee
bears to his entire net estate.
TAX RATE:
Net estate outside
the Philippines x Phil. =Tax credit
General: 2-15%; Php100,000 is exempt
Entire net estate estate tax limit
Special rate: 30% - in case of donation to
a stranger
T A X A T I O N
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STRANGER the consideration received shall be

deemed a gift.
A person who is not a:
1. brother, sister (whether by whole or Exemptions:
half blood), spouse, ancestor, and
lineal descendant; or 1. Gifts made by a resident:
a. dowries
2. a relative by consanguinity in the gifts on account of marriage
collateral within the 4th civil degree before its celebration or
within one year thereafter by parents to
A legally adopted child is entitled to each of their legitimate, illegitimate or
all the rights and obligations adopted children
provided by law to legitimate to the extent of the first Php10,000
children, and therefore, donation to
him shall not be considered as b. gifts made for the use of the national
donation made to stranger. government or any entity created by any
of its agencies which is not conducted
Donation made between business organizations for profit, or to any political subdivision
and those made between an individual and a of said government;
business organization shall be considered as
donation made to a stranger. c. gifts in favor of educational, charitable,
religious, cultural or social welfare
VALUATION OF GIFTS OF PROPERTY corporation, institution, foundations,
trust or philanthropic organization,
The fair market value of the property research institutions or organizations,
given at the time of the gift shall be the accredited NGO, provided that not
value of the gift. more than 30% of said gift shall be used
by such donee for administrative
INTANGIBLE PERSONAL PROPERTIES purposes.
WITH SITUS IN THE PHIL.
2. Gifts made by a non-resident alien
Same in estate tax subject to the only gifts mentioned in letters (b) and
reciprocity rule. (c) are exempt
Transfers subject to donor’s tax: Tax Credit:
1. Upon the transfer by any person, resident or General: the donor’s tax imposed by the
nonresident, of the property by gift. Tax Code upon a donor who was a citizen or
Whether the transfer is in trust or a resident at the time of donation shall be
otherwise, credited with the amount of any donor’s
taxes imposed by the foreign country
Whether the gift is direct or indirect,
Limitations
Whether the property is real or
personal, tangible or intangible. a. For donor’s tax paid to one foreign
country
2. Transfer for insufficient consideration
Where property is transferred for less The amount of the credit in respect to
than an adequate and full consideration the tax paid to any country shall not
Exception: transfer of real property exceed the same proportion of the tax
classified as capital assets subjected to against which such credit is taken, which
the capital gains tax the net gifts situated within such
Amount included in the net gifts: the country taxable under the NIRC bears
excess of the FMV of the property over his entire net gift.
T A X A T I O N
Page 50 of 107
Net gifts in a The name of the donee;

foreign country x Phil. =Tax credit Relationship of the donor to the donee; and
Entire net gifts Donor’s tax limit Such further information as may be
required by rules and regulations made
b. For donor’s taxes paid to two or more pursuant to law.
foreign countries The tax is paid at the time the return is filed
within said period.
The total amount to the credit shall not
exceed the same proportion of the tax Filed and paid:
against which such credit is taken, which
the net gifts situated outside the a. Resident Donor
Philippines taxable under the NIRC
bears to this entire net gifts. To an accredited agent bank, RDO,
revenue Collection Officer or duly
Net gifts outside authorized treasurer of the city or
the Philippines x Phil. =Tax credit municipality where the donor is
Entire net gifts Donor’s tax limit domiciled at the time the transfer, or
if there can be no legal residence in the
Donor’s Tax Return: Philippines, with the Commissioner.
To be filed within thirty (30) days after the b. Non-resident donor

gift is made.
The return shall be under oath in duplicate Philippine Embassy or Consulate in the
setting forth: country where he is domiciled at the
Each gift made during the calendar year time of the transfer, or
which is to be included in computing net Directly with the Office of the
gifts; Commissioner.
The deductions claimed and allowable;
Any previous net gifts made during the
same calendar year;
T A X A T I O N
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T A X A T I O N
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T A X A T I O N
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BUSINESS TAXES gross receipts realized from the sale of

services
VALUE ADDED TAX (VAT) d) An ad valorem tax because it is based on the
gross selling price or gross value in money,
A percentage tax imposed at every stage of or gross receipts derived from the
the distribution process on the sale, barter, transaction
exchange (including transactions deemed by e) A tax on the value added by every seller as
law as a sale), or lease of goods, properties, the goods, properties or services pass along
or services in the course of trade or the distribution chain, unless the seller is
business, or on the importation of goods. exempt.
Nature of VAT Purposes of VAT system:
a) An indirect tax; hence, amount of the tax a. realizing the system of taxing goods and
may be shifted or passed on to the buyer services;
b) A privilege tax; hence, the tax is imposed b. simplifying tax administration; and
not on the goods, properties or services as c. making the tax system more equitable, to
such but on the sale, barter, exchange or enable the country to attain economic
lease of goods or properties, or the sale or recovery.
performance of services for a fee,
remuneration, etc
c) A uniform tax computed at the rate of 0% or
12% of the gross selling price of goods or of
T A X A T I O N
Page 54 of 107
Transactions subject to 10% VAT: (SITS) Philippines by nonresident foreign

persons shall be considered as being
every sale, barter or exchange, rendered in the course of trade or
leases, goods or properties made in business.
the course of business or trade;
Businesses where the aggregate sales
importation of goods, whether or or receipts do not exceed Php1, 500,
not in the ordinary course of 000 during any 12-month period shall
business; and be considered principally for
subsistence or livelihood and not in
transactions deemed sale for VAT the course of trade or business, and
purposes: shall be exempt from VAT. They shall,
Transfer, use or consumption not in however, be subject to percentage tax
the course of business of goods or equivalent to 3% of their gross
properties originally intended for sale quarterly sales or receipts, provided
or for use in the course of business; that the business is not VAT-
registered.
(2) Distribution or transfer to:
(a) Shareholders or investors as Transactions subject to 0% VAT:
share in the profit of the VAT-
registered persons; or Zero-rated sales:
(b) Creditors in payment of debt;
a. EXPORT SALES
(3) Consignment of goods if actual
sale is not made within sixty (60) days 1. Direct importation - the sale and actual
following the date such goods were shipment of goods from the Philippines
consigned; and to a foreign country, paid for in
acceptable foreign currency or its
(4) Retirement from or cessation of equivalent in goods or services and
business, with respect to inventories of accounted for in accordance with BSP
taxable goods existing as of such rules;
retirement or cessation
2. Indirect importation - the sale of raw
every sale of service made in the
materials to a non-resident buyer for
course of trade or business other than
delivery to a resident local export-
services rendered by persons subject
oriented enterprise to be used in
to other percentage taxes.
manufacturing, processing, packing or
repacking in the Philippines of the said
1. “in the ordinary course of trade
buyer’s goods, paid for in acceptable
or business” means the regular
foreign currency and duly accounted
conduct or pursuit of a commercial
for in accordance with BSP rules;
or an economic activity, including
transactions incidental thereto, by
3. Sale of raw materials or packaging
any person regardless of whether or
materials (RM/PM) to an export-
not the person engaged therein is a
oriented enterprise whose export sales
non-stock, nonprofit private
exceed 70% of the total annual
organization (irrespective of the
production;
disposition of its net income and
whether or not it sells exclusively to
4. Sale of gold to the BSP;
members or their guests), or
government entity.
5. Those considered export sales under
the Investment Code;
The rule of regularity, to the contrary
notwithstanding, services as defined 6. The sale of goods, supplies,
in this Code rendered in the equipment and fuel (GSEF) to
persons engaged in international
T A X A T I O N
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shipping or international transport rules

operations.
c. Services rendered to exempt entities
under special laws and international
Note: Importations of GSEF by such
agreements to which the Philippines is a
persons are VAT-exempt.
signatory;
b. FOREIGN CURRENCY d. Services rendered to persons engaged

DENOMINATED SALES: exclusively in international shipping/
Sales to whom: non-resident international air transport operations;
Of what: goods assembled or e. Those performed for an enterprise

manufactured in the Philippines. whose export sales exceed 70% of the
annual production, by subcontractors
Except: automobiles and non-essential and/or contractors duly accredited by
goods (jewelries, perfumes, yachts, etc.) the Board of Investments or the Export
Development Council in processing,
converting or manufacturing goods;
To whom delivered: resident of the
Philippines. f. Transport of passengers and cargo by air
or sea vessels from the Philippines to a
Paid for in acceptable foreign currency foreign country;
g. Sale of power or fuel generated through

Duly accounted for in accordance with renewable sources of energy.
the BSP rules
ZERO-RATED EXEMPT
c. EFFECTIVELY ZERO-RATED 1. all VAT is 1. removes the VAT
TRANSACTIONS: removed from the only at the exempt
goods, activity or stage
Sales to whom: persons or entities transaction
exempted under special laws or 2. the taxpayer can 2. the taxpayer is not
international agreements to which claim the refund or entitled to credit or
the Philippines is a signatory input taxes passed refund of the input
on to him by the tax passed on to him
2.) Zero-rated services: supplier, etc. or by the supplier, etc.
a. Processing, manufacturing or repacking credit such input
of goods taxes on his non-
For: persons doing business outside the zero-rated
Philippines transactions
3. generally, taxable 3. it is not taken into
When: the goods are subsequently exported sales are taken into account in
Paid for in acceptable foreign currency account in determining turn-
Duly accounted for in accordance with determining turn- over or VAT
the BSP rules; over sales or sale for registration purposes
VAT registration
b. Services other than those provided in purposes
#2a rendered to:
Rules in lease of residential units for
1. Persons engaged in business outside the VAT purposes:
Philippines or;
2. Non-resident persons not engaged in 1. Lease of property situated in the Philippine
business shall be subject to VAT irrespective of the
3.when the services were rendered place where the contract of lease or
4.Paid for in acceptable foreign currency
duly accounted for in accordance with BSP
T A X A T I O N
Page 56 of 107
licensing agreement was executed if the the effects are exempt under Tariff
property leased or used in the Philippines. and Customs Code
Residential units shall refer to 4. Importation of professional instruments and

apartments, houses, and/or lands on which implements, wearing apparel, domestic animals
another’s dwelling is located, used for except vehicle, vessel, aircraft and machinery
residential purposes and shall include not used to manufacture any merchandise in
only buildings, but also the parts or units commercial quantity, provided:
thereof used solely as dwelling places (e.g.
dormitories, rooms and bed spaces) except 1. the effects belong to persons
motels, motel rooms, hotel and hotel rooms. coming to settle in the
Philippiness.
2. It likewise includes apartment, houses, 2. the effects are for their own use
buildings, parts or units thereof used fro and not for sale
home industries, retail stores or other 3. evidence should be produced
business purposes if the tenant thereof and before the Commissioner that
his family actually live therein and used the change or Residence is
them principally for dwelling purposes. bona fide
The term unit shall mean an apartment 5. Services subject to percentage tax;
unit in the case of apartments, house in case
of residential houses; per person in the case 6. Services by agricultural contract growers and
of dormitories, boarding houses and bed milling for others of RiCo Su (rice, corn grits,
spaces; and per room in case of room for sugar cane);
rent.
7. Medical, dental, hospital and veterinary
Exempt Transactions: services except those rendered by
professionals;
1. Sale/ importation of agricultural and marine
food products in their original state; livestock 8. Educational services rendered by government
and poultry generally used for human educational institutions and private educational
consumption; institutions accredited by DepEd, CHED,
TESDA;
Note: a. products are considered in their
original state even if they have undergone 9. Services rendered pursuant to an employer-
simple processes of preparation or preservation employee relationship;
for the market freezing, drying, salting,
broiling, roasting, smoking, and stripping 10. Services rendered by regional or area
(Code:FreDSBRoSS) headquarters established by Multinational
Corporations;
b. rice, corn grits, sugar cane, molasses
are always considered in their original state 11. Transactions exempt under special laws and
(Code: RiCo SuMo) international agreements to which the
Philippines is a signatory except those under
2. S/I of fertilizers; seeds, seedlings and P.D. 529;
fingerlings; fish, prawn, livestock and poultry
feeds; 12. Sales by agricultural cooperatives registered
3. Importation of personal and household with CDA;
effects provided:
13. Gross receipts from lending activities by
the effects belong to residents credit of multi-purpose cooperatives registered
returning to/or non-residents with the CDA;
coming to resettle in the
Philippines.
T A X A T I O N
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14. Sales by non-agricultural, non-electric and tariff and customs duties, excise
non-credit cooperatives registered with the taxes and other charges or;
CDA; 12% of the landed cost plus excise
taxes where the customs duties are
15. Export sales by persons who are not VAT- determined on the basis of the
registered; quantity or volume of the goods
such tax shall be paid by the
16. Sale of real property utilized for low-cost importer prior to the release of the
and socialized housing; goods from Custom’s custody
17. Lease of residential unit with a monthly 3. for the Sale of Services and Use or Lease of
rental less than P10, 000; Properties
12% of the gross receipts derived
18. S/I, printing, publication of books and any from the sale or exchange of services
newspaper, magazine, review or bulletin, which gross receipts means the total
appear at regular intervals with fixed price for amount in money or its equivalent
subscription and which are not devoted representing the contract price,
principally for paid advertisements; compensation, service fee, rental or
royalty, including the amount
19. S/I or lease of passenger or cargo vessels charged for materials supplied with
and aircraft including engine, equipment and the services and deposits and
spare parts thereof; advanced payments actually or
constructively received during the
20. Importation of (GSEF) goods, supplies, taxable quarter for the services
equipment and fuel by persons engaged in performed or to be performed for
international shipping and air transport another person, excluding VAT
operations;
Deductions or Exclusions from the gross
21. Services of banks, non-bank financial sales/receipts:
intermediaries performing quasi-banking
activities; 1. Discounts
Must be determined and granted at the
22. Sale or lease of goods, properties or services time of sale
where the gross annual sales and/or receipts do Expressly indicated in the invoice
not exceed P1, 500,000.00; The amount thereof forms part of the
gross sales duly recorded in the books of
Computation of the VAT: the seller
The grant of which does not depend
1. for the Sale of Goods or Properties upon the happening of a future event
12% of the gross selling price or
gross value in money (effective
February 1, 2006) 2. Sales returns and allowances
gross selling price means the total A proper credit or refund was made
amount in money or its equivalent The sales previously recorded as
which the purchaser pays or is taxable sales
obligated to pay to the seller in
consideration of the transaction, When may property dividends be subject
excluding the VAT to VAT?
such tax shall be paid by the seller
or the transferor Property dividends which constitute
stocks in trade or properties primarily
2. for the Importation of Goods held for sale or lease declared as retained
12% of the total value used by the earnings on or after January 1, 1996 and
Bureau of Customs in determining distributed by the company to its
shareholders shall be subject to VAT
T A X A T I O N
Page 58 of 107
based on the zonal value or fair market

value at the time of distribution whichever Rule on Input Tax on Capital Goods:
is applicable.
a. if the aggregate acquisition cost of the
Tax Credits: capital goods, excluding VAT, exceeds P1,
000,000.00; and
Output tax
b. where such goods are purchased or
the value-added tax due on the sale or
imported in a calendar month for use in trade
lease of taxable goods or properties by any
or business for deduction for depreciation is
person required to register
allowed;
c. then, the input tax shall be spread evenly
Input tax
over a period of 60 months, commencing from
the value-added tax due from or paid by a
the month the acquisition was made
VAT-registered person in the course of his
trade or business on importation of goods d. provided, however, that if the estimated
or local purchase of goods or services, useful life of such goods is less than 5 years,
including lease or use of property, from a then the input VAT shall be spread over such
VAT-registered person. shorter period.
A VAT-Registered person also
Creditable input tax:
engaged in non-vatable transactions
shall be allowed tax credit as follows:
any input tax evidenced by VAT
invoice or official receipt
a. total input tax directly attributable
on the following transactions:
to vatable transactions;
a. Purchase/Importation
1. for sale
b. A ratable portion of any input tax
2. for conversion into or intended which cannot be directly attributed
to form part of a finished product to either activity;
for sale including packaging
materials Excess Output or Input Tax
3. for use as supplies in the course
of business a. if, O > I ; then, the excess shall be
4. for use as materials supplied in paid by the VAT-registered person
the sale of services
5. for use in trade or business for
b. if, I > O; then, the excess shall be
which deduction for depreciation
carried over to the succeeding
or amortization is allowed
quarters or quarters, provided:
b. Purchase of services on which a VAT
the input tax carried over from the
Has actually been paid
previous quarter shall not exceed
70% of the output VAT
Creditable to:
a. the purchaser upon
the input tax attributable to zero-
consummation of the sale and on
rated sales may, at the option of
importation of goods and properties
the taxpayer, be refunded or
credited against other internal
b. the importer upon payment of the revenue taxes
VAT prior to the release of the goods
from Custom’s custody
The excess input tax to be carried
over from the preceding month or
c. to the purchaser, lessee or licensee
quarter shall be reduced by:
upon payment of the compensation,
a. amount of claim for refund or tax credit
rental, royalty or fee, in case of
for VAT
purchase of services or lease or use
of properties
b. other adjustments, such as purchase
T A X A T I O N
Page 59 of 107
returns or allowances f. in other appropriate cases, the

