Tax 1 Primer PDF

CHAPTER 1: TAXATION IN GENERAL
TAXES: enforced proportional contributions from persons and property, levied by the State
by virtue of its sovereignty, for the support of the government and for all public needs.
TO TAX: to impose a financial charge or other levy upon a tax payer by a state or the
functional equivalent of a state.
Amount of tax collected by the taxing authority from the public is always greater than the
amount to be expended for public purpose.
COMPLIANCE COST: resulting difference; which includes labor cost and other expenses
incurred in complying with tax laws and rules.
HYPOTHECATION: levy of a tax for a specified end (e.g. imposing a tax on vehicles to be used
on road construction rehabilitation and maintenance)
TAXATION DEFINED
Governments perspective
Power by which the
sovereign, through its lawmaking body, raises revenue
to defray the necessary
expenses
of
the
government.
A way of apportioning the
costs of government among
those who in some measure
are privileged to enjoy its
benefits and must bear its
burdens.
Taxpayers perspective
Compulsory transfer of
money (or goods) from
private
individuals,
institutions or groups to the
government. It may be
levied upon wealth or
income, or in the form of a
surcharge on prices.
Economists perspective
Non-penal, yet compulsory
transfer of resources from
the private to the public
sector levied on a basis of
predetermined criteria and
without reference to specific
benefit received.
Destructive power which

interferes with the personal
and property rights of the
people and takes from them
a portion of their property
for the support of the
government.
Some Taxation related terms

Tax base
Assessment or determination of tax
liability is based or the wealth within a
jurisdiction that is liable to taxation.
Tax rate
Describes burden ration, usually expressed as a
percentage, at which a person, property,
privileges or occupation is taxed.
Ex. Taxable income is the tax base for

income tax and assessed value is the tax
base for property taxes.
Important distinction when considering tax rates

is to distinguish between marginal rate and
effective average rate.
Marginal tax rate
Average rate
Percent levied on Rate a taxpayer would
each additional peso be taxed at, if taxing
of taxable income.
was done at a
constant rate, instead
Marginal tax rate of progressively.
rises as income
increases.
Impact of tax
Person from whom government collects
money in first instance. Refers to liability for
the tax.
Incidence of tax
Person who finally bears the burden of a
tax.
Ex. Amount of sales tax paid may be shifted or passed on by the seller to the buyer. What is
transferred is not the liability for the tax, but the tax burden. A seller who is directly and
legally liable for payment of an indirect tax, such as the VAT on goods or services is not
necessarily the person who ultimately bears the burden of the same tax. It is the final
purchaser or consumer of such goods or services who, although not directly and legally liable
for the payment, ultimately bears the burden of the tax.
Tax base erosion
When traditional taxable components of the
tax based are no longer representative of the
economy at large, this results to
demographic changes, relative changes in
production, stagnation or inflationary effects.
May also result from use of aggressive tax
strategies by taxpayers (eg. Less than
appropriate income is shown and more than
deduction is claimed).
Tax pyramiding
When sales taxes are applied to both inputs
and outputs, thus shifting the tax burden to
the ultimate consumer. In this situation,
some or all stages of production are taxed,
with the accumulation borne by the
consumer at the point of sale.
Ex. When a product is taxed at the pre-retail
stage and thus, tax is imposed on successive
pairs of buyers and sellers rather than only
at the final sale of the product to the
ultimate consumer.
Violates the uniformity and neutrality
principles of taxation.
Neutral tax
Tax that does not cause individuals or firms
to shift their economic choices, such as to
choose among different goods, inputs,
locations etc.
Tax structure that does not change the
incentives in the market.
Ex. Poll tax (e.g. Community Tax Certificate).
Statutory taxpayer
Person on whom the tax
is imposed by law and
who paid the same even
if he shifts the burden to
another.
Extraterritorial taxation
Tax
is
imposed
on
property/subject outside the
State.
Tax exporting
Shifting of a tax burden to nonresidents
of
a
given
jurisdiction. Exporting can be
achieved indirectly by taxing
imports
or
through
intergovernmental
transfer
mechanisms.
RELEVANT THEORIES/BASES OF TAXATION (NL-BS-NS)

1. Necessity theory and lifeblood doctrine: the existence of the government is a
necessity. It has the right to compel all citizens and property within its limits to
pay taxes. Taxes constitute the lifeblood of the nation and are greatly needed to
support the government and its widely expanding services to the people.
a.
b.
e.
Primary purpose for legislature in adopting measures is to generate funds

for the State to finance the needs of citizenry and to advance common
weal.
1
f. Granting exemptions are construed as strictissimi juris against the
taxpayer and liberally in favor of taxing authority.
GR: Taxation
EXCEPTION: exemption from tax
EXCEPTION TO EXCEPTION: if grantee is a political subdivision or instrumentality,
rigid rule of construction does not apply because practical effect of exemption is to
reduce the amount of money that has to be handled by the government in the
course of its operation.
Revenue Neutral
Taxing
procedure
that
allows
the
government to still receive the same amount
of money despite changes in tax laws.
Government may lower taxes for one group
and raise for another. This allows revenue to
remain unchanged.
Should be collected without unnecessary hindrance.

Claims for refund or tax credit should be exercised within the time fixed
by law because the functions of an administrative body enforced to
collect taxes should not be unduly delayed or hampered by incidental
matters.
c. Fraudulent means employed to evade payment of taxes should be
stopped at the earliest stage.
d. Neglect or omission of government officials entrusted with the collection
of taxes should not be allowed to bring harm in the same manner as
private persons may be made to suffer individually on account of his own
negligence.
PRESUMPTION: Private persons take good care of their personal affairs.
EXCEPTION: government officials with respect to matters of public concern;
exception to the principle of estoppel.
2.
Benefits-protection theory/theory of reciprocity/symbiotic relationshipcitizen