Commissioner shall grant refund or issue the
c. input tax attributable to exempt sales tax credit certificate for creditable input taxes
within 120 days from the date of submission of
Transitional input tax credits – is the input complete documents in support of the
tax allowed to be credited against the output tax application
of a person who becomes liable to value-added
tax or any person who elects to be a VAT- Rule where the taxpayer is engaged in
registered person, on his beginning inventory of zero-rated or effectively zero-rated
goods, materials and supplies, equivalent to two transactions and also in taxable or
percent (2%) of the value of such inventory or exempt sales:
the actual value-added tax paid on such goods,
materials and supplies, whichever is higher. a. the amount of the creditable input tax due
or paid which cannot be directly and entirely
Presumptive Input tax credits – is the attributed any one of the transactions shall be
input tax credit allowed to persons liable for allocated proportionately on the basis of
VAT where their purchases are not subject to the volume of sales
input tax. The following persons are entitled to b. in case of a person making zero-rated and
presumptive input tax credits: non zero-rated sales, the input tax shall be
a. Persons or firms engaged in the allocated ratably between his zero-rated and
processing of sardines, mackerel and milk, and non zero-rated sales
in manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, equivalent Withholding of VAT:
to four percent (4%) of the gross value in
money of their purchases of primary the Government or any of its political
agricultural products which are used as inputs subdivisions, instrumentalities or
to their production. agencies, including GOCCs shall,
before making payment on account
b. Public works contractors, equivalent
of purchase of goods and services
to one and one-half percent (1 1/2%) of the
deduct and withhold a final VAT at
contract price with respect to government
the rate of 5% of the gross payment
contracts only in lieu of actual input taxes there
thereof
from.
the payment for lease or use of
Refunds or Tax Credits for Zero-Rated properties or property rights to
or Effectively Zero-Rated Sales: nonresident owners shall be subject
to 10% withholding tax at the time
a. taxpayer must be VAT-registered; of payment
otherwise, the transaction is exempt which does
not entitle him to any refund or tax credit; PERCENTAGE TAX, EXCISE TAX AND
b. application for a tax credit certificate or DOCUMENTARY STAMP TAX
refund must be made within 2 years after the
EXCISE TAX
close of the taxable quarter when the sales were
made;
Applies to articles manufactured or
c. to the extent that the input tax has not
produced in the Philippines for
been applied against output tax.
d. the transactions are paid for in an domestic sale or consumption or for any
other disposition and to things
acceptable foreign currency and duly accounted
imported.
for in accordance with BSP rules.
e. in the case of a person whose registration
In case of importation, excise tax shall
is cancelled due to retirement from or cessation
be in addition to the value added tax
of business, or due to changes in or cessation of
imposed by R.A. No. 8424.
status, the application may be made within 2
years from the date of cancellation, etc…
T A X A T I O N
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a. Specific Tax - imposed on weight or radio and TV broadcasting companies

volume capacity or any other shall have an option to be registered as a
physical unit of measurement VAT taxpayer, provided that once the
option is exercised,, it shall not be
b. Ad valorem Tax - an excise tax revoked
imposed and based on selling price
or other specified value of the article 5. Tax on overseas dispatch, message
and conversation
PERCENTAGE TAX 10% of gross receipts
transmitted from the Philippines
Based on a given ratio between the gross payable by the person paying for the
receipt and the burden imposed upon services rendered
the taxpayer. paid to the person rendering the
services who is required to collect
If the taxpayer’s sale of services is and pay the tax within 20 days after
already subject to VAT, he is no longer the end of each quarter
subject to other percentage taxes, or vice does not apply to:
versa. a. the government
b. diplomatic services
Includes the following: c. public international organizations
enjoying privileges and immunities
1. Tax on persons exempt from VAT d. news services
3% of gross sales/receipts
one whose sales/receipts does not 6. Tax on banks and non-bank financial
exceed 550,000, and intermediaries and finance
who is not VAT-registered companies
cooperatives are exempt a. on interest, commissions and
discounts from lending activities as
2. Tax on domestic carriers and keepers well as income from financial
of garage leasing, based on the remaining
3% of gross receipts maturities of instruments from
for the transport of passengers which the receipts are derived:
except on owners of bancas and
animal-drawn 2-wheeled vehicle 5 years or less – 5%
more than 5 years – 1%
3. Tax on international carriers
3% of gross receipts from outbound b. on dividends and equity shares in
revenues only net income of subsidiaries – 0%
applies to both international air and
shipping carriers doing business in c. on royalties, rentals of property and
the Philippines other items treated as frosts income
– 5%
4. Tax on franchises
a. franchises on radio and/or television d. on net trading gains on foreign
broadcasting companies whose annual currency, debt securities, derivatives
gross receipts of the preceding year does and other similar instruments – 5%
not exceed 10 million pesos – 3%
7. Amusement taxes
b. franchises on electric, gas and water imposed on the proprietor, lessee or
utilities – 2% operator of:
a. cockpits, cabarets, night or day
the gross receipts must be derived from clubs – 18%;
the business covered by the law granting
the franchise b. boxing exhibitions – 10%; exempt if
the World or Oriental Championships in
T A X A T I O N
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any division is at stake, provided at least DOCUMENTARY STAMP TAX

1 of the contenders is a Filipino citizen
and said exhibition is promoted by a
citizen or corporation at least 60% of DOCUMENTARY STAMP TAX
the capital of which is owned by such
citizens; It is a tax on documents, instruments &
paper evidencing the acceptance, assignment,
c. professional basketball games – 15% sale or transfer of an obligation, right, or
property incident thereto.
d. jai-alai and racetracks – 30%
Nature of Documentary Stamp Tax
8. Tax on winnings
from horse races – 10% It is an excise tax because it is really
tax is based on the actual amount paid imposed on the transaction than on the
to him after deducting the cost of the document. It is paid only once. The liability to
ticket the tax and the amount thereof are determined
from the face of the document itself.
from double, forecast/quiella and
trifecta bets– 4% Persons Liable: THE ONES
1. Making
on owners of winning race horses – 2. Issuing
10% of the prizes 3. Signing
4. Accepting
9. Tax on sale of shares of stock listed 5. Transferring
and traded through the local stock the document, instrument or paper
exchange or through initial public
offering (IPO) DOCUMENTS SUBJECT TO TAX
sale made through the local stock 1. Corporate documents

exchange, other than the sale by a dealer 2. Commercial documents
in securities – ½ of 1% of the gross selling 3. Insurance policies
price 4. Deeds of sale
5. Special contracts
through the IPO of shares of stock in 6. Maritime documents
closely held corporations, based on the 7. Certificates Luxuries
gross selling price sold in accordance with 8. Other assignments and renewals
the proportion of shares of stock sold to
the total outstanding shares after the A. CORPORATE DOCUMENTS
listing in the local stock exchange: 1) Original issue of shares of stock (sec.
175)
-up to 25% 4%
-over 25% but (a) Cost of imposition is borne by
-not over 33-1/3% 2% the corporation originally issuing
-over 33-1/3 the stock certificate
1%
(b) Revenue Memorandum Circular
the tax is paid by the issuing corporation #47-97
in primary offering or by the seller in
secondary offering The documentary stamp tax on original
issues of certificates of stock as provided under
Section 175 of the Tax Code attaches upon
acceptance of the stockholder’s subscription in
the capital stock of a corporation regardless of
the physical issuance and delivery to the
stockholder of the certificate of stock evidencing
T A X A T I O N
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his stockholding. Therefore, taxes accrue at the

time the shares are issued. 5) All bonds, loan agreements, promissory
notes, bills of exchange, drafts,
Meaning of the term “original issue” is - instruments and securities issued by the
point at which the stockholder acquires and government or any of its
may exercise attributes of ownership over the instrumentalities, deposit substitute
stocks. debt instruments, certificates of deposits
bearing interest and others not payable
Certificates of stock temporarily subject on sight or demand (sec. 180)
to suspensive conditions shall only be liable for
DST only when released from said conditions. Basis: face value of document
For then and only then shall they truly acquire
any practical value for their owners. Exemptions:
a.) bank notes issued for circulation
2) On proxies (sec. 192) b.) loan agreements and promissory
notes that aggregate of which
Basis: each proxy document does not exceed P250.00
executed by an individual for his
Exemption: proxies issued at affecting the purchase, on installment, of a
affairs of association, or corporation house, lot, motor, vehicle,
organized for religious, charitable or literary appliance or furniture, for his
purposes. personal use or that of his family
B. COMMERCIAL DOCUMENTS Note: Renewal is also subject to documentary

1) Debentures and Certificates of stamp tax.
indebtedness (sec. 174)
Note: “renewal” postponement of the
Basis: face value of document maturity of the obligation dealt with; an
extension of the time in which that obligation
2) Bonds, debentures, certificates of stock may be discharged.
or indebtedness issued in foreign
countries (sec. 177) Note: Tax on renewal shall be at the same
rate as the tax on the original document.
Basis: fixed tax as required by law on similar
instruments when issued sold or transferred 6) Upon acceptance of bills of exchange
in the Philippines. and others (sec. 181)
Issued in any foreign country but sold or Basis: Face value

transferred in the Philippines
Document taxable: any bill or exchange or
order for the payment of money purporting to
3) Certificates of profits or interest in be drawn in the foreign country but payable in
property or accumulations (sec. 178) the Philippines.
Basis: face value of document 7) Foreign bills of exchange and letters of

credit (sec. 182)
4) Bank Checks, drafts, certificates of
deposit not bearing interest, and other Basis: face value
instruments (sec. 179)
Document taxable: all foreign bills of
Basis: fixed on each instrument exchange and letters of credit drawn in but
made payable outside the Philippines.
the tax applies only to inland bank
checks, drafts, or certificates of deposit 8) Warehouse Receipts (sec. 189)
not drawing interest
T A X A T I O N
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Basis: each warehouse receipt Certificate of damage or otherwise issued by

any public official in public capacity for the
Exemption: warehouse receipt issued to any purpose of giving info or establishing proof of
one person in any one calendar month covering fact.
property the value of which does not exceed
P200. Basis: each document
9) Bills of lading or receipts (sec. 191) D. DEEDS OF SALES

1) Sales, agreements to sell, memoranda of
Basis: Value of the goods sales, deliveries or transfer of due-bills,
certificates of obligation, or shares or
Exemptions: charter party, freight tickets certificates of stock (sec. 176).
covering goods, merchandise or effects carried
as accompanied baggage of passengers on land Basis: Par value of due-bill, certificate of
and water carriers primarily engaged in the obligation or stock
transportation of passengers.
2) Deeds of sale and conveyances of real
C. INSURANCE POLICIES property (sec. 196)
1) Life insurance policies (sec.183)
Basis: Tax rate based on amount
Basis: Amount insured by an such policy
Property must be located in the Philippines
The tax is collectible not only on the original and deeds of partition & deeds of redemption,
policy but also upon renewals. No DST is due on taxable
insurance policies issued by a Phil. company to
persons in other countries. The tax is imposed E. SPECIAL CONTRACTS
upon issuance of the policy even if at that time 1) Powers of attorney (sec. 193)
premium had not yet been paid. If the policy is
cancelled, no refund of the tax shall be made. Basis: Fixed tax rate
2) Property insurance policies (sec.184) Exemption: Collection of claims due from

or accruing to the government of the
Basis: Premium charged Philippines or the government of any province,
city or municipality.
3) Fidelity bonds and other insurance
policies (sec.185) 2) Leases and other hiring agreement
(sec.194)
Basis: Premium charged
Basis: Fixed tax rate
4) Policies of annuities and pre-need plans
(sec.186) 3) Mortgages, pledges and deeds of trust
(sec. 195)
Annuity - Basis: Capital of the annuity
Pre-need plans - Basis: Value or amount a. Basis: Tax rate based on amount
of the plan b. transactions must be effected and
consummated within the Philippines
5) Indemnity Bonds (sec. 187) c. tax is based on the amount secured and
not on the value of property mortgaged
Basis: Premium charged d. there must be an existing debt
Exemption: such as may be required in 4) Jai-alai, horse race tickets, lotto or other
legal proceedings. authorized numbers games (sec. 190)
6) Certificates (sec.188) Basis: each ticket
T A X A T I O N
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F. MARITIME DOCUMENTS by any government official in his official

Charter parties and similar instrument (sec. capacity.
197)
g. Compulsory Information for
EXEMPTIONS: Statistical Purposes-Statements and
a. Written Appearances- Written other compulsory information required
appearances in any court by any of persons or corporations by the rules
government official in his official and regulations of the national,
capacity provincial city or municipality
government exclusively for statistical
b. Fraternal or Beneficiary purposes and which are wholly for the
Organization Insurance Policies of use of the bureau in which they are filed,
Annuities- Policies of insurance of and not at the instance or for the use or
annuities made by a fraternal or benefit of the person filing them
beneficiary society, order, association or
cooperative company, operated on the h. Certificates of the Administration
lodge system or local cooperation plan of Oaths for Paper Authenticity-
and organized and conducted solely by Certificates of the administration of
the members thereof for the exclusive oaths to a person as to the authenticity
benefit of each member and not for of a paper required to be filed in court
profit by any person, whether the proceedings
be civil or criminal
c. Government and Indigent
Documents filed in Court- Papers DOCUMENTARY STAMP TAX PAYMENT
and documents filed in courts by or for
the national, provincial, city or WHEN to file RETURN
municipal governments, affidavits of 1) within 10 days after close of month
poor persons for the purpose of proving when taxable document was within 5
poverty days after close of each week for
Revenue Collection Officers
d. Certificates of the Assessed Value 2) each time documentary stamp are
of Lands NOT EXCEEDING P200- purchased for reloading, for
Certificates of the assessed value of documentary stamp tax metering
lands not exceeding P200 in value machine authorized persons
assessed, furnished by the provincial,
city or municipal treasure to applicants WHERE to FILE/PAY
for registration of the title to land. 1) authorized agent bank within the
jurisdiction of the revenue district
e. Solo use- Certified copies and other office having jurisdiction over the
certificates placed upon documents, residence or principal place of
instruments, and papers by the national, business of the taxpayer
provincial, city or municipal 2) revenue district officer, collection
governments made in the instance and agent or his duly authorized
for the sole use of some other branch of treasurer of the city or municipality
the national, provincial, city or in which the taxpayer has his legal
municipal governments. residence or principal place of
business
f. Certificate of Oaths administered
to any government official in his WHO are required to accomplish and file
official capacity- Certificates of oaths a documentary stamp tax DECLARATION
administered to any government official under BIR Form 2000
in his official capacity or of 1) Any person liable to pay
acknowledgment by any government documentary stamp tax on a taxable
official in the performance of his official document/transaction when tax due
duties, written appearance in any court is >P200.
T A X A T I O N
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2) Any Revenue Collection Officer, duly Powers and Duties of the BIR (Sec. 2,
authorized to sell loose debt’s CTRP) (Key: AGEE)
Any person authorized to use DST
Metering Machine 1. Assessment and collection of all national
internal revenue taxes, fees, and charges
WHEN to PAY 2. Give effect to and administer the
1) general rule: simultaneous with supervisory and police power conferred to
filing of return it by the Tax Code or other laws
2) exception: purchase and actual 3. Enforcement of all forfeitures, penalties
affixture and fines in connection therewith
Actual Stamping System: loose Execution of judgments in all cases decided in
documentary stamps its favor by the Court of Tax Appeals and the
Constructive Stamping System: ordinary courts
constructive affixture
printing through a DS metering I. TAX REMEDIES UNDER THE NIRC
machine
General Rule: Tax collection cannot be
AFFIXTURE enjoined by court injunction. Tax Code
1) In general: DS is affixed on the provides that no court shall have the authority
original copy of the document to grant an injunction to restrain the collection
2) Exception: duplicate copy when the of any national internal revenue tax, fee or
same has been substituted and used charge imposed by this Code. (Sec. 18, NIRC)
in place of the original
Exception: An injunction that may be issued
FAILURE TO STAMP TAXABLE by the CTA in aid of its appellate jurisdiction
DOCUMENT under RA 1125
1) will not render the document void
2) but document cannot be: A. POWER TO ASSESS:
3) recorded in government offices Starts with the self-assessment by the
4) cannot be accepted in evidence in taxpayer of his tax liability, filing of the tax
court return, and payment of the entire tax due
shown on his return
PENALTY
• 25% surcharge plus 20% interest per Means Employed in the Assessment of
annum Taxes (Sec. 6, CTRP) (Key: BETI-PPEA)
DUTY OF NOTARY PUBLIC 1. Examination of tax returns