pays from his property the portion demanded in order that he may be secured in
the enjoyment of the benefits of organized society. A person cannot object to or
resist the payment of taxes solely because no personal benefit to him can be
pointed out arising from the tax.
Despite natural reluctance to surrender part of ones income to taxing authorities, every
person who is able must contribute his share in the burden of running the government.
Government is expected to respond in the form of tangible and intangible benefits.
BPI-FSB vs. CA
HELD: If State expects its taxpayers to observe fairness and honesty in paying their taxes, so
must it apply the same standard against itself in refunding excess payments. When it is
undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities
to keep money not belonging to it. No one, not even the State, should enrich oneself at the
expense of another.
It is a requirement that it be exercised in accordance of the prescribed procedure. If not, the
taxpayer has a right to complain.
3.
Taxation as government violation of the non-aggression principle and the social

contract theory.
Government violation of non-aggression principletaxation wrongfully presumes that

government has a higher claim on property than the owner. Taxation is theft and tax
resistance is therefore legitimate.
1
The most strict right or law.
Social contract theoryin an organized society, members agree to define and limit the rights
and duties of each. Principal attribute of sovereignty is the exercise of taxing power which
derives its source from the existence of the state whose social contract with its citizens
obliges it to promote public interest and common good.
Purposes and effect of taxation(Six [6] Rs)

1. Raise revenues.
2. Regulatory purpose.
3. Redistribution of wealth/reduction of social inequality.
4. Repricing.
5. Resuscitate economy.
6. Representation.
RAISE REVENUESPrimary purpose is REVENUE: to generate funds or property for the State
to finance the needs of the citizens and to advance the common weal.
Taxation is no longer a measure merely to raise revenue; taxes may be levied with a
regulatory purpose as an exercise of police power of the State.
REGULATORY PURPOSE police power may sometimes use the taxing power as an
implement for the attainment of a legitimate police objective.
Powell vs. Pennsylvania
HELD: If massage parlors are found to be mere fronts for prostitution, they may be subjected
to such onerous taxes as to practically force them to stop operating.
PAL vs. Edu
HELD: Law requiring owners of vehicles to pay for their registration is to raise funds for
construction and maintenance of highways. Fees may be regarded as taxes even though they
also sere as an instrument of regulation. If the purpose is revenue, or if revenue is one of the
real and substantial purposes, exaction is called a TAX.
SUMPTUARY PURPOSE OF TAXATION: non-revenue or regulatory purpose of taxation.
REDISTRIBUTION OF WEALTH/REDUCITON OF SOCIAL INEQUALITYthere is an effort to
apportion the costs of government among the people which in a way thwarts the undue
concentration of wealth in the hands of a few individuals.
PROGESSIVITY: those who are able to pay more should shoulder the bigger portion of tax
burden.
Taxation is now being used as an implement for exercise of the power of eminent domain.
Full reimbursement (peso for peso basis) is not necessary when the State uses taxation as an
implement of eminent domain.
Ex. Tax deduction does not offer full reimbursement of the senior citizen discount because it
only shaves money off the taxable income resulting to a partial recovery unlike a tax credit
which reduces the tax to be paid by the amount of discount. As such, it does not meet the
definition of just compensation. However, amendment to the law granting senior citizen
discount providing for tax deduction instead credit is not unconstitutional since the State can
impose upon private establishments the burden of partly subsidizing a government program.
REPRICING taxes may be levied to address externalities.
EXTERNALITIES: cost or benefit that is not transmitted through prices and is incurred by a
party who was not involved as either a buyer or seller of the goods or services causing the
cost or benefit.
External cost
Negative externality/cost of an externality
External benefit
Positive/benefit of an externality
Ex: Imposition of Pigovian Tax

PIGOVIAN TAX: tax levied on a market activity to correct the market outcome, if there are
negative externalities associated with market activity.
If there are negative externalities, social cost is not covered by the private cost of the activity
which may lead to over-consumption of the product. To correct this, Pigouvian tax may be
imposed (effective means to reduce incidence of bad behavior is to tax it).
If there are positive externalities (public benefits from a market activity), those who receive
the benefit do not pay for it and the market may under-supply the product. To correct this,
Pigouvian subsidy may be given.
Illustration:
A tax may be imposed on cigarettesvs. negative externality of second-hand smoke.
Pollution taxfactories emitting smoke.
Taxes may be used to modify consumption or employment by making some classes of
transaction attractive or to protect local industries or consumers.
Ex: Levying of special duties on importation
1. Dumping duty;
2. Countervailing duty;
3. Marking duty; and
4. Discriminatory or retaliatory duty.
RESUSCITATE ECONOMY tax may be imposed as a first aid measure to resuscitate an

economy in distress.
Ex: PD 1956: AD VALOREM TAX on manufactured oils and other fuel oilsfor the purpose of
minimizing frequent price changes by exchange rate adjustments and/or increase in world
market prices of crude oil and imported petroleum products.
Tax exemptions may be granted to entice investments. Reduced tax collection redounds by
enticing more business investments and employment opportunities.
FISCAL POLICY: taxes used to influence macroeconomic performance.
REPRESENTATIONno taxation without representation; no taxes should be imposed on

the people but with their consent, personally or by representatives.
CONSTI: all bills for raising revenue shall originate in House of Representative on theory that
they are more sensitive to local needs and problems.
Characteristics and requisites of taxes
Characteristics
1. An enforced contribution.
2. Exacted pursuant to legislative authority.
3. Contribution being in form of money.
4. Imposed, levied and collected for the purpose of raising revenue.
5. To be used for public or governmental purposes.
6. Levied by authority which has jurisdiction over the person, property, transaction,
rights and privileges.
Requisites (JAPUN)
1. Person or property taxed should be within jurisdiction of taxing authority.
2. Assessment and collection of certain kinds of taxes guarantee against injustice to
individuals, especially by providing notice and opportunity for hearing.
3. For public purpose.
4. Rule of taxation shall be uniform and equitable.
5. Tax must not impinge on the inherent and constitutional limitation on power of
taxation.
An enforced contributiondoes not depend on the will or acquiescence of the taxpayer.
Exacted pursuant to legislative authorityGR: power is exercised only by the legislative
department except in case of valid delegations of power or when there is constitutional
grant.
Contribution in the form of moneythere is no law prohibiting payment in some other form
of property.
However, State could determine in what manner taxes should be discharged.
1. Notes of legal tender do not apply to involuntary contributions exacted by a State
buy only to debts (obligations for payment of money founded on contracts,
whether express or implied).
2. Statute requiring payment to be collected in gold and silver coins was sustained on
2 grounds:
a. Right of each state to collect its taxes in such material as it might deem
expedient. Mode in which it should be exercised, were all equally within
the discretion of its legislature, except as restrained by its own
constitution; and
b. Legal tender act had no reference to taxes imposed by State authority,
but only to debts arising out of simple contracts or contracts of specialty,
which include judgments or recognizances.
Imposed, levied and collected for purpose of raising revenuetaxes may have regulatory or
economic purpose other than to generate funds.
To be used for public or governmental purposeit cannot be used for private purposes.
Levied by authority which has jurisdiction over the person, property, transaction, rights and
privilegesjurisdictional limitation has 2 questions:
1. Is there a sufficient relationship between the State exercising tax power and the
object of the exercise of that power?
2. Is the degree of contact sufficient to justify the states imposition of a particular
obligation?
Nature of taxing power
1. It is inherent and legislative.
Inherent
GR: power to tax is an incident of
sovereignty and is unlimited in its range,
acknowledging in its very nature no limits,
so that security against its abuse is to be
found only in the responsibility of this
legislature which imposes the tax on the
constituency who are to pay it.
Rule of taxation shall be uniform and
equitable and Congress shall evolve a
Legislative
Legislature lies the discretion to determine the
nature, object, extent, coverage and situs of
taxation. It has the authority to prescribe a
certain tax at a specific rate for a particular
public purpose.
Scopes of legislative power:
1. Purposes provided they are lawful
and public
2. Person, property, privileges or
progressive system of taxation.

The following are manifestation of this
inherent nature
1. It can be imposed even in the
absence of a constitutional grant
2. Injunction is not generally
available to enjoin collection of
taxes
3. Taxes cannot be set-off or
compensated
4. It is an unlimited or plenary
power
5. It is inherent in the power to tax
that State be free to select the
subjects of taxation
Taxing power of LGUs is not inherent
because they are not sovereign units. LGU
is merely an agency of the State for
carrying out the objects of the government.
Thus, constitutional or legislative grant is
necessary before it can exercise taxing
power.
2.
3.
4.
5.
6.
7.
3.
4.
5.
6.
7.
occupation to be taxed
Amount or rate
Kind of tax
Apportionment of tax (whether tax
shall be of general application or
limited to a particular locality, partly
general and partly local)
Situs
Mode or method of collection
Power to tax is primarily vested in Congress;

however it may be exercised by local
legislative bodies pursuant to direct authority
conferred by SEC 5, ART 10 CONSTI.
TAX FARMING: principle of assigning the
responsibility for tax revenue collecting to
private citizens or grounds was once used by
other countries.
Power is not granted in the Constitution.

It is not a contract between the State and its citizens.
It is not political in nature.
Taxes are personal.
It is unlimited in range.
It is imprescriptible.
Power is not granted in the Constitutionit merely constitutes limitations upon a power
which would be impractical without it
SEC 28(3), ART 6 CONSTI. Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, nonprofit cemeteries and all lands, buildings and
improvements, actually, directly and exclusively used for religion, charitable or educational
purposes shall be exempt from taxation.
It is not a contract between the State and its citizensit operates in invitum, which means
that it is in no way depend on the will or contractual assent, expressed or implied, of the
person taxed.
Taxes are obligations arising from law and not from contracts because of lack of consent or
choice.
It is not political in nature
Co Kim Chan vs. Valdes Tan Keh
HELD: Internal revenue laws were continued in force during the period of enemy occupation
and in effect were enforced by the occupation government. As a matter of fact, income tax
returns were filed during that period and income tax payment were effected and considered
valid and legal. Such tax laws are deemed to be the laws of occupied territory and not of the
occupying enemy.
Tax are personalliability cannot be shifted. Rights are transmissible but obligations are not.
Thus, heirs cannot be held liable beyond what they inherited for delinquent taxes of a
decedent.
Corporations tax delinquency cannot be enforced against its stockholders or related entities.
A corporation is vested by law with a separate and distinct personality. However,
stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears
that corporate assets have been passed into their hands. Same is true if stockholders have
unpaid subscriptions pursuant of the trust fund doctrine.
In case of indirect taxes, shifting of the burden to tax from the seller to the buyer is not
incompatible with the principle that taxes are personal liabilities. When seller passes on the
tax to his buyer, he is only shifting the tax burden, but not the liability, to the buyer as part of
the cost of the goods sold or services rendered.
It is unlimited in rangeit is not subject to any restrictions except in the discretion of the
authority which exercises it. Security against its abuse is to be founded only in the
responsibility of the legislature which imposes the tax on the constituency who pay it.
McCulloch vs. Maryland
HELD: Power to tax involves the power to destroy.
Panhandle vs. Mississippi
HELD: Debunked the ruling in McCullock vs. Maryland where it is held that "power to tax is
not the power to destroy while this court sits. The power to tax may include the power to
destroy if it is used as an implement of the police power in discouraging and in effect
ultimately prohibiting certain things or enterprises inimical to public welfare. But where the
power to tax is used solely for the purpose of raising revenues, modern view is that it cannot
be allowed to confiscate or destroy.
It is imprescriptiblewithout exception, taxes being the lifeblood of the government.
However, statutes may provide for prescriptive periods for the collection of particular kinds
of taxes when government has not by express statutory provision, provided a limitation upon
its right to assess unpaid taxes, such right is imprescriptible.
HELD: The government is not bound by any statute of limitations, unless Congress has clearly
manifested its intention that it should be so bound.
Aspects of taxation
1. Aspects (LAP)
2
a. Levy
3
b. Assessment and Collection
4
c. Payment and/or exercise of remedies
2.
Grant of exemption is an exercise of power of taxationpower to tax includes

power to exempt
Sound Tax System (ECCEPSD)