• Not to add his jurat or 2. Use of the best evidence obtainable
acknowledgment to any document 3. Inventory taking, surveillance and use of
subject to documentary stamp tax presumptive gross sales and receipts
unless the proper documentary 4. Termination of taxable period
stamps are affixed thereto and 5. Prescription of real property values
cancelled. 6. Examination of bank deposits to
determine the correct amount of the gross
estate
TAX REMEDIES 7. Accreditation and registration of tax
agents.
8. Prescription of additional procedural or
Agencies Involved in Tax Administration documentary requirements.
1. BIR
2. Bureau of Customs The role of the government in assessment
3. Provincial, city, and municipal assessors process includes the following:
and treasurers 1. Examination of books of accounts
and other accounting records of
taxpayers by revenue officer to
T A X A T I O N
Page 66 of 107
determine his correct tax liability and from such information as he can obtain
(Letter of Authority- LOA) through testimony or otherwise) when:
1. a report required by law as a basis for
Period: the assessment of any national internal
Letter of Authority must be served to the revenue tax shall not be forthcoming
concerned taxpayer within thirty (30) days from within the time fixed by laws or rules
its date of issuance otherwise it hall be null and and regulations; or
void. 2. there is reason to believe that any such
Revenue officer is allowed only 120 days report is
from the date of receipt of a letter of authority i. false
by the taxpayer to conduct the audit and submit ii. incomplete
the required report of investigation. iii. erroneous.
Who may issue letter of The return made by the Commissioner,

authority? in this instance, shall be prima facie correct and
After a return has been filed, the sufficient for all legal purposes.
commissioner or his duly authorized
representative may authorize the examination 2. Preparation of tentative findings
of the books of any taxpayer and the assessment and holding of informal
of the correct amount tax. (Sec. 6, NIRC) conference ( Notice of Informal
The revenue Regional Director shall Conference-NIC)
approve and sign all LA’s for all audit cases
within his regional jurisdiction, EXCEPT Soon after the completion of the tax
a. cases involving civil or criminal tax audit, the revenue officer will render
fraud under the jurisdiction of the tax fraud a written report stating:
division of the enforcement service; a. the factual and legal basis of
b. policy cases under audit by Special his findings
Teams in the National Office. (RAMO 36-99) b. whether the taxpayer agrees
with his findings
If the taxpayer do not submit
the documents or information requested by the If the taxpayer is not amenable, the
BIR, the person may be required to testify or taxpayer shall be informed in writing
the document may be summoned and required by the Revenue District Officer of by
to be presented to the BIR the Chief of the Division of the
discrepancies in the taxpayer’s
Q. Can the BIR issue LOA more than liability for the purpose of informal
once within a taxable year? conference, in order to afford the
taxpayer with an opportunity to
A. No. BIR officer are allowed to issue LOA present his side of the case.
only once. EXCEPT:
1. when BIR determines that there is fraud or If the taxpayer fails to respond
irregularities was committed by taxpayer within 15 days from date of receipt of
2. taxpayer itself request for an examination of the notice for informal conference,
his accounts he shall be considered in default
3. when there is a need to verify the withholding
taxes required by the BIR. In such a case, the Revenue District
4. when capital gains tax must be verified. Officer of the Chief of the Division
shall endorse the case to the
Power of the Commissioner to assess Assessment Division for review and
deficiency tax based on best evidence issuance of deficiency tax
obtainable – Sec. 6B of R.A. 8424 empowers assessment, if warranted.
the Commissioner to assess the proper tax and
make or amend the return based on the best 3. Issuance of Preliminary
evidence obtainable (from his own knowledge Assessment Notice (PAN)
T A X A T I O N
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It is a communication issued by the shall be sent personally or through

Regional assessment Division, or any other registered mail
concerned BIR office, informing a taxpayer who
has been audited of the findings of the BIR TAX ASSESSMENT- It is the official action of
officer following the review of these findings. an officer authorized by law in ascertaining the
amount of tax due under the law from a
must show in detail the facts and law taxpayer. This action necessarily involves:
on which the proposed assessment is 1. the computation of the sum due;
based, otherwise it’s fatal to BIR. 2. giving notice to that effect to the taxpayer;
If the taxpayer disagrees with the and
findings stated in the PAN, he shall the making, simultaneously with or sometime
then have 15 days from his receipt of after the giving of notice, of a demand upon him
the PAN to file a written reply for the payment of the tax deficiency stated.
contesting the proposed assessment.
Assessment contains not only
Instances wherein PAN is NO longer computation of tax liabilities but also a
required: demand for payment within a prescribed
period. [CIR vs. PASCOR, 309 SCRA
1. When the finding for any deficiency tax is 402]
the result of mathematical error in the
computation of the tax appearing on the Notice of assessment is presumed valid.
face of the tax return filed by the taxpayer; If the taxpayer contested such a
2. when a taxpayer who opted to claim a determination, the burden of proving
refund or tax credit of excess creditable the determination wrong, together with
withholding tax for a taxable period was the corresponding burden of first going
determined to have carried over and forward with evidence, is on the
automatically applied the same amount taxpayer. [ Cyanamid Philippines, Inc.
claimed against the estimated tax liabilities vs. CA, 322 SCRA 639]
for the taxable quarter or quarters of the
succeeding taxable year; Q. When is an assessment deemed made?
3. when a discrepancy has been determined
between the tax withheld and the amount An assessment is deemed made only
actually remitted by the withholding agent; when the collector of internal revenue releases,
4. when an excise tax due on excisable articles mails, or sends such notice to the taxpayer
has not been paid; or regardless whether the taxpayer received the
5. when an article locally purchased of notice within the prescriptive period. [Basilan
imported by an exempt person, such as, but Estates, Inc. vs. CIR, 21 SCRA 17]
not limited to vehicles, capital equipment,
machineries, and spare parts, has been sold, B. POWER TO COLLECT:
treated or transferred to non-exempt
persons. Delinquent Taxpayer
When the self-assessed tax per return filed
4.Issuance of Formal Assessment on the prescribed date was not paid at all or
Notice (FAN) and letter of demand was only partially paid, or
if the taxpayer fails to respond The deficiency tax assessed by the BIR
within 15 days from date of receipt, became final and executory.
he shall be considered in default
Deficiency tax
in such a case, a formal letter of The amount by which the income tax as
demand and FAN shall be issued, determined by the BIR exceeds the amount
calling for payment of the deficiency shown as tax per return, or
tax liabilities, inclusive of penalties.
If no amount is shown or if no return is
made, then the amount by which the tax as
T A X A T I O N
Page 68 of 107
determined by the BIR exceeds the amounts Distinctions between remedies in the
previously assessed (or collected without collection of deficiency tax and
assessment) as a deficiency delinquency tax:
DELINQUENCY DEFICIENCY DEFICIENCY DELINQUENCY

Failure to pay the The amount still due TAX TAX
tax due on the date and collectible from 1. Can immediately 1. Can be collected
fixed by law or a taxpayer upon be collected also through
indicated in the audit or administratively administrative and
assessment notice investigation. through the judicial remedies
or letter of demand issuance of the but has to go
warrant of through the
1. Filing of administrative protest by distraint and levy, process of filing
the taxpayer against the and by judicial the protest against
assessment action the assessment by
Within 30 days from receipt of the the taxpayer and
FAN denial of such
Failure to make such protest would protest.
render the assessment final,
executory and demandable 2. The filing of a 2. The filing of a
The prescriptive period for civil action for its civil action at the
assessment or collection shall be collection in the ordinary court for
suspended. ordinary court is a collection may be
proper remedy the subject of a
2. Submission of documentary motion to dismiss.
evidence and argument In addition, a
Within 60 days from date of filing of petition for review
protest must be filed with
Failure to submit would render the the CTA within the
assessment final, executory and 30 days to toll the
demandable running of the
prescriptive
3. Denial of protest period.
The taxpayer may appeal to the
Court of Tax Appeals (CTA) within REMEDIES OF THE GOVERNEMNT FOR
30 days from date of receipt of the NON-PAYMENT OF TAXES
decision
Otherwise, the assessment shall 1. Administrative remedies
become final, executory and a. tax lien
demandable b. distraint (actual and
constructive)
2. Inaction of the CIR c. levy
Failure to act on the protest within d. sale of property of a delinquent
180 days from date of submission of taxpayer
the required documents would give e. forfeiture of property
rise to the right of the taxpayer to f. compromise and abatement
appeal g. penalties and fines
The appeal should be made within h. suspension of business
20 days from the lapse of the said operations.
180-day period
Otherwise, the assessment shall 2. Judicial Remedies
become final, executory and a. civil action
demandable. b. criminal action
Note: One or all of the remedies may be
T A X A T I O N
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pursued simultaneously in the discretion of Requisites of distraint:

revenue authorities.
1. the taxpayer must be delinquent (except
Note: Distraint or levy NOT availed of where in constructive distraint) in the payment of
the amount of tax involved is NOT MORE than tax;
P100 2. there must be a subsequent demand for its
payment (assessment);
3. Enforcement of administrative fine 3. the taxpayer fails to pay the tax at the time
required; and
Tax lien 4. the period within which to assess or collect
the tax has not yet prescribed.
A legal claim or charge on property of the
taxpayer as security for the payment of Kinds:
some debt or obligation. 1. Actual distaint
2. Constructive distarint
Accrues when the taxpayer neglects or
refuses to pay his tax liability after demand 1. Actual Distraint
with interests, penalties and costs that may there is taking of possession of the
accrue in addition thereto. property from the taxpayer by the
government
Extent-upon all property and rights to resorted to when at the time required for
property belonging to the taxpayer attaches payment, a person fails to pay his
not only from the time the warrant was delinquent tax obligation.
served BUT from the time tax was due and
demandable. Effected by:
a. leaving a list of the distrained
The lien is not valid against any mortgagee, property, or
purchaser, or judgment creditor until notice
of such lien shall have been filed in the b. by service of a warrant of
register of deeds of the province or city distraint or garnishment
where the property is located. But effectivity
against third persons-only when notice of Procedure
such lien is filed by the Commissioner in the (a) Goods, effects, chattels and other
Register of Deeds in the province/city where personal property
the property is situated (Sec. 219) 1. a copy of an account of the property
distrained, signed by the officer,
Note: Superior to judgment claim of private shall be left either from the owner or
property. the person from whom the property
was taken or at the dwelling or place
Distraint of business of such person and with
someone of suitable age and
The collection of taxes is enforced on the discretion
goods, chattels or effects and other personal 2. statement of the sum demanded
property, including stocks and other 3. time and place of sale
securities, debts, credits and interest and
rights to personal property. (b) Stocks and other Securities
1. serving a copy of the warrant upon
WHO may effect distraint? the taxpayer AND upon the
a. Commissioner or his duly authorized president, manager, treasurer or
representative if the amount involved is other responsible officer of the
more than P1,000,000.00 issuing corporation, company,
b. Revenue District Officer if the amount association
involved is P1,000,000.00 or less than (c) Debts and Credits
1. leaving a copy of the warrant with
the person owing the debts or having
T A X A T I O N
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in his possession such credits or his refuses to sign:

agent 1. distraining officer shall prepare a list
2. warrant shall be sufficient authority of the property distrained
to pay the Commissioner the amount 2. in the presence of 2 witnesses, leave
of such debts or credits a copy in the premises where the
(d) Bank accounts (garnishment) property is located (Sec. 206 NIRC)
1. serve a warrant of garnishment upon
the taxpayer AND upon the ACTUAL CONSTRUCTIVE
president, manger, treasurer or DISTRAINT DISTRAINT
other responsible officer of the bank
Made only on Made on the property
2. bank shall turn over to the
Commissioner so much of the bank the property of any taxpayer
accounts as may be sufficient (Sec. of a whether delinquent
208 NIRC) delinquent or not
taxpayer
Note: Report on the Distraint by the There is The taxpayer is
distraining officer must be submitted within 10
taking of merely prohibited
days from receipt of the warrant to the Revenue
District Officer and to the Revenue Regional possession from disposing of his
Director. The order of Distraint may be lifted by property
the Commissioner or his representative (Sec. Effected by Effected by requiring
207 A NIRC) leaving a list the taxpayer to sign a
of distrained receipt of the
2. Constructive Distraint property or by property or by the
the owner is merely prohibited from
disposing of this property service of a revenue officer
warrant of preparing and
issued even when there is no actual tax distraint or leaving a list of such
delinquency garnishment property
An immediate Not necessarily so.
availed of when taxpayer is: step for
a. retiring from any business
collection of
subject to tax;
taxes
b. intending to –
b.1. leave the Philippines; or
b.2. remove his property LIEN DISTRAINT
therefrom; or Directed against Need not be
b.3. hide or conceal his
the property directed against
property; or
subject to the tax the property
c. he performs any act tending to subject to the
obstruct the proceedings for tax
collecting the tax due Regardless of Property
Procedure the owner of seized must
(a) Require the taxpayer or any person the property be owned by
having control of the property to
1. sign a receipt covering property the taxpayer
distrained
2. obligate himself to preserve the
same intact and unaltered Levy
3. not to dispose of the property in any
manner, without the authority of the It refers to the act of seizure of real
Commissioner property in order to enforce the payment
(b) Where taxpayer or person in possession of taxes.
T A X A T I O N
Page 71 of 107
The requisites for the exercise of the remedy sufficient to satisfy the tax due, levy on
of levy: same as in the remedy of distraint real property shall proceed within 30
days after distraint
When: before, simultaneously or after the (e) Report on levy
distraint of personal property belonging to 1. by levying officer
the taxpayer i. submitted within 10 days from
receipt of warrant
Effected by: ii. submitted to the Commissioner or
a. writing upon an authenticated his representative
certificate showing: 2. by the Revenue Regional Director--
1. the name of the taxpayer, consolidated report, as may be
2. amounts of the tax and penalty due required by the Commissioner
3. description of the property upon which (f) The warrant may be lifted by the
levy is made. Commissioner or his representative
b. written notice of the levy shall be Sale of property

mailed to or served upon:
1. the Register of Deeds of the province or In case of distrained property:
city where the property is located, and c. notification specifying the time and
2. the delinquent taxpayer place of sale and the articles
3. if he is absent from the Philippines, to distrained shall be exhibited
his agent or the manager of the business in not less than 2 public places
in respect to which the liability arose (one place shall be at the office of
4. if there be none, to the occupant of the the Mayor)
property in question. in the municipality or city where
the distraint is made
Real property may be levied upon
before, simultaneously, or after the b. The time of sale shall not be less
distraint of personal property belonging than 20 days after notice to the
to the delinquent. owner or possessor of the property
and the publication or posting of
The remedy by distraint and levy may be such notice
repeated if necessary until the full
amount, including all expenses, is c. Sale of the property at
collected. public auction to the highest
bidder for cash, or
Procedure: through duly licensed
commodity or stock exchanges, with
(a) internal revenue officer shall prepare a the approval of the CIR
duly authenticated certificate showing
the name of taxpayer, amounts of tax In case of levied Property:
and penalty due. Enforceable a. advertisement of the time and place
throughout the Philippines of sale of the taxpayer’s property or
(b) officer shall write upon the certificate a so much thereof as may be necessary
description of the property upon which to satisfy the claim within 20 days
levy is made after the levy, and it shall cover a
(c) written notice of levy shall be mailed or period of at least 30 days
served upon posting a notice at the main entrance
1. the Register of Deeds where the of the municipal building or city hall and
property is located and
2. the taxpayer or agent/manager of in a public and conspicuous place in
the business in respect to the tax the barrio or district in which the real
liability or to the occupant of the estate lies and
property
(d) If personal property of taxpayer is not
T A X A T I O N
Page 72 of 107
by publication once a week for 3 weeks Enforced by:

in a newspaper of general circulation in 1. in case of personal property
the municipality or city where the • seizure and
property is located. • sale or destruction of the property
b. sale at public auction to the highest 2. in case of real property

bidder • judgment of condemnation and
at the main entrance of the municipal • sale in a legal action or proceeding,
building or city hall, or civil or criminal, as the case may
require
on the premises to be sols, as the
officer conducting the proceedings shall Redemption by the taxpayer
determine and as the notice shall specify Same as that of redemption in case of
sale
c. disposition of proceeds of sale The 1 year period starts from the date of
In case the proceeds of the sale registration of the declaration of
exceed the claim (taxes, penalties, and forfeiture
interest) and cost of the sale, the excess
shall be turned over to the owner of the Compromise and Abatement
property.
A. Compromise – a contract whereby the
Redemption by the taxpayer parties by reciprocal concessions, avoid
litigation or put an end to one already
Within 1 year from the date of sale, that is, from commenced.
the registration of the registration of the deed of
sale. By the taxpayer or anyone for him by Requisites:
paying the full amount of:
• Taxes 1. the taxpayer must have a tax liability;
• Penalties 2. there must be acceptance (by the
• Interests, and Commissioner or taxpayer as the case may
• Costs of sale be) of the offer in the settlement of the
original claim;
Pending redemption of the property 3. there must be an offer (by the taxpayer of an
sold, the owner shall: amount to be paid him)
1. not be deprived of the possession of the
property Officers authorized to compromise:
2. be entitled to the rents and other income
thereof 1. Commissioner of Internal Revenue is
the only official vested with such power
Forfeiture and discretion;
Effected when: 2. Subordinate officials may preliminarily