1. Canons of taxation.
a. Equity.
b. Certainty.
c. Convenience.
d. Economy.
e. Productivity.
f. Elasticity.
g. Simplicity.
h. Diversity.
Equityevery person should pay to the government depending upon his ability to pay.
Certaintymust not be arbitrary; taxpayer should know in advance how much tax he has to
pay, at what time and in what form.
Conveniencemode and timing must be convenient to tax payers.
Economycost of tax collection should be lower than amount of tax collected.
Productivitytax when levied should produce sufficient revenue to the government.
Elasticitytax system should be fairly elastic so that if at any time the government is in need
of more funds, it should increase its financial resources without incurring any additional cost
of collection.
Simplicitytax system should be fairly simple, plain, and intelligible to the taxpayer.
Diversitysystem should include a large number of taxes which are economical; government
should collect revenue by levying direct and indirect taxes.
2.
Basic principles of Sound Tax System(FAT).

a. Fiscal adequacy.
b. Administrative feasibility.
c. Theoretical justice.
Fiscal adequacysources of revenues must be adequate to meet government expenditures

and their variations; violation of this principle will make the law unsound but still valid and
not unconstitutional.
Administrative feasibility--- taxes should be capable of being effectively enforced; tax policy
that costs government and taxpayers more to collect that taxes generated is inherently
flawed. Violation of this principle will make the law unsound but still valid and not
unconstitutional.
Theoretical justicetaxed must be based on the taxpayers ability to pay and proportional to
the relative value of the property; it must be uniform and equitable and that State must
evolve a progressive system of taxation. It is progressive when its rate goes up depending on
the resources of peron affected. Violation of this principle will make the law unsound, invalid
and unconstitutional.
Taxes are not subject to compensationTaxes cannot be offset from government
obligations or liabilities due to the taxpayer
1. Taxes cannot be subject of compensation because government and taxpayer are
not mutual creditors and debtors of each other. A claim for taxes is not a debt,
demand, contract or judgment that is allowed to be set-off.
2. Tax and debt
Tax
Due to government in its sovereign capacity
Determination of persons, property or exercises to be taxed, amount to be raised, rate to

be imposed and the manner of implementation; this is exercised by the Legislature.
3
Manner of enforcing the obligation of taxes already levied upon the taxpayer; act of
administration and implementation by Executive Department.
4
Compliance and/or resistance by the taxpayer; through Executive or Legislature (through
suffrage or initiative/referendum) and ultimately through Judiciary.
Imposts levied by the Government for its

support or some special purpose, which the
government has recognized.
Debt
Due to the government in its corporate
capacity
Sum of money due upon contract, express or
implied or one which is evidenced by
judgment
However, tax in a broad sense may be a debt, so that interest on estate and inheritance may
be deducted as interest on indebtedness:
a. Tax and debt
Tax
Debt
Does not proceed from contract
Generally the result of the contract
Obligations created by law and Obligation created by a contract
governed by special laws and
falsification and non-payment of
such taxes impose criminal
liabilities
May be off-set
May arise out of acts of private
May not be off-set
individuals
Can only be imposed by public
authority
Can be assigned
May be paid in money, property or
Cannot be assigned
service
Generally payable in money
Draw interest if stipulated or there
Do not draw interest unless is default
delinquent
b.
ART 1200. When all requisites mentioned in ART 1279 are present, compensation
takes effect by operation of law and extinguished both debts to the concurrent
amount, even though the creditors and debtors are not aware of the
compensation.
Compensation may be applied if these circumstances are present:
1. Both the claim of the Government for inheritance tax and claim for estate for
services rendered have already become due, demandable and fully liquidated.
2. An amount for the claim of the estate had already been appropriated by the
Government by virtue of law.
CIR vs. Esso Standard
6
HELD: On the ground of solution indebiti , SC allowed compensation. Obligation to

return money mistakenly paid arises from the moment that payment is made, and not
from the time the payee admits the obligation to reimburse. Since the money belonging
to ESSO was already in the hands of the government, although the latter ha no right
whatever to the amount and indeed was bound to return it, it was neither legally nor
logically possible for ESSO to be considered a debtor of the Government; and whatever
other obligation ESSO might subsequently incur in favor of the Government should have
to be reduced in that sum, in respect of which no interest could be charged.
Rule on non-imprisonment for non-payment of debts is not applicable.

Except for community taxes/poll taxes (cedula), fraudulent non-payment
of other taxes (like real estate) would be subject to imprisonment.
Falsification of community tax is subject to criminal liability.
c.
There can be no off-setting; collection of tax cannot avail the results of a

lawsuit against the government.
d.
Compensation had been the practice in the past can set no valid
precedent. Such practice has no legal basis.
EXCEPTION: Domingo vs. Garlitos

HELD: SC allowed legal compensation of tax and debt when the claim of the estate
against the Government has been recognized and amount has already been
appropriate for the purpose of a corresponding law. Both the claim of the
Government for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well as fully liquidated.
Compensation takes place by operation of law and both debts are extinguished to
the concurrent amount, this:
Republic vs. Ericta and Sampaguita Pictures

HELD: SC upheld the dismissal of complaint to pay the amount for alleged unpaid taxes
and counter claim representing the face value of negotiable certificates of indebtedness.
DOCTRINE OF EQUITABLE RECOUPMENT: grants a right to a creditor to recover debt; debt

diminishes to the extent s/he holds the debtors property in violation of the debtors legal
rights. It is the legal principle that a creditor loses right to recover a debt if the creditor
5
ART 1279. In order that compensation may be proper, it is necessary:

1. That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
6
Payment to one of what is not due to him.
illegally possess some of the debtors property. ( Doctrine does not apply in the
Philippines.)
Applied in taxation
1. It allows a taxpayer to set off previously overpaid taxes due, even though the
taxpayer is time-bared from claiming refund on previous taxes. It applies only if the
Statute of Limitation has created an inequitable result. It is a defensive remedy
against mitigation of damages.
2.
3.
engaging in a certain
business
or
profession is not poll
tax.
It is applicable in cases to a taxpayer who erroneously paid a tax and is later

properly assessed a tax arising from the same taxable event. It allows the taxpayer
to offset the tax properly assessed by the tax erroneously paid, even if the Statute
of Limitations would otherwise prevent the taxpayer from recovering the earlier
overpayment through a claim for refund.
It can occur only when the untimely refund claim to be set off against the timely
assessment occurs within the same transaction or tax year. Doctrine can only be
used as a defense to an assessment made during the same transaction or tax
period.
amount owned by him

during the way.
It is assessed at stated
period
determined
in
advance,
collected
at
appointed times, enforced
by sale of property and by
imprisonment of person
assessed.
It is a tax in rem and
judgments in proceedings is
one in rem.
2.
Purpose
General, fiscal or revenue