1. there is no bidder for the real property enter into compromise. The effects are:
in the public sale, or a. acceptance of an offer of
2. if the amount of the highest bid is compromise: not final and may be
insufficient to pay the taxes, penalties reviewed by the Commissioner;
and costs
b. rejection of an offer of
The Register of Deeds concerned shall: compromise: final and binding
1. Upon registration of the declaration for unless revoked or set aside by the
forfeiture, transfer the title of the Commissioner.
property to the government
2. Without the necessity of an order from a
competent court
T A X A T I O N
Page 73 of 107
A. Compromise of civil cases: 3. after the information is filed with the court:
the Commissioner is no longer
Grounds (civil cases) permitted to compromise with or without
a. When a reasonable doubt as to the the consent of the prosecutor.
validity of the claim against the
taxpayer exists; Remedies when taxpayer refuses or fails
to abide by a tax compromise:
b. When the financial position of the
taxpayer demonstrates a clear 1. enforce the compromise
inability to pay the assessed tax. a. judicial compromise can be enforced
by mere execution
Limitation as to amount of: b. extrajudicial can only be enforced by
court action
1. In case of financial incapacity: 10% of the
basic assessed tax 2. regard it as rescinded and insists upon
2. Other cases: 40% of the basic assessed tax original demand (Art. 2041, NCC)
The approval of the Evaluation Board Compromise Penalty

(composed of the CIR and the Deputy
Commissioners) is required when: An amount which the taxpayer pays to
compromise a tax violation
1. The basic tax involved exceeds Paid in lieu of criminal prosecution
Php1,000,000; or A taxpayer cannot be compelled to pay a
2. The settlement offered is less than the MCR compromise penalty
If he does not want to pay, the CIR must
Note: The MCR may be less than the institute a criminal action.
prescribed rates of 10% or 40%, as the case may
be, provided it is approved by the Evaluation B. Abatement – cancellation of the tax
Board liability
Limitation as to coverage: Grounds:
1. With respect to the liability of the taxpayer 1. When the tax assessed or any portion
for surcharges as their imposition is thereof appears to be unjustly or excessively
mandatory demanded, or
2. In cases finally decided by the courts 2. When the administration and collection
costs involved do not justify the collection of
B. Compromise in criminal violations: the amount due
All, except: GEN RULE: the power to compromise and

a. those already filed in court abate cannot be delegated by the CIR
b. those involving fraud.
EXCEPT:
Extent of discretion:
a. assessments issued by regional offices
1. before the complaint is filed with the involving basic taxes of Php500,000 or less;
prosecutor’s office: and
the Commissioner has full discretion to b. minor criminal violations.
compromise except those involving fraud;
Penalties and fines
2. after the complaint is filed with the
prosecutor’s office but before the Refer to:
information is filed with the court: 1. surcharges
the Commissioner can still compromise 2. deficiency and delinquency interest
provided the prosecutor consented; 3. compromise penalty
T A X A T I O N
Page 74 of 107
A. Surcharges: 2. The CIR has no power to impose and

Not really a penalty as used in criminal collect the compromise penalties in the
law but a civil administrative sanction absence of a compromise agreement
designed primarily to: validly entered into between the
a. protect the State revenue, and taxpayer and the CIR
b. reimburse the government for
the expenses in investigating and COMPROMISE
COMPROMISE
the loss resulting from the PENALTY
taxpayer’s fraud. Definition:
An amount of money An amount of money
Penalty of 25% of the amount due for: paid by the taxpayer paid to compromise a
1. Failure to file any return and pay the to settle his civil tax violation that he
tax due thereon; liability for tax has committed, which
2. Filing a return with the wrong agent assessed may be the subject of
of the BIR, unless otherwise criminal prosecution
authorized by the CIR Basis of amount
3. failure to pay the deficiency tax paid: Gross sales or receipts
within the time prescribed for its Basic tax assessed during the year of the
payment in the notice of assessment; tax due
4. Failure to pay the full or part of the Minimum amount
tax as shown on the return on or The limitation Depends on the nature
before the due date depends on the legal of the tax violation
grounds used by the and the minimum
B. Interest: taxpayer amount is generally
a. Deficiency interest not less than
20% per annum from the date Php1,000
prescribed for its payment until the
full payment thereof Civil Actions – actions instituted by the
government to collect internal revenue taxes. It
b. Delinquency interest includes filing by the government with the
Interest of 20% or the Manila probate court claims against the deceased
Reference rate, whichever is higher, taxpayer.
required to be paid in case of failure
to pay: Enforced by:
a. the amount of the tax due on any
return required to be filed; 1. filing a civil case for the collection of a sum
of money with the proper regular court (i.e.
b. amount of the tax due for which MTC or RTC); or
return is required; 2. filing an answer to the petition for review
filed by the taxpayer with the CTA
c. the deficiency tax or any
surcharge or interest thereon, on A. Civil action filed with the ordinary court.
the date appearing in the notice Resorted to only when tax becomes:
and demand of the CIR. 1. delinquent
2. collectible
C. Compromise:
Similarities of compromise and Collectibility arises when:
compromise penalty: a. Self-assessed tax shown in the return
1. They both imply mutual agreement. was not paid within the date
A compromise penalty prescribe by law;
cannot be imposed in the b. Final assessment is not protested
absence of a showing that the administratively within 30 days from
taxpayer consented thereto. date of receipt;
c. Non-compliance with the condition
laid in the approval of protest;
T A X A T I O N
Page 75 of 107
d. Failure to file a timely appeal to the f. refund excess taxes withheld

CTA on the final decision of the CIR on compensation,
or his authorized representative on who willfully violates these duties
the disputed assessment. at the time or times required by law
shall be punished upon conviction
Defenses precluded by final and in addition to other penalties
executory assessments:
1. Invalidity or illegality of the Prima facie evidence of a false or
assessment; and fraudulent return
2. Prescription of the government’s 1. substantial under-declaration of taxable
right to assess. sales, receipts or income or a substantial
overstatement of deduction, as
B. Civil action filed with CTA determined by the Commissioner
The fact that no civil action was filed before pursuant to the rules an regulations
the ordinary courts to collect the tax liability promulgated by the Secretary of
is no ground for claiming that the right to Finance;
collect had already prescribed.
2. failure to report sales, receipts or
The answer filed by the government in the income in an amount exceeding 30% of
CTA is tantamount to the filing of a civil actual deductions constitutes substantial
action for collection the regular court and overstatement of deductions.
has the effect of tolling the prescriptive
period. (Hermanos, Inc. vs. CIR, 29 SCRA Note:
552) No civil or criminal action for the
recovery of taxes or the enforcement of
Criminal Action any fine, penalty or forfeiture under this
2 Common crimes punishable under the Tax Code shall be filed in court without the
Code: approval of the Commissioner. The
1. Attempt to evade or defeat a tax approval of the Commissioner required
Any person who willfully attempts in for the judicial enforcement of tax
any manner to evade or defeat any liability is not jurisdictional; lack of such
tax or the payment thereof shall, in approval merely affects the cause of
addition to other penalties provided action or capacity to sue.
by law, upon conviction thereof, be
punished. When the civil action arising out of a tax
delinquency is extinguished by
The conviction or acquittal prescription, it is still possible for such
shall not be a bar to the filing of tax to be collected by criminal action
a civil suit for the collection of inasmuch as actions of this kind
taxes. prescribe only after the lapse of 5 years
counted from the discovery of the crime.
2. Failure to file return, supply correct An assessment is not necessary before a
and accurate information, pay tax, criminal charge can be filed provided
withhold and remit tax and refund there is a prima facie showing of a
excess taxes withheld on compensation willful attempt to evade taxes.
Any person required under the Tax REMEDIES OF TAXPAYER

Code
a. to pay any tax 1. administrative –
b. make a return a. before payment –
c. keep any record I. protest
d. supply correct and accurate II. entering into a compromise.
information
e. withhold or remit taxes b. after payment – filing of claim
withheld for refund or tax credit within
T A X A T I O N
Page 76 of 107
two years from date of payment a) within 30 days from receipt of decision
regardless of any supervening cause. denying the protest or
b) 30 days from the lapse of 180 day period
2. judicial – Effect of failure to appeal: the decision shall be
a. civil action - final, executory and demandable
I. appeal to CTA – within 30
days from receipt of decision on Taxpayer’s suit.
the protest or from the lapse of Requisites:
180 days due to inaction of the 1. the tax money is being extracted and
Commissioner; spent in violation of specific
II. action to contest forfeiture of Constitutional protections against
chattel; and abuses of legislative power
III. action for damages 2. that public money is being deflected to
any improper purpose
b. criminal action – 3. that the petitioner seeks to restrain the
I. Filing of criminal complaint respondents from wasting public
against erring BIR official funds through enforcement of invalid
and employees; and or unconstitutional law
II. Injunction – when the CTA in
its opinion the collection by the However, the Supreme Court has discretion
BIR may jeopardize taxpayer. whether or not to entertain a taxpayer’s suit
and could brush aside the lack of locus
Protest of Assessment: standi where the issues are transcendental
importance in keeping with the court’s duty
1. File a request for reinvestigation or
to determine that public officers have not
reconsideration within 30 days from receipt
abused the discretion given to them.
of the assessment
request for reinvestigation-a plea
TAX REFUND OR TAX CREDIT
for re-evaluation of an assessment on
the basis of newly discovered or
Grounds:
additional evidence that a taxpayer
intends to present in the reinvestigation.
1. tax is collected erroneously or illegally;
Involves a question of fact or law or
2. penalty is collected without authority;
both.
3. sum collected is excessive
request for reconsideration-a
plea for re-evaluation of the assessment
Requisites:
on the basis of existing records without
need of additional evidence. Involves a
1. claim must be in writing;
question of fact or law or both. (Revenue
2. it must be filed with the Commissioner
Regulation No. 12-85)
within two years (2) after the payment of
the tax or penalty; and
2. Within 60 days from filing of protest, all
3. Show proof of payment.
relevant supporting documents should have
been submitted, otherwise, the assessment
Tax credit - a claim for issuance of a tax
shall become FINAL (cannot be appealed).
credit certificate, showing an amount owing
(Sec. 228 NIRC)
from the government to the taxpayer which
the latter is legally authorized to credit or
Appeal of Protest to the CTA (Sec. 228 NIRC)
offset against national internal taxes
1. Grounds: payable by him, except withholding taxes.
a) if the protest is denied in whole or in
part or Starting date for counting the 2-year period:
b) is not acted upon within 180 days from
submission of documents GEN. RULE: from the date of payment,
2. Appellate Court: Court of Tax Appeals regardless of any supervening cause that
3. Period to appeal: may arise after payment:
T A X A T I O N
Page 77 of 107
EXCEPTIONS: 4. provisions on prescriptions, being remedial

in nature should be liberally interpreted to
1. Corporate Income tax carry out its intent.
Where a corporation paid
quarterly income taxes in any of Prescriptive period for the ASSESSMENT
the first 3 quarters during the of taxes:
taxable year but incurs a net loss
during the taxable year, the 2-year GENERAL RULE: three years after the date
period for the filing of the claim the return is due or filed, whichever is later.
for refund or credit shall be
counted from the date of the EXCEPTIONS:
filing of the annual corporate
ITR. 1. failure to file a return: ten (10) years from
the date of the discovery of the omission to
2. Income tax paid in installments file the return;
Where the tax paid had been paid
in installment, the taxes are 2. false or fraudulent return with intent to
deemed paid, for purposes of evade the tax: ten (10) years from the date
determining the commencement of the discovery of the falsity or fraud;
of the 2-year period for filing a
written claim for the refund or 3. agreement in writing: to the extension (not
credit therefore on the date the reduction) of the period to assess between
last installment was paid. the Commissioner and the taxpayer before
the expiration of the three year period.
Note: A return filed showing an overpayment
shall be considered as a written claim for credit NB: the extended period agreed upon can
or refund. further be extended by a subsequent
written agreement made before the
REFUND CREDIT expiration of the extended period
There is actual The reimbursable previously agreed upon.
reimbursement of mount is applied
the tax against the sum that 4. waiver or renunciation of the original three
may be due of (3) year limitation, signed by the taxpayer.
collectible from the
taxpayer FALSE FRAUDULENT
RETURN RETURN
PRESCRIPTION: - it merely - It is intentional
Purpose: implies a and deceitful with
Prescription periods are decision from the aim of evading
designed to secure the taxpayers against the truth or fact the correct tax due.
unreasonable investigation after the lapse of whether
the period prescribed. They are also beneficial intentional or
to the government because tax officers will be not
obliged to act promptly.
Prescriptive period for the COLLECTION
General Rules: of taxes:
1. when the tax law itself is silent on Five (5) years - from assessment or within
prescription, tax is imprescriptible; period for collection agreed upon in writing
2. when no return is required, tax is before expiration of the five-year period.
imprescriptible;
3. defense of prescription is waivable; and Ten (10) years - without assessment in case
of false or fraudulent return with intern to
evade or failure to file return.
T A X A T I O N
Page 78 of 107
Grounds for suspension of the running of

prescriptive period for assessment and The prescriptive period starts to run from
collection: the filing of the original return, if the same
is sufficiently complete to enable the CIR to
1. when the Commissioner is prohibited intelligently determine the proper amount
from making the assessment or beginning of tax to be assessed.
the distraint or levy or proceeding in court,
and for sixty days thereafter; However, where the amended return is
2. when the taxpayer requests for a substantially different from the original, the
reconsideration which is granted by the right to assess is counted from the filing of
Commissioner; the amended return.
3. when the taxpayer cannot be located in
the address given by him in the return, Prescriptive period for the filing of
unless he informs the Commissioner of any CRIMINAL ACTION:
change in his address;
4. when the warrant of distraint or levy is five (5) years – from the day of the
duly served, and no property is located; commission of the violation, and if not
and known, from the discovery thereof and the
5. when the taxpayer is out of the institution of judicial proceedings for its
Philippines. investigation and punishment.
Requisites of a tax return for purposes of Grounds for interruption of the period:
starting the running of the period of limitation:
1. When proceedings are instituted against the
the return is valid - it has complied guilty persons
substantially with the requirements of the Begin to run again if the proceedings are
law; and dismissed for reasons not constituting
the return is appropriate – it is a return jeopardy
for the particular tax is required by law.
2. offender is absent from the Philippines
Note: A defective tax return is the same as if
no return was filed at all. Retroactivity of BIR Rulings
Amended return General Rule: Prospective.
Allowed when: Exceptions:
1. the amendment is made within 3 years from 1. Where the taxpayer deliberately misstates
the date of filing the original return; and or omits material facts from his return or
any document required of him by the BIR;
2. no notice of audit or investigation of such 2. Where the facts subsequently gathered by
return has, in the meantime, been actually the BIR are materially different from the
served upon the taxpayer. facts on which the ruling is based; and
3. Where the taxpayer acted in bad faith.
Effect on prescription:
T A X A T I O N
Page 79 of 107
T A X A T I O N
Page 80 of 107
T A X A T I O N
Page 81 of 107
T A X A T I O N
Page 82 of 107
BUREAU OF CUSTOMS (BOC)

TARIFF AND CUSTOMS CODE
DUTIES, POWERS AND JURISDICTION
TARIFF – custom duties, toll of tribute OF THE BOC
payable upon merchandise to the government.
1. The assessment and collection of the lawful
CUSTOM DUTIES –which are assessed at the revenues from imported articles and all
at the prescribed tariff rates which are likely other dues, fees, charges, fines, and
imposed for both revenue raising and for penalties accruing under the tariff and
regulatory purposes. It is the name given to customs laws.
taxes on the importation and exportation of 2. The prevention and the suspension of
commodities, the tariff or tax assessed upon smuggling and other frauds upon the
merchandise imported from, or exported to, a customs
foreign country.[ Garcia vs. Executive Sec., G.R. 3. The supervision and control over the
no. 101273, July 3, 1992] entrance and clearance of vessels and
aircraft engaged in foreign commerce.
N.B: Customs duties and tariffs are 4. The enforcement of tariff and custom laws
synonymous with one another. They both refer and all other laws, rules and regulations
to the taxes imposed on imported or exported relating to tariff and custom administration.
wares, articles, or merchandise. 5. The supervision and control over the
handling of foreign mails arriving in the
Purposes of tariffs: Philippines, for the purpose of the collection
of the lawful duty on the dutiable articles
1. Revenue tariffs – those whose rates are thus impoprted and the prevention of
relatively low so that goods may be readily smuggling through the medium of such
imported and duties may be easily collected. mails.
6. Supervision and control over all import and
2. Protective tariffs – those whose rates are export cargoes, landed or stored in piers,
relatively high to keep certain imports out of airport, terminal facilities, including
the domestic market or to raise domestic container yards and freight stations, for the
price on certain imports so that they may be protection of government revenue.
manufactured profitably at domestically; 7. Exclusive original jurisdiction over seizure
and forfeiture cases under the tariff and
3. Bargaining tariffs – those whose schedules custom laws.
include rates designed primarily for
bargaining purposes or which contain some ARTICLES SUBJECT TO CUSTOM
general provision for the imposition of DUTIES
higher duties upon products of countries Articles, when imported from any
whose tariff policies are considered foreign country into the Philippines, shall be
unsatisfactory or unfair. subject to duty upon each importation, even
though previously exported from the
Scope of Tariff and Custom Laws Philippines, EXCEPT as otherwise specifically
provided for in this Code or in other laws. [SEC.
Include not only the provisions of the 100, TOC]
Tariff and Custom Code (TCC) and regulations
pursuant thereto, but all other laws and MERCHANDISE- the Revised Administrative
regulations that are subject to the Bureau of Code defines merchandise, when used with
Customs (BOC) or otherwise within its reference to importation or exportation, to
jurisdiction. As to the scope, Tariff and Custom include goods, wares and in, general anything
laws extend not only to the provisions of the that nay be the subject or exportation. Checks,
TCC but to all other laws as well the money orders and dollar bills properly within
enforcement of which is entrusted to the BOC. the concept of merchandise as used in Revised
Administrative Code, are merchandise.
[Bastida vs. CIR]
T A X A T I O N
Page 83 of 107
Kinds of Goods/Merchandise 7. Lottery and sweepstakes Tickets EXCEPT

those authorized by the Philippine
1. Articles subject to duty ( Dutiable Goods) Government
2. Prohibited importation 8. Articles, instruments, drugs and substances
3. Conditionally-free importations designed and intended to produce unlawful
Abortion and printed materials promoting
DUTIABLE GOODS [Code: AFP-CPP- unlawful abortion
NPA-VMH-FAT-WE-MAMO] 9. Articles made of precious Metal but actual
fineness of quality not indicated
1. Animals and animals product 10. other Articles (P.D. 34)
2. Animal or vegetable Fats; oil and their 11. Any Adulterated or misbranded drug in
cleavage products violation of the Food and Drugs Act.(SEC.
3. Prepared foodstuffs; beverarages, spirits 102,TCC)
and vinegar; tobacco and manufactured
tobacco Note: All the above merchandise/goods cannot
4. Products of Chemical or allied industries be brought in or out of the Philippines.
5. Plastic and rubber articles
6. Pulp or wood; CONDITIONALLY-FREE IMPORTATION
7. Natural or cultural stones [Code: PSST-BAR-FEW-PERA-SAM-CPP-
8. Plaster, cements and other related articles VICE]
9. Arms and ammunitions
10. Vegetable products 1. Professional instruments and implements
11. Mineral products 2. Sea store supplies to the vessel or aircraft
12. Hides ( skin, fur, leather) 3. Salvage articles recovered from an
13. Footwear, headgear, etc. abandoned vessel
14. Aircraft, vessels, vehicles and all other mode 4. Trailer chassis by a shipping company
of transportation 5. Books
15. Textile and textile products 6. Aquatic products
16. Wood and related articles 7. Relief organization and articles used for
17. Electrical and mechanical machineries relief operations
18. Metals 8. Film production by foreign media or movie
19. Artworks, antique outfit
20. Manufactured/miscellaneous articles 9. Equipment used in salvaging vessels
21. Optical products, medical and surgical 10. Wearing apparels
products [SEC. 104, Title 1, TCC] 11. Personal and household effects
12. importation for the use of foreign
PROHIBITED IMPORATTIONS [Code: Embassies
HOT-DOG-TAMAD] 13. Receptacles, containers holders and other
similar boxes
1. Heroine, marijuana and other dangerous 14. Animals, EXCEPT race horse
drugs, narcotics and pharmaceutical 15. Samples of any kind
products EXCEPT when made by the 16. Articles for repair, re-conditioning for
government designed for medical purpose. export
2. Opium pipes and other drugs 17. Mining equipment and tools
paraphernalia 18. Cost of repair made abroad upon a vessel
3. Written or printed materials containing any registered in the Philippines
matter advocating of inciting Treason, 19. articles which are previously exported but
sedition, rebellion materials. returned in the Philippines
4. Dynamite, ammunition and other explosive 20. Prizes, medals, trophies, badges and other
weapons EXCEPT when authorized by law thing bestowed as an award
5. Written or printed articles involving 21. Vessels spare part of foreign vessel and
Obscene or immoral character aircraft
6. Gambling Devices 22. articles which are Imported subsequently in
the Philippines
23. Ccoffin, caskets
T A X A T I O N
Page 84 of 107
24. Exhibition, competition articles for display 2. legal weight

3. net weight
Note: These articles which are exempt from
import duties upon compliance with the KINDS OF SPECIAL CUSTOM DUTIES
formalities prescribed in or with regulations
promulgated by the Commissioner of Customs 1. Dumping Duty – imposed upon foreign
with the approval of the Sec. of Finance. products with value lower than their fair market
value to the detriment of local products.
Classification of Custom Duties
Rate: difference between the actual price
1. Ordinary or Regular Custom duty- imposed and the normal value of the article.
and collected merely as a source of revenue . Imposing authority: Special Committee on
a. Ad Valorem- the duty is based on the Anti-Dumping composed of the Sec. of
market value or price of the imported Finance as chairman; members: Sec. of DTI,
article. and either the Sec. of Agriculture if the
b. Specific- the duty is based on the weight article in question is agricultural product or
or volume of the imported article. the Sec. of Labor if non-agricultural
2. Special Custom duties- imposed and collected product.
in addition to ordinary customs duties
usually to protect local industries against 2. Countervailing Duty – imposed upon
foreign competition. foreign goods enjoying subsidy thus allowing
them to sell at lower prices to the detriment of
Basis of Dutiable Value local products similarly situated.
The dutiable value of the imported Rate: equivalent to the bounty, subsidy or
article subject to an ad valorem of duty shall be subvention
transaction value. Imposing authority: Sec. Of Finance
TRANSACTION VALUE- is the price actually 3. Marking Duty- imposed upon those not
paid or payable for the goods when sold for properly marked as to place of origin of the
export to the Philippines. goods.
It is adjusted by adding certain expenses Rate: 5% ad valorem of articles

to the extent that they are incurred by the buyer Imposing authority: Commissioner of
but are not included in the price actually paid or Custom
payable for the imported goods, the value of the
materials, components, parts and items 4. Discriminatory Duty- imposed upon
incorporated in the imported goods; amount of goods coming from countries that discriminate
royalties and license fees; cost of transport; against Philippine products.
loading, unloading and handling charges; and
the cost of the insurance. Rate: any amount not exceeding 100% ad
valorem of the subject articles
Sequence in Determination of Value Imposing authority: president of the
Philippines
1. transaction value
2. transaction value of identical goods DRAWBACK
3. transaction value of similar goods
4. deductive value It is a device resorted to for enabling a
5. computed value commodity affected by taxes to be exported and
6. other reasonable means or fallback value sold in foreign markets upon the same terms as
if it not been taxed at all. It may be full or
Basis for dutiable weight for specific partial.
custom duties
1. gross weight
T A X A T I O N
Page 85 of 107
OTHER CUSTOMS FEES, DUES, OR agreements, or obligations with foreign

CHARGES PAYABLE countries.
3. International organization pursuant to
1. Harbor Fees- are imposed on vessels entering agreement and special law
into or departing from a port of entry of the 4. Exemption granted by the President of the
Philippines. Philippines upon recommendation of NEDA.
2. Wharfage dues- are assessed against the
Liability of importers for duties
cargo of a vessel engaged in foreign or
coastwise trade, based on the quantity
The Code provides that all articles
weight or measure received and/or
imported into the Philippines shall be held to be
discharged by such vessel.
the property of the person to whom the same
3. Berthing dues- are assessed against a vessel are consigned: and the holder of the bill of
for mooring or berthing at a pier, wharf, or lading duly endorse by the consignee thereof
river at any port in the Philippines. therein named, or if consigned to order by the
consignor, shall be deemed the consignee
4. Storage dues- are assessed on articles for
thereof. The under writers of abandoned
storage in customs premises, cargo shed.
articles and the salvors of articles saved from a
5. Arrastre dues- are imposed on all imported wreck at sea, along a coast, or in any area of the
and exported articles and baggage of Philippines, maybe regarded as the consignees [
passenger for their handling, receiving, and Section 1203, Tariff and Custom Code]
custody.
6. Tonnage dues- are paid by the owner, agent, Unless otherwise relieved by laws or
operator or master of a vessel engaged in regulation, the liability for duties, taxes, fees,
foreign trade based on the net tonnage of and other charges attaching on importation
the vessel or weight of the articles constitutes a personal debt due to the importer
discharged or laden. of the government which can be discharged only
by payment of said duties and charge.
7. Other fees- charged and collected for services
rendered and documents issued by the BOC. It also constitutes a lien upon the articles
imported which maybe enforced while such
IMPORTATION UNDER TCC articles are in custody or subject to the control
of the government.
Who are authorized to make import
entry? Government importations
1. The importer being holder of All importations by the government for
the bill of lading; its own use or that of its own subordinates
2. A customs broker acting under branches or instrumentalities or corporations,
authority of the holder of the agencies or instrumentalities owned or
bill; or A person duly controlled by the government shall be subject to
empowered to act as agent or the duties, taxes , fees and charges provided in
attorney-in-fact. the Tariff and Customs Code.[Section 1205,
Tariff and Customs Code]
Liability for Custom Duties
When importation begins and deemed
GEN. RULE: All importations exportations of terminated
goods are subject to custom duties. (Sec. 105,
TCC) Importation begins when carrying
vessel or aircraft enters the jurisdiction of the
EXCEPTIONS: Philippines with an intent to unload.
1. Exemption under the TCC Importation terminates upon payment

2. Exemptions granted government agencies or of the duties and other charges due upon the
GOCCs with existing contracts, commitments, articles, or secured to be paid, at the port of
T A X A T I O N
Page 86 of 107
entry ant the legal permit for withdrawal shall for a period of at least one (1) year;
have been granted. or
3. Filipino overseas worker; or
In the case of articles that are free of 4. former Filipino citizen and his
duties, taxes and other charges, importation is family who had been naturalized in a
deemed terminated from the time they have- foreign country and comes or
legally left the jurisdiction of the customs. returns to the Philippines
Import Entry The term family shall mean the

A declaration to the BOC showing the spouse and children of the balikbayan
description, value, tariff classification and other who are not balikbayan in their own
particulars of the imported article to enable the right traveling with the latter to the
customs authorities to determine the correct Philippines.
customs duties and internal revenue taxes due
on the importation. FLEXIBLE TARIFF CLAUSE
Abandonment Authority of the President to adjust the

It is the renunciation by an importer of tariff rates prescribed under the Tariff and
all his interest in the property rights in the Customs Code, which is the enabling law that
imported article. It may be express or implied. made effective the delegation of the taxing
power to the President under the Constitution.
Smuggling or Unlawful Importation
Any person who shall fraudulently 1. The Congress may, by law, authorize
import or bring into the Philippines, or assist In the President to fix within specified
doing so, any article, contrary to law, or shall limits and subject to such limitations
receive, conceal, buy, sell, or in any manner and restrictions as it may impose:
facilitate the transportation, concealment, or
sale of such article after importations, knowing a. tariff rates, import and export
the same to have been imported contrary to law, quotas, tonnage and wharfage
shall be guilty of smuggling. (sec. 3601 TCC) dues; and
b. other duties or imports within
Fraudulent Practices (Criminal Offense) the framework of the national
against Custom Revenues under Sec. development program of the
3602 government (Art. VI, Sec. 28(2),
3. Entry of imported articles by Constitution)
means of any false or fraudulent invoice.
4. Entry of goods at less than the Sec. 401, TCC: In the interest of national
true weight or measure. economy, general welfare and/or national
5. Filling of any false or fraudulent security, the President upon recommendation
entry for the payment of drawbacks or refund of of the NEDA, is empowered:
duties. 1. to increase, reduce, or remove
existing protective rates of import duty,
Returning residents provided that the increase should not be higher
For the purpose of conditionally than 100% ad valorem;
free importation of personal and household 2. to establish import quota or to
effects, they are nationals who have stayed in a ban imports of any commodity; and
foreign country for a period of at least six (6) 3. to impose additional duty on all
months. imports not exceeding 10% ad valorem.
BALIKBAYAN LIMITATIONS TO FLEXIBLE TARIFF

for the purpose of tax-free CLAUSE
purchase at Philippine Duty-free shops, he must
be: 1. Conduct by the Tariff
2. Filipino citizen who has been Commission of an investigation in a public
continuously out of the Philippines hearing.
T A X A T I O N
Page 87 of 107
The commission shall also hear the 9. the nature, composition, and
views and recommendations of any classification of articles for customs
government office, agency or revenue and other related purposes
instrumentality concerned. which shall be furnished to NEDA,
The commission shall submit their Board of Investments, Central Bank, and
findings and recommendations to the Sec. of Finance.
NEDA within 30 days after the
termination of the public hearing. The B. Administrative assistance to the President
NEDA thereafter submits the and Congress (Sec. 506, TCC)
recommendation to the President.
TAX REMEDIES UNDER THE TARIFF
2. The power of the President to AND CUSTOMS CODE (TCC)
increase or decrease the rates of import duty
within the abovementioned limits fixed in the TAX REMEDIES OF THE GOVERNMENT
Code shall include the modification in the form
of duty. A. ADMINISTRATIVE
In such case the corresponding ad 1. Tax Lien (sec. 1204 TCC)
valorem or specific equivalents of the duty with attaches on the goods, regardless of
respect to the imports from the principal ownership, while still in the custody or
competing foreign country for the most recent control of the Government
representative period shall be used as bases. Availed of when the importation is
(Sec. 401, TCC) neither prohibited nor improperly made.
THE TARIFF COMMISIONS (TC) 2. Administrative Fines and Forfeitures

applied when the importation is
FUNCTIONS OF THE TARIFF unlawful and it may be exercised even
COMMISSION where the articles are not or no longer in
custom’s custody .UNLESS the
A. The Commission shall investigate: importation is merely attempted in
which case it may be effected only while
1. the administration of and the fiscal and the goods are still within the Customs
industrial effects of the country’s tariff jurisdiction or in the hands of a person
and customs laws; who is aware thereof. (sec. 2531 and
2. the relations between the rates of duty 2530 TCC)
on raw materials and finished or partly Under Sec. 2530 (a), TCC in order to
finished goods; warrant forfeiture, it is not necessary
3. the effects of ad valorem and specific that the vessel or aircraft must itself
duties and of compound specific and ad carry the contraband. The
valorem duties; complementary if collateral use of there
4. all questions relative to the arrangement Cessna plane for smuggling operation is
of schedules and classifications of sufficient for it to be deemed to have
articles under the tariff laws; been used in smuggling. [Llamado vs.
5. the tariff relations between the Commissioner of Customs, G.R. no. L-
Philippines and foreign countries, 28809, may 16, 1983]
commercial treaties, etc.;
6. the volume of importation compared 3. Reduction of Custom Duties/
with domestic production and Compromise
consumption; Subject to approval of Sec. of Finance
7. conditions, causes, and effects relating (sec. 709, 2316 TCC)
to competition of foreign industries with
those of the Philippines; 4. Seizure, search, arrest (sec. 2205, 2210,
8. in general, to investigate the operation 2211 TCC)
of customs and tariff laws and to submit
report of its investigation; and B. JUDICIAL
T A X A T I O N
Page 88 of 107
This remedy is normally availed of when the tax The CTA empowers to issue injunction,
lien is lost by the release of the goods. it would appear that an importer may
Civil action (se. 1204 TCC) appeal without first paying the duties,
Criminal Action such as in seizure, but not in protest
cases.
TAX REMEDIES OF THE TAXPAYER
2. Action to question the legality of seizure
A. ADMINISTRATIVE 3. Abandonment
1. Protest failure to file an import entry within 30
Any importer or interested party if days from the discharge of goods or
dissatisfied with published value within having filed an entry fails to claim
15 days from date of publication or within 15 days but it shall not be so
within 5 days from the date of importer effective until so declared by the
is entitled to refund if payment is collector. (sec. 1801 as amended by RA
rendered erroneous or illegal by events 7651)
occurring after the payment.
Taxpayer within 15 days from REMEDIES IN THE BUREAU OF
assessment. (sec. 2308,2210 TCC) CUSTOMS (BOC)
Note: Payment under protest is necessary. A. CUSTOM PROTEST CASES