Designed to raise revenue for the general or
ordinary purposes.
Classification of taxes
1. Subject matter
Personal, capitation
or poll
Taxes of a fixed
amount upon all
persons or upon all
persons of a certain
class, resident within
a specified territory,
without regard to
their property or
occupations in which
they
may
be
engaged.
Property
Excise or privilege
Taxes assessed on all

property or on all property
of a certain class located
within a certain territory on
a
specified
date
in
proportion to its value, or
in accordance with some
other reasonable method
of
apportionment.
Obligation to pay is
absolute and involuntary.
Charge
imposed
upon performance
of
an
act,
enjoyment of a
privilege
or
engaging in an
occupation.
Taxes of a specified
amount upon each
person performing a
certain
act
or
It is measured by amount
of property owned by the
taxpayer on a given day,
and not on the total
However, these do
not
pertain
to
performance of an
activity, at least not
to
extent
of
equating
excise
with business.taxes.
Customs
duties
Charged upon
commodities
being
imported
or
exported.
Special or regulatory
Achieve social or economic goals irrespective
of whether revenue is actually raised or not.
Special tax is imposed for special public
purpose. Money raised shall be spent only for
such purpose and if such purpose has been
fulfilled, remaining amount shall be placed in
general funds of the government to be spent
for any general purpose.
3.
Who bears the burden
Direct
Imposed and absorbed by same person.
Personal tax
Those of a fixed
amount upon all
persons
of
a
certain class within
jurisdiction of the
taxing
power
without regard to
the amount of their
Direct tax
Both the incidence
of or liability for
the payment of tax
as well as impact or
burden of tax falls
on same person
and cannot be
shifted.
Indirect
Tax paid by a person other than one whom
it is imposed.
Taxes wherein liability for payment of tax
falls on one person to another.
Illustration
1. VAT is payable by any person, in
the course of trade and business.
It is applied to each stage of
production. Burden of paying the
amount may be shifted on to the
property.
Ex. Franchise tax: a
percentage
tax
imposed
on
franchise holders is
a direct liability of
the
franchise
grantee.
Those that are exacted from the very person
ho, it is intended or desired, should pay
them; they are impositions for which a
taxpayer is directly liable on the transaction
or business he is engaged in.
Ex. Income taxtaxes an individuals ability
to pay based on his income or net wealth.
2.
3.
buyer, transferee or lessee of

goods, properties or services.
Contractors taxpayable by
contractor but it is the owner of
the building that shoulders the
burden.
Excise taxliability for payment
may fall from a person other than
the one who actually bears the
burden.
Those that are demanded, from or are paid

by, one person in the expectation and
intention that he can shift the burden to
someone else.
Ex. VATsubstantial portion of consumer

expenditures.
value of the subject being

taxed.
5.
National
Imposed by Congress
6.
Rate or graduation
Proportional
Fixed rate regardless of tax
base.
Progressive or graduated
Tax rate and tax base are
directly proportional.
Regressive
Tax rate and tax base are
inversely proportional.
Implies that tax rate

progresses as affluence
(income) increases.
Implies that tax rate regresses

as affluence increases.
PROGRESSIVE TAXES: tax
imposed whereby the rate or
amount of tax increases.
REGRESSIVE TAXES: tax rate
decreases as the amount of
income increases.
PROPORTIONATE
TAXES:
based on a fixed portion of the
Local/municipal
imposed by local legislative bodies
Scope
General
Imposed throughout the state or civil
division for raising revenue for general
purposes on the ground of general public
interests.
7.
4.
Taxing authority
Specific
Levied for a special purpose for the benefit
of a part of a body politic resting upon the
supposition that a portion of the public is
specially benefited in the increase of the
value of property.
Basis of amount
Specific
Fixed amount by head or number or by some
standard of weight or measurement.
Specific
Imposes a specific
sum by the head or
number or by some
standard of weight or
measurement
and
which requires no
assessment beyond a
listing
and
classification of the
subject to be taxed.
8.
Excise
Privilege tax laid upon
the manufacture, sale
or consumption of
commodities within
the country .
Ad valorem (value)
Fixed proportion of value of property
with respect to which taxes are
assessed and require the intervention
of assessors or appraisers to estimate
the value of such property.
Others
Consumption
Imposed on consumable
commodities and services.
Sumptuary
Government levy on goods
considered
socially
undesirable, most commonly
alcohol and tobacco.
Most are flat rate taxes.

Sales, excise and VAT are
different forms.
Flat
Charged no matter how
much value. It does not
change.
limitations
oppressive.
SALES
TAX:
indirect
consumption tax applied at
the retail level. These are
calculated by multiplying the
retain price of a good or
service by the tax rate.
Other source of revenue/funds and impositions
1. License fees: paid for the right granted by some competent authority to do an act
which, without such authority, would be illegal. It implies an imposition on the right
to use or dispose of a property, purpose a business, occupation or calling or
exercise a privilege.
a. SEC 147, LGC: municipalities may impose and collect such reasonable fees
on business and occupation, and (except professional tax) on practice of
any profession or calling commensurate with cost of regulation,
inspection and licensing before any person may engage in such business
or occupation.
b. Amount of fee is considered in determining whether for revenue or as
regulation.
Exemption from tax does not carry exemption from license fee. However,
if license fee is substantially more than cost of regulation, it may be
considered as tax and therefore covered by exemption. Authority to
exact fee does not carry power to collect tax.
Tax
Emerges from power of taxation
of State.
License fee
Emerges from police power of
State.
PURPOSE: generate revenue;

regulation is incidental. It is not
tax even if revenue is incidentally
generated.
PURPOSE: regulatory to promote

public welfare.
Amount
is
not
subject
to
Amount limited to regulationcost

of permit (issuance of license and
2.
provided
not
regulation)
and
supervision
(surveillance).
EXCEPTION: when imposed to nonuseful occupations.
Normally paid when business on

operation.
Tax cannot be bargained away
except for lawful consideration.
Before commencement of business.

May be bargained away with or
without consideration.
Non-payment does not make

business illegal. However, it may
be
ground
for
criminal
prosecution, distraint and levy of
properties.
Non-payment of license fee makes

business illegal.
Special assessmentexaction on property levied in accordance with benefits

conferred upon that property.
Taxes
Levied on land, persons, property, income,
business etc.
Special assessments
Levied on land.
Not and cannot be made a personal liability.
Personal liability of taxpayer.

Based solely on benefits derived.
Based on necessity and partially on benefits
derived.
Of special application only as to particular

time and place.
Of general application.
Ordinary tax
Provide the government with revenues
needed for the financing of state affairs.
Refusal of citizen to pay may not be

sanctioned because it would government
functions.
Special assessment
Finance the improvement of particular
properties, with benefits of the improvement
accruing or inuring to the owners who pay
the assessment.
Refusal to pay may hold sanctions.
3.
Finespaid in case of violation of law.
4.
Penaltypunitive sanction for compelling timely action.
10
Tax
Enforced proportional contributes
persons and property.
from
Imposed to raise revenue.

Only government may impose.
Penalty
Punishment for violation of law or acts
deemed injurious. Thus, violation of tax may
give rise to imposition of penalty.
Imposed to regulate and rectify a conduct.
Taxation distinguished from police power and eminent domain

1. Distinctions
Taxation
For revenue.
Police power
For promotion of general
welfare.
Amount has no limit so long

as it is not confiscatory.
Government and individuals may impose.

General benefit to all
inhabitants (e.g. protection).
5.
Tollpayment or fee exacted by the authorities for some right or privilege (e.g.
passage along a road or over a bridge).
Taxes
Demand of sovereignty for purpose of
raising public revenue.
Toll
Compensation for the use by one of
anothers property.
Amount is determined by State.
Amount based on cost of property or of

improvement being used.
Imposed by State.
May be imposed by either government or a

private individual or entity.
No special or direct benefit is

received by the taxpayer,
merely general benefit of
protection except in special
instances.
Tariff/customs dutyimpost upon goods transported from one political

jurisdiction to another.
7.
Subsidygrant of money in aid of a private enterprise deemed to promote the

public welfare.
8.
Compromise penaltyamount imposed in case of a compromise involving

violations of tax laws.
9.
Revenuemoney which comes to a person or entity from an source or sources

which includes money which comes to a government from taxes.
Intangible altruistic feeling

of having done something
good.
Amount depends on the

value of property needed.
There is just compensation.
Direct benefit results in the

form of just compensation to
the property owner.
Healthy economic standard

of society is attained.
Contracts may be impaired.
Contracts may not

impaired
unless
taxpayers
gave
consideration or in case
government franchise.
be
the
no
of a
Money is taken.
6.
Should only cover the cost

of regulation (e.g. issuance
of license or surveillance).
Eminent domain
For public purpose.
Interferes only with property

rights although violation of
tax laws may result to
imprisonment.
Contracts may be impaired.

Property other than money
and choses in action.
Any property, including
money, which is the source,
implements or proceeds of
the danger to health, safety
or morals.
Interferes only with property

rights although violation of
tax laws may result to
imprisonment.
Regulates both liberty and

property.
2.
Taxation may be enhanced through the exercise of police power

Illustration. If under police power, local government can classify lands as residential
and commercial, then, since conversion of industrial land is usually assessed on
higher assessment level, tax collections are increased.
3.
Taxation may be used as an implement of the police power and eminent domain
11
Power to destroy may be included if tax is used validly as an implement of police

power.
b.
c.
Judicial review
1. Courts cannot review the wisdom of or advisability or expediency of a tax
SC is only allowed to settle actual controversies involving rights which are legally
demandable and enforceable and may not annul an act of the political
departments simply because the Court feels it is unwise or impractical.
2.
Requirements of questioning constitutionality

a. There must be actual controversy falling for exercise of judicial review;
b. Question before Court must be ripe for adjudication;
7
c. Locus standi of a private citizen questioning the act;
d. Question of constitutionality must be raised at the earlier opportunity;
and
e. Issue of constitutionality must be the lis mota of the case.
A private person is allowed to raise constitutional questions only if he can show that he has
personally suffered some actual or threatened injury as a result of the allegedly illegal
conduct of the government, injury is fairly traceable to the challenged action and injury is
likely to be redressed by a favorable action.
Party must show not only that law or act is invalid butalso that he has imminent danger of
sustaining some direct injury as a result of its enforcement and not merely that he suffers in
some indefinite way.
3.
Moot and academic case

GR: Courts decline jurisdiction on the ground of mootness
EXCEPTION: Not moot and academic if:
a. There is a grave violation of the Constitution;
Partys personal and substantial interest in a case such that he has sustained or will sustain
direct injury as a result of the governmental act being challenged; Right of appearance in a
court of justice on a given question; in private suits, standing is governed by real parties in
interest (SEC 2, RULE 3);
REAL PARTY: party who stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit.
INTEREST: material interest in an issue affected by the decree.
MERE INTEREST: mere interest in the question involved or mere incidental interest.
d.
Exceptional character of the situation and the paramount public interest

is involved;
When constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar and the public; and
Case is capable of repetition yet evading review.
4.
Judicial proceedings not required

Collection of taxes levied should be summary and interfered with as little as
possible. However, taxpayers and State are not prohibited from seeking remedies
from courts.
5.
Quantum of evidence: preponderance of evidence

PREPONDERANCE OF EVIDENCE: weight, credit and value of the aggregate on
either side; testimony adduced by one side is more credible and conclusive than
that of the other.
6.
No estoppel against the government