These are cases which deal solely with
2. Refund liability for custom duties, fees, and other
A written claim for refund may be charges.
submitted by the importer in abatement
cases on missing packages, deficiencies Note: Before filing a protest, there must first be
in the contents of packages or shortages a payment under protest.
before arrival of the goods in the
Philippines, articles, lost or destroyed Requirements for making a Protest
after such arrival, dead or injured 1. must be in writing
animals, and for manifest clerical errors; 2. must point out the particular decision or
and ruling of the Collector of Customs to
Drawback cases where the goods are re- which exception is taken or objection
exported (sec. 1701-1708 TCC) made
3. must state the grounds relied upon for
3. Settlement of any seizure by payment relief
of fine or redemption 4. must be limited to the subject matter of
But this shall not be allowed in any case a single adjustment
where importation is absolutely 5. must be filed when the amount claimed
prohibited or the release would contrary is paid or within 15 days after the
to law, or when there is an actual and payment
intentional fraud (sec. 2307 TCC). 6. protest must furnish samples of goods
under protest when required.
4. Appeal
Within 15 days to the Commissioner
after notification by Collector of his
decision (sec. 2313 TCC).
B. JUDICIAL
1. Appeal
Within 30 days from receipt of decision
of the Commissioner or Secretary of
Finance to the division of the CTA (sec.
2403 TCC, sec. 7 RA 1125, as amended
by sec. 9 RA 9282)
T A X A T I O N
Page 89 of 107
PROCEDURES in CUSTOMS PROTEST
The collector acting within his jurisdiction

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

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

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

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

PROTESTANT GOVERNMENT
Appeal with the Automatic review by the

Commissioner within 15 commissioner
days from notice
Appeal with the CTA Automatic review by the Sec. of

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

Appeal by certiorari Commissioner or Sec. of
with the Supreme Finance adverse to the
Court within 15 days protestant he may appeal to the
from notice. CTA and SC under the same
procedure on the other side.
T A X A T I O N
Page 90 of 107
B. SEIZURE AND FORFEITURE CASES Right of Custom Officers to Effect

Seizure and Arrest
These refer to the matters involving smuggling.
It is administrative and civil in nature and is 1. May seize any vessel, aircraft, cargo, article,
directed against the res or imported articles animal or other movable property when the
and entails a determination of the legality of same is subject to forfeiture or liable for any
importation. time as imposed under TCC, rules and
regulation.
Note: These are action in rem. 2. May exercise only in conformity with the
laws and TCC.(sec. 2205 TCC)
Smuggling or Unlawful Importation
Any person who shall fraudulently Articles subject to Seizures and
import or bring into the Philippines, or assist In Forfeitures [Code: FEU-UE-UM-UP-BIR]
doing so, any article, contrary to law, or shall
receive, conceal, buy, sell, or in any manner 1. Fraudulent removal of cargoes
facilitate the transportation, concealment, or 2. Excessive sea store
sale of such article after importations, knowing 3. Undeclared cargoes
the same to have been imported contrary to law, 4. Unlawful use of aircraft or vessel EXCEPT if
shall be guilty of smuggling (sec. 3601 TCC). there is Certificate of Public Convenience
and Necessity
Note: anything that was used for smuggling 5. Excessive cargoes
is subject to confiscation. [Lladoc vs. Com of 6. Unlawful transfer of cargoes
Custom, R.R. L-28809, May 16, 1983] 7. Money used to bribe
EXCEPT Common carriers that are not 8. Unauthorized removal of goods
privately chartered cannot be confiscated. 9. Prohibited articles
Note: Mere possession of the article in 10. Beast, actually used for the consequence
question is liable UNLESS defendant could that is subject of forfeiture
explain that his possession is lawful to the 11. Instruments used in the loading or
satisfaction of the court (sec. 3601,TCC) unloading of goods subject of forfeiture
Note: Payment of the tax due after 12. Receptacles, boxes used to conceal good
apprehension is not a valid defences. subject of forfeiture (sec. 2530,TCC)
[Rodriguez vs. CA, G.R. no. 115218,
September 18, 1995] Article NOT subject to Forfeiture or
Seizure
Port of Entry
A domestic port open to both foreign The forfeiture of vessel or aircraft or
and coastwise trade including airport of entry seizure of articles shall not be effected if it is
(sec. 3514, TCC). established that the owner thereof or his agent
in charge of the means of conveyance used as
All articles imported into the Philippines aforesaid has no knowledge of a participation in
whether subject to duty or not shall be the unlawful act. In other words, no
entered through a customhouse at a port of forfeiture or seizure in the absence of
entry. prima facie evidence.
Three meanings of term “ENTRY” HOWEVER, that a prima facie presumption

shall exist against the vessel, vehicle or aircraft
1. documents filed at the custom house under any of the following circumstances:
2. submission and acceptance of the
documents 1. if the conveyance has been used for
3. procedure of passing the goods through the smuggling at least twice before;
custom house. [ Rodriguez vs. CA, G.R. no. 2. if the owner is not in the business for which
115218, September 18, 1995] the conveyance is generally used; and
3. if the owner is financially not in a position
to own such conveyance.
T A X A T I O N
Page 91 of 107
DOCTRINE OF PRIMARY 2. Over Imported Articles

JURISDICTION OVER SEIZURE AND a. there is a violation of TCC
FORFEITURE CASES b. they may be pursued in the Philippines
c. with the jurisdiction over them at any place
The prevailing doctrine is that the exclusive therein for the enforcement of the law. (2nd
jurisdiction in seizure and forfeiture cases par. Sec. 603,TCC).
vested in the collector of customs precludes
a regular court from assuming cognizance of Jurisdiction of the BOC
such matter.
The BOC has the right of supervision
It is the settled rule that the BOC acquires and police authority over all seas within the
exclusive jurisdiction over imported goods, jurisdiction of the Philippines and over all
for the purpose of enforcement of the coasts, ports, harbours, bays, rivers and inland
customs laws, form the moment the goods waters whether navigable from the sea or not.
actually in its possession or control, even if (sec. 603,TCC).
no warrant of seizure or detention had
previously been issued by the Collector of Note: In Assali vs. Commissioner, 27SCRA312,
Custom in connection with seizure and the SC held as a valid the interception and
forfeiture proceedings. seizure of a vessel on the high seas, saying that
the authority of a nation within its territory is
Thus, the RTC do not have jurisdiction over absolute and exclusive. The power to secure
seizure and forfeiture proceedings itself from injury may certainly be exercised
conducted by the BOC. Even if a Custom beyond the limits of its territory.
seizure is illegal, exclusive jurisdiction still
belongs to the BOC. [Jao vs. CA, G.R. no. Places where searches and seizures may
104604,October 6, 1995] be conducted
1. Right of police officer to entered
DOCTRINE OF HOT PURSUIT enclosure WITHOUT a warrant,
EXCEPT a dwelling house
Requisites: 2. Search with dwelling house must be
with proper warrant
1. Over Vessels 3. right to search vehicles or aircrafts and
a. an act is done in Philippine water which person or articles conveyed therein
constitutes a violation of the TCC 4. Right to search vehicles, beast and
b. a pursuit of such vessel began within the person
jurisdictional waters which may continue 5. Search of person arriving from foreign
beyond the maritime zone and the vessel countries.
may be seized on the high seas.
T A X A T I O N
Page 92 of 107
PROCEDURE IN SEIZURE AND FORFEITURE CASES
Note: If the owner or

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

his decisions
If against the If against the

importer he may government it may
appeal appeal
SETTLEMENT OF FORFEITURE CASES Since criminal proceeding are actions in

GEN. RULE: Settlement of cases by payment personam while the latter is action in rem.
of fine or redemption of forfeited property is Note: Burden of proof in seizure or forfeiture
allowed. case is on the claimant. (sec. 2535, TCC)
EXCEPTIONS: MANIFEST
1. the importation is absolutely prohibited or Manifest in coastwise trade for cargo

2. the surrender of the property to the person and passengers transported from one place to
offering to redeem would be contrary to law another are required when one or both of such
or places are a port of entry (sec.906,TCC).
3. when there is fraud. (sec. 2307,TCC)
Manifest is not only required to imported
Note: Acquittal in criminal charged is not a res goods. It is also required for articles found
judicata in seizure or forfeiture proceedings. on vessels or aircraft engaged in coastwise
trade.
T A X A T I O N
Page 93 of 107
Whether the act of smuggling is established FUNDAMENTAL PRINCIPLES (SEC. 130,

or not under the principle of res ipsa LGC)
loquitur. It is enough that the cargo was
unmanifested and that there was no The fundamental principles governing the
showing that payment of duties thereon had exercise of the taxing and other revenue-raising
been made for it to be subject to forfeiture. powers of LGUs are:
Thus, unmanifested cargo is subject to
forfeiture. 1. Taxation shall be Uniform in each local
government unit;
B. SURCHARGE 2. Taxes, fees, charges and other impositions
shall
To overcharge or to charge again as in a. be equitable and based as far as
an accounting between parties. practicable on the taxpayer's ability to
pay;
Articles Subject to Surcharge [Code: b. be levied and collected only for public
DEMI] purposes;
c. not be unjust, excessive, oppressive, or
1. Failure to pay Duties (sec. 2501,TCC) confiscatory;
2. Failure or refusal of a party to submit d. not be contrary to Law, public policy,
evidence (sec. 2504,TCC) national economic policy, or in the
3. Misclassification, misdeclaration or under restraint of trade;
evaluation of article 3. The collection of local taxes, fees, charges
4. Failure to submit or supply invoice and other impositions shall in no case be let
(sec.2502,TCC) to any private person;
4. The revenue collected shall inure solely to
D. FINES the benefit of the local government unit
levying the tax, fee, charge or other
Subject to Fines [Code: BRUCE] imposition unless otherwise specifically
provided herein; and,
1. Breach of a 5. Each local government unit shall, as far as
2. Failure to supply or manifest requirements practicable, evolve a progressive system of
provided by law (sec. 2521, TCC) taxation.
3. Unlawful loading and unloading of cargoes
(Secs. 2524, 2517,TCC) LOCAL TAXING AUTHORITY
4. Failure to produce all the crew members
5. Failure to exhibit the documents related to The power to tax is exercised by the
the vessel (Secs. 2519,2507,2508-2514, Sanggunian of the LGU concerned through an
TCC) appropriate ordinance. (Sec. 132, LGC)
POWER TO ADJUST LOCAL TAX RATE (SEC.

LOCAL TAXATION 191, LGC)
Adjustment of the tax rates as

Power to Create Sources of Revenue prescribed herein should not be oftener than
once every five (5) years, and in no case shall
Each local government unit has the power to: such adjustment exceed 10% of the rates fixed
under the LGC.
1. create its own sources of revenue and
2. levy taxes, fees, and charges subject to the POWER TO GRANT TAX EXEMPTIONS
provisions herein, consistent with the basic (SEC. 192, LGC)
policy of local autonomy. (Sec. 129)
LGU may, through ordinances duly
Such taxes, fees, and charges shall accrue approved, grant tax exemptions, incentives or
exclusively to the local government units. relief’s under such terms and conditions, as
they may deem necessary.
T A X A T I O N
Page 94 of 107
RESIDUAL TAXING POWERS OF THE National Government, its agencies and

LGU (SEC. 186, LGC) Instrumentalities, and local government
units.
To levy taxes, fees, or charges on any
base or subject NOT: 3. Taxes, fees, or charges, on Countryside and
Barangay Business Enterprises and
a. specifically enumerated in LGC cooperatives duly registered under R.A.
b. taxed under the provisions of the NIRC 6810 and R.A. 6938 (Cooperative Code of
c. other applicable laws. the Philippines);
Limitations of the Residual Power: 4. Taxes, fees, or other charges on Philippine

products actually exported, except as
a. constitutional limitations on taxing power otherwise provided;
b. common limitation prescribed in Sec. 133,
LGC 5. Taxes on premiums paid by way or
c. fundamental principles governing the reinsurance or retrocession;
exercise of the taxing power of the LGU’s
prescribed under Sec. 130 LGC 6. Taxes on the gross receipts of transportation
d. the ordinance levying such residual taxes contractors and persons engaged in the
shall not be enacted without any prior transportation of passengers or freight by
public hearing conducted for the purpose hire and common carriers by air, land or
and water, except as provided in the Code;
e. the principle of preemption.
7. Customs duties, registration fees of vessel
PRINCIPLE OF PREEMPTION OR and wharfage on wharves, tonnage dues,
EXCLUSIONARY DOCTRINE and all other kinds of customs fees, charges
and dues, except wharfage on wharves
Where the National Government elects constructed and maintained by the local
to tax a particular area, it impliedly withholds government unit concerned;
from the local government the delegated power
to tax the same field. This doctrine rest on the 8. Taxes, fees or charges on agricultural and
intention of the Congress. aquatic products when sold by marginal
farmers or fishermen;
Excluded imposition:
9. Documentary stamp tax;
a. taxes which are levied under the NIRC,
unless otherwise provided by LGC; 10. Estate Tax, inheritance, gifts, legacies and
b. taxes which are imposed under the Tariff other acquisitions mortis causa, except as
and Customs code otherwise provided;
c. taxes imposition of which contravenes
existing governmental policies or which 11. Taxes, fees, and charges and other
violates the fundamental principles of impositions upon goods carried into or out
taxation of, or passing through, the territorial
d. taxes and other charges imposed under jurisdictions of local government units in
special law. the guise of charges for wharfage, tolls for
bridges or otherwise,
LIMITATION ON LOCAL TAXING
POWER (SEC. 133,LGC) 12. Percentage or VAT on sales, barters or
exchanges or similar transactions on goods
1. Taxes, fees or charges for the registration of or services except as otherwise provided;
motor vehicles and for the issuance of all
kinds of licenses or permits for the driving 13. Income tax, except on banks and other
thereof, except tricycles; financial institutions;
2. Taxes, fees or charges of any kind on the 14. Taxes on business enterprises certified to by
T A X A T I O N
Page 95 of 107
the Board of Investments as pioneer or non- printing and/or publication of books, cards,
pioneer for a period of 6 and 4 years, posters, leaflets, handbills, certificates, receipts,
respectively from the date of registration; pamphlets, and others of similar nature.
15. Excise taxes on articles enumerated under Rate: Not exceeding 50% of 1% of the gross
the national Internal Revenue Code, as annual receipts for the preceding calendar year
amended, and taxes, fees or charges on
petroleum products. Exceptions: Newly started business, the
tax shall not exceed 1/20 of 1% of the capital
OTHER IMPOSITIONS THAT THE LGU investment. School texts or references,
MAY LEVY prescribed by the DECS shall be exempt from
the tax.
a. provinces
b. municipalities 3. Franchise Tax. Notwithstanding any
c. cities exemption granted by any law or other special
d. barangays law, the province may impose a tax on
businesses enjoying a franchise.
PROVINCES
Rate: Not exceeding 50% of 1% of the gross
1. tax on transfer of real property annual receipts for the preceding calendar year,
2. tax on business of printing and within its territorial jurisdiction.
publication
3. franchise tax Exceptions: Newly started business, the
4. tax on sand gravel and other quarry tax shall not exceed 1/20 of 1% of the capital
resources extracted from public land investment.
5. professional tax
6. amusement tax 4. Tax on Sand, Gravel and Other
7. annual fixed tax for delivery truck or van Quarry Resources. The province may levy
manufacturers or producers, and collect taxes on ordinary stones, sand,
wholesalers of, dealer, or retailers in, gravel, earth, and other quarry resources
certain products. extracted from public lands or from the beds of
seas, lakes, rivers, streams, creeks, and other
1. Tax on Transfer of Real Property public waters within its territorial jurisdiction.
Ownership. The province may impose a tax
on the sale, donation, barter, or on any other Rate: Not more than 10% of fair market
mode of transferring ownership or title of real value in the locality
property.
Note: The permit to extract resources shall
Rate: Not more than 50% of the 1% of the be issued exclusively by the provincial governor,
total consideration or of the fair market value, pursuant to the ordinance of the sangguniang
whichever is higher panlalawigan. Proceeds distributed as follows:
Province -30% Component City or Municipality
Exception: Sale, transfer or other where the quarry resources are extracted - 30%
disposition of real property pursuant to R.A. Barangay where the quarry resources are
No. 6657 (CARL). extracted - 40%.
Note: It shall be the duty of the seller, 5. Professional Tax. The province may
donor, transferor or administrator to pay the levy an annual professional tax on each person
tax imposed within 60 days from the date of the engaged in the exercise or practice of his
execution of the deed or from the date of the profession requiring government examination.
decedent's death To be paid on or before the 31st day of January.
Any person first beginning to practice a
2. Tax on Business of Printing and profession after the month of January must,
Publication. The province may impose a tax however, pay the full tax before engaging
on the business of persons engaged in the therein.
T A X A T I O N
Page 96 of 107
Rate: At such amount and reasonable outlets, or consumers, whether directly or

classification as the sangguniang panlalawigan indirectly, within the province.
may determine but shall in no case exceed
P300.00. Rate: Amount not exceeding P500.00.
Exception: Professionals exclusively MUNICIPALITIES (SEC. 143 LGC)

employed in the government shall be exempt
from the payment of this tax. The municipality may impose taxes on
the following business:
Note: To be paid to the province where a. On manufacturers, assemblers, repackers,
he/she practices his/her profession or where processors, brewers, distillers, rectifiers,
he/she maintains principal office in case the and compounders of liquors, distilled
practice is in several places provided, after spirits, and wines or manufacturers of any
payment he/she shall be entitled to practice article of commerce of whatever kind or
his/her profession in any part of the nature.
Philippines. W/out being subjected to any other b. On wholesalers, distributors, or dealers in
national or local tax, license, or fee for the any article of commerce of whatever kind or
practice of the profession. nature.
c. On exporters, and on manufacturers,
6. Amusement Tax. The province may millers, producers, wholesalers,
levy an amusement tax to be collected from the distributors, dealers or retailers of the
proprietors, lessees, or operators of theaters, essential commodities
cinemas, concert halls, circuses, boxing d. On retailers
stadium, and other places of amusement e. On contractors and other independent
contractors
Rate: Not more than 30% of the gross f. On banks and other financial institutions,
receipts from admission fees. g. On peddlers engaged in the sale of any
merchandise or article of commerce
Exception: The holding of operas, h. On any business, which the sanggunian
concerts, dramas, recitals, painting and art concerned may deem proper to tax. For
exhibitions, flower shows, musical programs, businesses subject to the excise, value-
literary and oratorical presentations, except added or percentage tax, the tax rate shall
pop, rock, or similar concerts shall be exempt. not exceed 2% of gross sales of the
preceding calendar year.
Note: Sangguniang panlalawigan may
prescribe the time, manner, terms and Note: Rates of Tax within the Metropolitan
conditions for the payment of tax. In case of Manila Area shall not exceed by 50% the
fraud or failure to pay, the sangguniang maximum rates prescribed for a-h. (Sec. 144
panlalawigan may impose surcharges, interest LGC)
and penalties. The proceeds from the
amusement tax shall be shared equally by the The tax is payable for every separate or distinct
province and the municipality where such establishment or place where business is
amusement places are located. conducted. (Sec. 146 LGC)
7. Annual Fixed Tax for Every Municipal non-revenue fees and charges-
Delivery Truck or Van of Manufacturers The municipality may impose and collect such
or Producers, Wholesalers of, Dealers, reasonable fees and charges on business and
or Retailers in, Certain Products. The occupation except professional taxes reserved
province may levy an annual fixed tax for every for provinces. (Sec 147 LGC)
truck or any vehicle used by manufacturers,
producers, wholesalers, dealers or retailers in Municipalities shall have the exclusive authority
the delivery of distilled spirits, soft drinks, to grant fishery privileges in the municipal
cigars and cigarettes, and other products as may waters. The sanggunian may:
be determined by the sanggunian, to sales a. Grant fishery privileges to erect fish corrals,
oysters, or other aquatic beds or bangus fry
T A X A T I O N
Page 97 of 107
areas In case there is no branch or sales outlet

1. Duly registered organizations and in the city or municipality where the sale made,
cooperatives of marginal fishermen the sale shall be recorded in the principal office
shall have the preferential right; and the taxes due shall accrue and be paid to
2. The sanggunian may require a public such city or municipality.
bidding pursuant to an ordinance for
the grant of such privilege; The following sales allocation for sales
3. Absent of such orgs. and coops or recorded in the principal office of businesses
their failure to exercise their with factories, project offices, plants, and
preferential right, other parties may plantations:
participate in the public bidding
b. Grant the privilege to gather, take or catch a. 30% of all sales recorded in the
bangus fry, prawn fry or fry of other species principal office shall be taxable by the city or
and fish from the municipal waters by nets municipality where the principal office is
or other fishing gears to marginal fishermen located; and
free of rental or fee b. 70% of all sales recorded in the
c. Issue licenses for the operation of fishing principal office shall be taxable by the city or
vessels of three (3) tons or less. (Sec. 149) municipality where the factory, project office,
plant, or plantation is located.
CITIES (SEC. 151,LGC)
Where the plantation located at a place
The city may levy the taxes and other other than the place where the factory is
charges which the province or municipalities located, the above mentioned 70% shall be
may impose. The tax rates that the city may levy divided as follows:
may exceed the maximum rates allowed for the
province or municipality by not more than 50% 60% to the city or municipality where the
except the rates of professional and amusement factory is located; and
taxes. 40% to the city or municipality where the
plantation is located.
BARANGAYS (SEC. 152, LGC)
Where there are 2 or more factories,
The barangay may levy the following project offices, plants, or plantations located in
taxes: different localities, the above mentioned 70%
a. taxes on stores or retailers with fixed shall be prorated among the localities where the
business establishments with the gross factories, project offices, plants, and plantations
sales for the preceding calendar year of are located in proportion to their respective
P50,000 or less ( for barangay in the volumes of production during the period for
cities) and P30,000 or less (barangays which the tax is due.
in municipalities)
b. services or charges COMMUNITY TAX
c. barangay clearance
d. other fees and charges. Cities or municipalities may levy a community
tax (Sec. 156)
SITUS OF LOCAL TAXATION (SEC.
150,LGC) A. Individuals Liable to Community Tax:
For purposes of collection of the taxes 1. Inhabitant of the Philippines

under Section 143 (tax on business), businesses 2. Eighteen years of age or over
maintaining or operating branch or sales outlet 3. Regularly employed on a wage or salary
elsewhere shall record the sale in the branch or basis for at least 30 consecutive working
sales outlet making the sale or transaction, and days during any calendar year,
the tax thereon shall accrue and shall be paid to 4. or who is engaged in business or
the municipality where such branch or sales occupation,
outlet is located. 5. or who owns real property with an
aggregate assessed value of P1, 000.00
T A X A T I O N
Page 98 of 107
or more, A community tax certificate may also be issued

6. or who is required by law to file an to any person or corporation not subject to the
income tax return community tax upon payment of P1.00. (Sec.
162,LGC)
Tax rate: P5.00 and an annual additional tax
of P1.00 for every P1, 000.00 of income Sec. 163, LGC Presentation of Community
regardless of whether from business, exercise of Tax Certificate On Certain Occasions -
profession or from property which in no case
shall exceed P5, 000.00. Individual
In the case of husband and wife, the tax a. When an individual subject to the
imposed shall be based upon the total property community tax acknowledges any
owned by them and the total gross receipts or document before a notary public,
earnings derived by them. (Sec. 157) b. takes the oath of office upon election or
appointment to any position in the
B. Juridical Personalities (Sec. 158, LGC) government service;
Every corporation, no matter how created or c. receives any license, certificate or permit
organized, whether domestic or resident from any public authority; pays any tax
foreign, engaged in or doing business in the or fee;
Philippines is also liable to pay an annual d. receives any money from any public
community tax. fund;
e. transacts other official business; or
Tax rate: P500.00 and an annual additional f. receives any salary or wage from any
tax, which shall exceed P10, 000.00 in person or corporation.
accordance with the following schedule:
The community tax certificate shall not be
a. For every P5,000.00 worth of real property required in the registration of a voter.
in the Philippines owned by it during the
preceding year based on the valuation used Corporation
for the payment of real property tax - P2.00;
and a. receives any license, certificate, or
b. For every P5, 000.00 of gross receipts permit from any public authority,
derived by it from its business in the b. pays any tax or fee,
Philippines during the preceding year - c. receives money from public funds, or
P2.00. d. transacts other official business.
EXEMPT FROM COMMUNITY TAX The city or municipal treasurer deputizes the
barangay treasurer to collect the community tax
1. Diplomatic and consular representatives; in their respective jurisdictions.
and
2. Transient visitors when their stay does not The proceeds of the community tax actually and
exceed 3 months. directly collected by the city or municipal
treasurer shall accrue entirely to the general
Place of Payment - place of residence of the fund of the city or municipality concerned.
individual, or in the place where the principal
office of the juridical entity is located. (Sec. 160) Proceeds of the community tax collected
through the barangay treasurers shall be
Time for Payment - accrues on the 1st day of apportioned as follows: (Sec. 164)
Jan. of each year which shall be paid not later 50% accrues to the general fund of the city or
than the last day of Feb. of each year municipality concerned; and
50% accrues to the barangay where the tax is
Penalties for Delinquency. - An interest of collected.
24% per annum from the due date until it is
paid shall be added on the amount due.
T A X A T I O N
Page 99 of 107
II. TAX REMEDIES UNDER THE LOCAL Prescriptive Periods under the LGC:
GOVERNMENT CODE
1. Assessment of Local Taxes
A. Tax Remedies of Local Government General rule – five years (5) from the
Units date they became due.
Exception: When there is fraud or
1. Impose penalties (surcharges and intent to evade the payment of taxes,
penalty interest) in case of delinquency; fees, or charges – ten (10) years from
2. Avail local government’s liens; discovery of the fraud or intent to evade
3. Administrative action through distraint the payment.
of goods, chattels and other personal
property; and 2. Collection of Local taxes:
4. By judicial action. Five (5) years from the date of
assessment by administrative or judicial
Civil remedies for collection action.
2. tax lien; Interruption of the period of prescription:

3. distraint; 1. The treasurer is legally prevented from
4. levy; making the assessment or collection of
5. civil action; the tax;
6. purchase of property by LGUs for want 2. The taxpayer requests for a
of bidder; property distrained not reinvestigation and executes a waiver in
disposed within 120 days from date of writing before the expiration of the
distraint – considered sold to the LGU. period within which to assess or collect;
and
Note: Either of these remedies or all may be 3. The taxpayer is out of the country or
pursued concurrently or simultaneously at the otherwise cannot be located.
discretion of the local government unit
concerned. B. Remedies of the Taxpayer under the
LGC
Tax lien- Local taxes constitute a lien, superior
to all liens, charges or encumbrances in favor of A. ADMINISTRATIVE
any person, enforceable by appropriate Prior to assessment:
administrative of judicial action, not only upon 1. Administrative appeal to the
any property or rights therein which may be the Secretary of Justice; and
subject of the lien but also upon property used 2. Action for declaratory relief
in business, occupation, practice of profession
or calling, or exercise of privilege with respect After an assessment:
to which the lien is imposed 1. Protest of the assessment
within 60 days from receipt of
Judicial action assessment. Payment under protest
is not necessary.; or
civil action only; it precludes a criminal 2. Action for refund within 2
case as a proper remedy for collection of years from payment of tax to local
delinquent local taxes. revenue taxes the supervening cause
applies in local taxation because the
The treasurer of the concerned Local period for the filling of claims for
Government Unit shall file the refund is counted not necessarily
collection case. from the date of payment but from
the date the taxpayer is entitled to a
The CTA has co jurisdiction over the tax refund or credit.
collection cases of the LGU 3. Right of redemption- 1 year
from the date of sale or forfeiture.
(SEC. 179, LGC)
T A X A T I O N
Page 100 of 107
B.JUDICIAL Payment and subsequent refund or tax

credit – within two (2) years from payment of
a.appeal tax to local treasurer.
within 60 days from assessment of
provincial, city or municipal assessor Right of redemption – one (1) year from the
to Local Board of Assessment date of sale or from the date of forfeiture.
Appeals;
within 30 days from receipt of Action for declaratory relief injunction –
decision of LBAA to Central Board if irreparable damage would be caused to the
of Assessment Appeals; taxpayer and no adequate remedy is available.
in case of denial of refund or credit, REAL PROPERTY TAXATION

appeal to the Board of Assessment
Appeals as in a protest case CHARACTERISTIC OF REAL PROPERTY
TAX
b. court action – appeal of CBAAs
decision to the Supreme Court by 1. Direct tax on the ownership of real property
certiorari; 2. Ad Valorem tax. The value is based on the
tax base
c. suit assailing validity of tax, 3. Proportion - the tax is calculated on the basis
recovery or refund of taxes of a certain percentage of the value assessed
paid; 4. Indivisible single obligation
5. Local Tax
d. suit to declare invalidity of tax
due to irregularity in PROPERTIES LIABLE UNDER REAL
assessment and collection; PROPERTY TAX
e. suit assailing the validity of tax According to the Local Government Code, Real
sale Property liable for Real Prop tax is:
1. Land,
Appeal to the Secretary of Justice: 2. Buildings
3. Machinery and
Any question on the constitutionality or 4. Other improvements not otherwise
legality of tax ordinances may be raised on exempted under said code (Sec 232, LGC)
appeal within 30 days from the effectivity
thereof Note: Although the term real property has not
been expressly defined in the LGC, early
To the Secretary of Justice decisions of the Supreme Court in Mindanao
Bus Co. v City Assessor of Cagayan de Oro, 6
Who shall render a decision within 60 SCRA `97; Board of Assessment Appeals v
days from date of receipt of appeal Meralco, 119 PHIL 328; Manila Electric Co. v
Board of Assessment Appeals, 10 SCRA 68
Such appeal shall not suspend the seem to suggest that Art 415 of the Civil Code
effectivity of the ordinance, as well as the could also be controlling.
accrual and payment of the tax
CLASSIFICATION OF LAND for
In case of adverse decision or inaction by purposes of assessment Sec 218 (a)
the Secretary of Justice, the aggrieved
party may file appropriate proceedings 1. Commercial
with a court of competent jurisdiction. 2. Agricultural
3. Residential
Protest – within 60 days from receipt of 4. Mineral
assessment. Payment under protest not 5. Industrial
necessary. 6. Timberland
7. Special
T A X A T I O N
Page 101 of 107
1. Declared by Owner or Administrator

SPECIAL CLASSES OF REAL PROPERTY (Sec 202-203)
(sec 216, LGC)
If newly acquired property -
1. Hospitals files with assessor within 60 DAYS from
2. Cultural and scientific purposes date of transfer a SWORN statement
3. owned and used by local water districts containing FMV and description of
4. GOCCs rendering essential public property
services in the supply and distribution of
water and/or generation or transmission If improvement on real property
of electric power. file w/in 60 DAYS upon completion or
occupation (whichever is earlier)
PROPERTIES EXEMPT FROM TAXES SWORN statement containing FMV and
(Sec. 234) description of property
1. owned by the Republic of the Philippines or 2. Declared by Provincial / City /

its political subdivisions Municipal Assessor (Sec 204)
Except: when beneficial use has been only when the person under Sec 202
granted to a taxable person refuses or fails to make the declaration within
2. Charitable institutions, churches, the prescribed time
parsonages, and convents thereto, mosques, No oath is required
non-profit or religious cemeteries, buildings
and improvements actually directly and IF FILING FOR EXEMPTION (Sec 206)
exclusively used for religious, charitable or
educational purposes. person claiming exemptions must file
3. Machinery and Equipment actually, with assessor sufficient documentary evidence
directly, and exclusively used by local Water to support claim within 30 days from the date
districts and GOCCs engaged in the supply of DECLARATION of property
and distribution of water and/or generation
and transmission of electric power If required evidence is not submitted
4. Real property owned by duly registered within 30 days, the property will be listed as
Cooperatives under RA 6938 taxable in the roll.
5. Machinery & equipment for pollution If proven to be tax-exempt, property will
control and Environment protection be dropped from the roll
Exemptions previously granted, (not falling
within the above enumeration) are withdrawn. Note: IF PROPERTY DECLARED FOR THE
FIRST TIME (Sec. 222)
FUNDAMENTAL PRINCIPLES IN
Assessment REAL PROP TAXES (Art If declared for 1st time, real property
198) shall be assessed for back taxes for not more
than 10 yrs prior to the date of initial
1. Current and fair market value is the basis of assessment taxes shall be computed on the
appraisal basis of applicable schedule of values in force
2. Uniformity in classification in each local gov’t during the corresponding periods
unit should be observed
3. Actual use of the property should be the basis STEP 2: LISTING OF REAL PROPERTY
of classification IN THE ASSESSMENTROLLS
4. appraisal, assessment, levy and collection (Sec 205, 207)
should not be let to any private person.
5. equitable appraisal and assessment All declaration shall be kept and filed
under a uniform classification system to be
PROCEDURE: established by the provincial, city or municipal
assessor.
STEP 1 - DECLARATION OF REAL
PROPERTY
T A X A T I O N
Page 102 of 107
STEP 3: APPRAISAL AND VALUATION