Government is not estopped by mistakes or errors of its agents.
Erroneous application of the law by public officers do not bar the subsequent
correct application of statutes. Principle of Estoppel does not apply when State acts
to rectify mistakes, errors, irregularities or illegal acts of its officials and agents.
Rule holds true even if rectification prejudices parties who had meanwhile received
benefits. This is particularly true in collection of legitimate taxes due where
collection has to be made whether or not there is error, complicity or plain neglect
on part of collecting agents.
However, this rule may be relaxed in the interest of justice and fair play, as where
injustice will result to the taxpayer.
Taxpayers suit
Citizen and taxpayer suits
Plaintiff in a taxpayers suit
Plaintiff is affected by the expenditure of
public funds.
Right a citizen and a taxpayer to maintain an
action in courts to restrain the unlawful use
of public funds to his injury cannot be denied
Plaintiff in citizens suit

He is but the mere instrument of public
concern.
In a matter of mere public right, people are
real parties. It is the right, if not the duty, of
every citizen to interfere and see that public
offense be properly pursued and punished
and that public grievance be remedied
12
DIRECT INJURY TEST: for a private individual to invoke judicial power in determining the
validity of an executive or legislative action, he must have sustained direct injury and it is not
sufficient that he has general interest common to all members in public.
Brushing aside technicalities

Requirement of locus standi may be waived in the exercise of court discretion, where
transcendental importance prompted the Court to act liberally.
Requirements
1. Cases involve constitutional issues;
2. For taxpayers, there must be a claim of illegal disbursement of public funds or that
tax measure is unconstitutional;
3. For voters, there must be a showing of obvious interest in the validity of election
law in question;
4. For concerned citizens, there must be a showing that issues raised are for
transcendental importance which must be settled early; and
5. For legislators, there must be a claim that official action complained of infringes
upon their prerogatives as legislators.
Taxpayer need not be a party to the contract to challenge its validity. As long as taxes are
involved, people have the right to question contracts entered into by the government.
Transcendental importance
Determinants
1. Character of funds or other assets involved in the case;
2. Presence of a clear case of disregard of a constitutional or statutory prohibition by
the public respondent agency or instrumentality of the government; and
3. Lack of any other party with a more direct and specific interest in raising the
questions being raised.
It is not proper to implead the President as respondent

GR: The President, during his actual incumbency, may not be sued in any civil or criminal
case.
EXCEPTION: He remains accountable to the people but he may be removed from office only
by impeachment.
Decision to entertain a taxpayers suit is discretionary upon court.
Questioning the validity and constitutionality of statutes by a taxpayer

GR: Locus standi must be present
EXCEPTION: Misapplication of funds
GR: Not only persons individually affected, taxpayers must have sufficient interest in
preventing the illegal expenditure of moneys raised by taxation and they may, therefore,
question the constitutionality of statutes requiring expenditure of public moneys.
To justify the suit, it is necessary that public funds should be involved.
Requisites of taxpayers suit
1. Tax money is being extracted and spent in violation of specific Constitutional
protections against abuses of legislative power;
2. Public money is being deflected to any improper purpose; and
3. Petitioner seeks to restrain respondents from wasting public funds through
enforcement of an invalid or unconstitutional law.
Expenditure of public funds by an officer of the State for the purpose of executing an
unconstitutional act constitutes a misapplication of such funds.
13
CHAPTER 2
INHERENT LIMITATIONS ON THE POWER OF TAXATION
A. THE POWER TO TAX HAS LIMITS
The power to tax is an inherent power but such power must still be exercised in
accordance with the inherent and constitutional limitations
If there exists conflicting interest between the taxing authorities and taxpayers, it
must be resolved in favor of the real purpose of taxation, which is, promotion of
common good.
Test to determine existence of Public Purpose

o Duty test if it is the duty of the government to provide such thing
o Promotion of General Welfare Test if proceeds will directly promote
the publics welfare
Purposes of levying tax:

o regulatory purpose
o raise government revenue
o support government existence
o rehabilitate/stablize a threatened industry, which is affected with public
interest
If purpose of the tax is not stated, it is presumed that it is created for a public
purpose
Examples (presumption of public purpose)
o Pensions of war veterans assurance that a persons patriotism will be
acknowledged and rewarded
o Unemployment relief
o Support for the handicapped
o Care for the aged
o Scholarships for poor but deserving citizens
o Tax on sugar
o Oil Price Stabilization Fund oil industry is imbued with public interest,
and a dramatic increase in oil prices will result to economic crisis
Violation of any or all of the above is

a. equal to taking without due process
b. infringement of the general principles of intl law which form part of the
law of the land
C. LEVIED FOR A PUBLIC PURPOSE
Amount raised must

o Inure to the benefit of the public
o Used for
Support of the state
Some recognized object of the Government
Public service
public purpose includes indirect public advantage

o if an individual directly enjoys the tax, it is still valid as long as there is a
link to public purpose
2 Kinds of Limitations:
o Constitutional Limitation those provided for in the Constitution
o Inherent Limitations restrictions to the power to tax attached to its
nature
B. THE INHERENT LIMITATIONS (Le-N-T-Ex-Ice)

1. (Le) Levied for a public purpose
2. (N) Non-delegability of the taxing power
3. (T) Territoriality or situs of taxation
4. (Ex) Tax exemptions of the Government
5. (Ice) International Comity
You cannot use public funds to promote an individuals interest, even if it may
incidentally result to the benefit of the public
Rationale: tax can be levied against one class of individuals in favor of another
class; you can ruin one class while favoring the other
If it is for a private purpose, it is robbery because government takes property of
another and then gives it in favor of another person.
The public purpose must exist at the time the law was enacted.
o Government may only use public funds for a public purpose
o The existence of public purpose determines its validity, not the incidental
benefit to the public
D. NON DELEGABILITY OF TAXING POWER
Source of Power People