OF REAL PROPERY WHO COLLECTS? The provincial, city,
(Sec 212-214, 224-225) municipal or barangay treasurer within which
to collect. (Sec 270).
Determining Fair Market Value
PERIOD:
A. Land a. within five (5) yrs from the date they
1. Assessor of the province, city, and become due
municipalities gives summons to owners of b. within ten (10) yrs. from discovery of fraud,
affected properties in case there is fraud or intent to evade
2. Assessor prepares a schedule of FMV
for different classes of properties PRESCRIPTION SHALL BE SUSPENDED
3. Sanggunian enacts an ordinance when: (Sec 270, LGC)
4. the schedule of FMV is published or
posted 1. local treasurer is legally prevented to collect
tax
B. Machinery 2. the owner of prop requests for reinvestigation
1. For Brand New machinery: FMV is and writes a waiver before expiration of
acquisition cost period to collect
2. In all other cases: FMV = Remaining 3. the owner of the prop is out of the country or
eco. life X Replacement Estimated Eco. Life cannot be located
Cost
REMEDIES IN REAL PROPERTY
STEP 4: DETERMINE ASSESSED VALUE TAXATION
(Sec 218)
A. REMEDIES OF TAXPAYER
Procedure
1. take the schedule of FMV
1. PAYMENT UNDER PROTEST (Sec 252)
2. Assessed value = FMV X
- file protest with prov, city, or mun.
Assessment level
treasurer concerned
3. Tax = Assessed value X Tax rate
- indicate amount contested
- annotate on tax receipt “paid under
STEP 5: PAYMENT AND COLLECTION protest”
OF TAX - Within 30 days, confirm protest in
writing stating grounds therefor
Period: January 1 of every year (Sec 246) - treasurer shall decide protest within 60
tax shall constitute as superior lien (Sec 246) days
Note: No protest shall be entertained unless

HOW? THE TAX IS FIRST PAID.
a. basic real prop tax in 4 equal IF PROTEST DECIDED IN FAVOR of
installments (Mar 31, June 30,Sept. 30, Dec. 31) taxpayer, amount may either be
b. special levy - governed by ordinance a. refunded or
b. applied as tax credit
Note: INTEREST for LATE PAYMENT
- two percent (2%) each month on unpaid IF DENIED or NOT DECIDED WITHIN
amt. until the delinquent amt is paid. 60 DAYS BY TREASURER,
- provided in no case shall the total interest a. taxpayer may appeal to board of
exceed thirty-six (36) months assessment appeal or
b. avail of remedies under Ch 3 title
Note: FOR ADVANCE and PROMPT 2 Book II (Local Board of Assessment Appeals
PAYMENT and Central Board of Assessment Appeals)
a) advance payment -discount not exceeding
20% of annual tax (Sec 251, LGC) 2. REFUND IN CASE OF EXCESSIVE
b) prompt payment -discount not exceeding COLLECTION (Sec 253)
10% of annual tax due (Art 342 IRR)
T A X A T I O N
Page 103 of 107
File a written claim for refund within two

(2) years from date taxpayer is entitled Within 30 days
thereto CTA EN BANC
B. REMEDIES OF GOVERNMENT
Remedies may be enforced either Within 15 days
through administrative or judicial action or SUPREME COURT
both, alternative or simultaneously. Use or
non-use of one remedy shall not be a bar
against the other (Sec 258) COURT OF TAX APPEALS (R.A. 9282-
approved March 30, 2004)
1. ADMINISTRATIVE
A. Levy on Real property (Sec 258 and COMPOSITION
259)
B. Sale of Real Property (Sec 260) Presiding Justice and 5 Associate
C. Local Government’s Lien (Sec 256) Justices
D. Further Distraint or Levy (Sec 265) May sit en banc or in two divisions, each
2. JUDICIAL (Sec 266)-civil action filed by division consisting of 3 justices. He
the local treasurer within 5 yrs. from due presiding justice and the most senior
date associate justice shall serve as chairmen
of the two divisions.
C. CONDONATION and REMISSION
The PRESIDENT may remit or reduce POWERS of the Court of Tax Appeal
real prop tax in any province, city,
municipalities if he deems that PUBLIC 1. to administer oaths;
INTEREST so requires (Sec 277) 2. to receive evidence;
THE SANGGUNIAN concerned may 3. to summon witness by subpoena;
CONDONE or REDUCE the tax in cases where 4. to inquire production of papers or
a. there is a general failure of crops documents by subpoena duces tecum;
b. substantial decrease in the price of 5. to punish contempt;
products 6. to promulgate rules and regulations
c. calamity (Sec 276) for the conduct of its business;
7. to assess damage against appellant if
by an ordinance - passed before Jan 1 of any appeal to CTA is found to be frivolous or
year and upon recommendation of the Local dilatory;
Disaster Coordinating Council 8. to suspend the collection of tax
pending appeal; and
APPEALS IN REAL PROPERTY 9. to render decisions on case brought
TAXATION before it.
10. to issue order authorizing distrait of
OWNER OR PERSON WITH LEGAL personal property and levy of real personal
INTEREST property.
Files within 60 days
1. Written Petition under Oath DISTRAINT OF PERSONAL PROPERTY
2. With Supporting Documents AND LEVY OF REAL PROPERTY
Within 60 days Upon the issuance of any ruling, order

or decision by the CTA favorable to the national
LOCAL BOARD OF ASSESSMENT APPEALS
government, the CTA shall issue an order
(LBAA should decide win 120 DAYS from authorizing the BIR, through the commissioner:
receipt of petition)
1. to seize and distrait any goods, chattels, or
Within 30 days effects and personal property, including
CENTRAL BOARD OF ASSESSMENT stocks and other securities, debts, credits,
APPEALS
T A X A T I O N
Page 104 of 107
bank accounts, and interest in and rights to him automatically for review from
personal property and/or decisions of the Commissioner of
2. levy the real property of such persons in Customs which are adverse to the
sufficient quantity to satisfy the tax or government;
charge together with any increment thereto
incident to delinquency. 7. decisions of the Secretary of Trade
and Industry, in the case of non-
The remedy shall no be exclusive and shall not agricultural products, and the
preclude the court from availing of other means Secretary of Agriculture in the case
under the Rules of Court. of agricultural products, involving
dumping ad countervailing duties
JURISDICTION OF THE CTA
B. JURISDICTION OVER CRIMINAL
A. EXCLUSIVE APPELATE CASES
JURISDICTION TO REVIEW BY APPEAL
1. Exclusive original jurisdiction over
1. decision or inaction of the CIR in- all criminal offenses arising from
2. a) disputed assessment; refunds of violations of the NIRC or tariff and
internal revenue taxes, fees and other Customs Code and other laws
charges; penalties imposed in relation administered by the BIR and
thereto; and BOC.HOWEVER, offenses
a) where the principal amount of
b) other matters arising under the taxes and fees, exclusive of
NIRC; or other law or part of law charges and penalties, claimed is
administered by BIR. less than 1 million pesos, or
3. Decisions, order or resolution of b) where there is no specified

the RTCs in local tax cases originally amount claimed
decided or resolved by them in the
exercise of their original or appellate shall be tried by the regular courts
jurisdiction. and the jurisdiction of the CTA
shall be appellate.
4. decisions of Commissioner of
Customs in - The criminal action and the
a. cases involving liability from corresponding civil action for the
customs duties, fees and other recovery of civil liability for taxes and
money charges; seizures, penalties shall at all times be
detention or release of property simultaneously instituted with, and
affected; fines, forfeitures and jointly determined in the same
other penalties imposed in proceeding by the CTA, the filing of the
relation thereto; and criminal action being deemed to
necessarily carry with it the filing of the
b. other matters arising under the civil action,
Customs Law or other laws or
part of laws administered by the and no right to reserve the filing of
BOC. such civil action separately from the
criminal action shall be recognized.
5. decisions of the CBAA in the exercise
of its appellate jurisdiction over cases 2. Exclusive appellate jurisdiction in
involving the assessment and taxation of criminal offenses:
real property originally decided by the a) over appeals from the
LBAA; judgments, resolutions or orders
of the RTC in tax cases
6. decisions of the Secretary of originally decided by them;
Finance on customs cases elevated to
T A X A T I O N
Page 105 of 107
b) over petitions for review of for under Rule 42 of Rules on Civil

the judgments, resolutions Procedure
or orders of the RTC in the Decision, ruling or inaction of
exercise of their appellate the CIR, Commissioner of
jurisdiction over tax cases Customs, Sec. of Finance, Sec. of
originally decided by the MTC. Trade and Industry or Sec. of
Agriculture or the RTC this
C. JURISDICTION OVER TAX appeal shall be heard by a
COLLECTION CASES DIVISION of the CTA.
Within 30 days from the receipt
1. Exclusive original jurisdiction in of the decision or ruling from the
tax collection cases involving final and expiration of the period fixed by
executory assessments for taxes, law for the official concerned to
fees, charges and penalties. Collection act, in case of inaction.
where the principal amount of taxes and A party adversely affected by a
fees, exclusive of charges and penalties, ruling, order of a division of the
claimed is less than 1 million pesos CTA may file a motion for
shall be tried by the proper MTC and reconsideration or new trial
RTC; before the same Division.
2. By filling a petition for review under a
2. Exclusive appellate jurisdiction in procedure analogous to that provided
tax collection cases -- for under Rule 43 of Rules on Civil
a) over appeals from the Procedure
judgments, resolutions or orders Decision, ruling or inaction of
of the RTC in tax collection cases the Central Board of Assessment
originally decided by them; and the RTC in the exercise of its
appellate jurisdiction this appeal
b) over petitions for review of the shall be heard by a CTA EN
judgments, resolutions or orders BANC.
of the RTC in the exercise of A party adversely affected by a
their appellate jurisdiction over resolution of a Division of the
tax collection cases originally CTA on a motion for
decided by the MTC. reconsideration or new trial, may
file a petition for review with the
APPEAL CTA En Banc.
3. Petition for Review on Certiorari may be
WHO MAY APPEAL? filled by a party adverse affected by a
decision or ruling of the CTA En Banc,
Any party adversely affected by a through a verified petition before the
decision, ruling or inaction of the CIR, Supreme Court, pursuant to Rule 45 of the
Commissioner of Customs, Sec. of Finance, Sec. Rules on Civil Procedure.
of Trade and Industry or Sec. of Agriculture or
the RTC, may file an appeal with the CTA: GEN. RULE: New issues cannot be raised for
1. within 30 days after receipt of such the first time on appeal.
decisions or
2. After the expiration of the period fixed EXCEPTIONS:
by law for action referred to in Section
7(a) R.A. 9282, in which case the 1. defense of prescription
inaction shall be deemed a denial. REASON: this is a statutory right
(Visayan Land Transport vs. Collector)
MODES OF APPEAL
2. errors of administrative officials
1. By filling a petition for review under a REASON: State can never be in estoppel
procedure analogous to that provided and Lifeblood Theory (CIR vs. Procter
T A X A T I O N
Page 106 of 107
and Gamble Philippines,

Manufacturing Corp.)
NOTE: However, this was reversed by the SC

in the case of Commissioner vs. Procter and
Gamble, G.R. no. 66838, Dec. 2, 1991
Resolution, held that “in the absence of
explicit statutory provisions to the
contrary, the government must follow
the same rules of procedure which bind
private parties.”
Collection of taxes may be SUSPENDED

pending appeal to the CTA
GEN. RULE: No appeal taken to the CTA shall

suspend the payment, levy or distrait, and/or
sale of any property of the taxpayer.
EXCEPTIONS:
1. there must be a showing that collection
of the tax may jeopardize the
interest of the government and/or
taxpayer;
2. deposit of the amount claimed or file a
surety bond for not more that double the
amount of tax with the Court when
required; and
3. showing by taxpayer that appeal is not
frivolous or dilatory.
CAN THE CTA ENJOIN COLLECTION OF

TAXES?
Sec. 11 of R.A. 1125 as amended by Sec. 9 of R.A.

9282 grants CTA power to suspend collection of
tax if such collection works to serious prejudice
of either taxpayer or government.
HOWEVER, Sec. 218 of NIRC provides
no court any grant injunction to restrain
collection of any tax, fee, charge imposed by the
Tax code.
Note: The provision in Tax Code refers to

courts OTHER THAN the CTA. [Blaquera vs.
Rodriguez, G.R. no. L-11295, March 29, 1958]
Note: Appeal to the CTA does not automatically

suspend collection UNLESS CTA issues
suspension order at any stage of proceedings.
—oOo—
T A X A T I O N
Page 107 of 107

CBO Memory Aid in Taxation

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MEMORY AID

CBO OVER-ALL CHAIRPERSON: Evangeline Co

HEAD: Jocelyn Manalo

CO-HEAD: Marlyn Reyes

GENERAL PRINCIPLES: Marissa Asencion

INCOME TAXATION: Cheryl Hernandez

TRANSFER TAXATION: Nieves Elegado

TAX REMEDIES AND LOCAL TAXATION: Marlyn Reyes,

Justice Japar Dimaampao Atty. Bernard Bandonell

1. Value- Added Tax 54

Tariff and Customs Code 83

Court of Tax Appeals 104

I. GENERAL PRINCIPLES It has the right to compel all persons and

c. Payment. This signifies an act of Taxation shall only be exercised on persons,

b. Administrative Feasibility. The tax law runs contrary to the principle of

Rule of taxation must be uniform and EXCEPTIONS:

TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND IMPOSOTIONS

A. Taxation Police Power

B. Taxation Eminent Domain

Purpose To raise government fund Imposed for regulatory

D. Taxation Special Assessment

TAX as distinguished from DEBT

d. That the assessment and collection be a. the thing to be furthered by the

b. Secondary/non-revenue purposes NOTE: Incidental advantage to the public or

c. It is plenary as it is complete. Q. When must public purpose exist?

EXCEPTIONS: Rules Observed in Fixing Tax Situs

a. Local taxing power granted by the a. POLL/CAPITATION/COMMUNITY TAX

Yes, under the Doctrine of Implied b. PROPERTY TAX

Agencies performing governmental functions distinguished from proprietary functions

Government-owned and controlled corporations perform proprietary

General Rule: government is taxable.

Now, with respect to government properties, NDC vs. Cebu City,

1. Properties owned by the Republic of the Philippines AND agencies

2. The exemption of public properties from taxation does not extend to

B. Constitutional limitations of the 2. EQUAL PROTECTION OF THE LAW

Constitutional Equality in Taxation 5. NON-IMPAIRMENT CLAUSE

the application of the concept of equal Non-impairment clause of the

6. NON-IMPRISONMENT FOR NON- government.”(Art. 8, Sec.28 (2) of the

CONTROLLING DOCTRINE ON All revenues and assets of non-stock, non-profit

What is meant by actual, direct and

EXCEPTION to Strict Construction Rule: Congress cannot abolish the local

17. SPECIAL FUND 18. SUPREME COURTS JURISDICTION

KINDS OF TAXES DIFFERENTIATED

Is of fixed amount imposed on individuals, Imposed on property, real or personal, in

However, in case of direct duplicate, if it TREATY AS A MODE OF ELIMINATING

1. DIRECT -Occurs when the FORMS OF ESCAPE FROM TAXATION

3. DOMESTIC Arises when the Impact of taxation – point on which tax

The manufacturer or producer upon whom As to extent:

D. Tax Avoidance 1. Personal: granted directly in favor of

E. Tax Evasion TAX EVASION TAX AVOIDANCE

Use by the taxpayer of illegal or

DOCTRINE OF IMPRESCRIPTIBILITY TAXPAYER’S SUIT

The rules that have been adopted are as follows:

CORPORATIONS 1. Those enumerated under Sec. 30.

ESTATES AND TRUSTS Where no such distribution to the

2. An estate, the settlement of which is not the

(1) Net Income Tax “all income derived from

1. The taxpayer seeking a deduction must (j) pension trust contributions of

2. Itemized deductions 1. ordinary and necessary;

• Capital Expenditure - An expenditure Optional Treatment of Interest Expense

b. INTEREST 1. interest paid on indebtedness to finance

d. LOSSES shares is held by or on behalf of

shipping or international transport rules