Delegation Transferred from the people to Congress
Basis: delegata potestas non potest delegari.
Theories that justify the delegation:
14
Power to fill up the details- subjects of less interest in which general

provision may be made, thus those who are to act under such general
provision, has the power to fill up the details.
Power of Contingent Legislation- what is delegated is the task of
ascertaining the facts that bring its declared policy into operation.
Delegable Powers: (Ta-Em-Trea-LIA)

a. (Ta) Tariff Powers-reason for its delegation is necessity.
b. (Em) Emergency Power- President can exercise this power in times of war or
other national emergency, as authorized by Congress through law. (Sec23(2)
ArtVI, 1987 Constitution)
c. (Trea) Treaty and Executive Agreement Powers-Power of President to enter in
to executive agreements, and to ratify treaties. (Sec21, ArtVII, 1987
Constitution)
d. (L) Local taxing power- Theory of non-delegation of legislative power does not
apply in local units. Reason- LGU not sovereign entities.
e. (I) Initiative and Referendumo Initiative- power of the people to propose and enact legislation
without action by the legislature.
o Referendum- power of the people to approve or reject any act of
the legislature, and also to approve or reject legislation that the
legislature has referred to them.
f. (A) Administrative Matters:
o Valid as regards:
i.
Valuation of property pursuant to fixed rules
ii. Equalization of assessments by a central body
iii. Collection of taxes
Test to determine permissible delegation:
a. Completeness test- The law must be complete in itself, setting forth therein
the policy to be executed, carried out, or implemented by the delegate
b. Sufficiency standard test -The law must fix a standard. The limits of which are
sufficiently determinate and determinable to which the delegate must
conform in the performance of his functions.
Non-Delegable Powers:
a. Selection of property or transaction to be taxed
b. Determination of purposes
c.
d.
Rate of taxation
Rules of taxation
Prohibition on Executive Legislation and Judicial Legislation

o Based on separation of powers of state.
o Law-making power-legislative branch
o Law-executing power- executive branch
o Law-interpreting power- judicial branch
E. TERRITORIALITY OR SITUS OF TAXATION
General rule: A state may not tax property lying outside its borders or lay an excise
or privilege tax upon the exercise or enjoyment of a right or privilege derived from
the laws of another state and therein exercised or enjoyed.
Taxation is an act of sovereignty which could only be exercised within states
territorial boundaries.
Taxes are paid for the protection and services provided by the taxing authority
which could not be provided outside the territorial limits of the taxing power.
Situs of taxation: situs is latin term which means situation, location or place.
Determination of situs: (S-NCR-L)
o (S) Subject matter of the tax- Situs may depend on what is being taxed:
excise/privilege, business, occupation, person, act or activity.
o (N) Nature/kind/ classification of the tax- situs may depend on what tax is
being levied: income tax, import duty, sales tax or real property tax.
o (C) Citizenship of the tax payer- situs may depend on which state the taxpayer
is a citizen of, or probably an alien, dual citizen, stateless or refugee.
o (R) Residenxe of the taxpayer- situs may depend on the residence of the
taxpayer: resident, non- resident.
o (L) Location of the property- situs may depend on the palce the thing or
property is located: within the Philippines or outside the Philippines.
F. GOVERNMENT EXEMPTION
It is a matter of public policy.

o Property belonging to the State or any of its political division intended for
government use and purposes is generally exempt from taxation.
o express provision of law needed to satisfy the rule.
15
Always remember that Exemption is the rule and taxation is the exception.
Reasons for exemption (A-Nore-So-Re)

o (A) Avoid transferring money from one pocket to another.
o (Nore) No revenue.
o (So) So as not to unduly impede govt functions.
o (Re) Reduce amount of money to be handled.
Exception to the (General Rule) Exemption

o The rule on the exemption of government is not absolute.
o The government may tax itself. Clearly, exemption applies only to
government entities which immediately and directly exercise its
government powers.
o GOCCs, agencies, or instrumentalities are subject to taxation under the
NIRC and LGC. However, only income from proprietary activities and not
from essential governmental functions are taxable.
Definition of Terms
o RP (Republic of the Philippines) corporate government entity through
which the functions of government are exercised throughout the
Philippines.
o NG (National Government) entire machinery of the central government
as distinguished from different forms of local government
o GOCC (Government-Owned and Controlled Corporations) any agency
organized as a stock or non-stock corporation
o GA (Government Agency) any of the various units of the government
including a department, bureau, office, instrumentality, or GOCC, or LGU
or a distinct unit therein.
The Philippines adopts the generally accepted principles on international

law as part of the law of the land.
The Philippines adheres to the policy of peace, equality, justice, freedom,
cooperation, and amity with all nations.
G. INTERNATIONAL COMITY
DSE (Doctrine of Sovereign Equality)

o In par parem non habet imperium or as between equals there is no
sovereign
o Foreign sovereign does not subject itself to another.
DSI (Doctrine of Sovereign Immunity)

o The State cannot be sued without its consent.
o The State can do no wrong.
o Based on practicality because of the difficulty of enforcing tax laws.
IC (Incorporation Clause)
16
12. Voting requirement in connection with the legislative grant of tax exemption
13. Non impairment of the jurisdiction of the Supreme court in tax cases;
14. Exemption from taxes of the revenues and assets of educational institutions,
including grants, endowments, donations and contributions
CHAPTER 3
CONSTITUTIONAL LIMITATIONS
DUE PROCESS
8
The power to tax involves the power to destroy. These were the famous words
penned by the great Chief Justice Marshall in 1819. As discussed in the preceding chapters,
the power to tax is the strongest of all the inherent powers of the State. As being unlimited in
its range, the 1987 Constitution has vested this power to the people who pay it, through their
9
representatives, the Legislature. Though the taxing power is characterized as such an
10
awesome power, it is not unconfined.
In the previous chapter, we have already discussed that taxing power, although
plenary in nature, is still subject to certain limitations. Some of these limitations are not to be
found in any statute, thus the term inherent limitations. In this chapter, we are now to
discuss the second type of limitations of the taxing power of the State The Constitutional
Limitations on Taxation. The 1987 Philippine Constitution provides the following limitations:
1.
2.
3.
4.
5.
6.
7.
Due process;
Equal protection;
Freedom of speech and of the press;
Non infringement of religious freedom and worship;
Non impairment of contracts;
Non imprisonment for dent or non payment of poll tax;
Appropriations, revenue, and tariff b ills shall originate exclusively originate
from the house of representatives;
8. Uniformity, equitability, and progressivity of taxation;
9. Power of Congress to delegate to the President the authority to fix tariff rates,
import and export quotas, etc.;
10. Veto power of the President;
11. Tax exemption of properties actually, directly, and exclusively used for
religious, charitable, and educational purposes;
No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III,
1987 Phil. Constitution)
In order that a tax statute may be validly imposed on the people, it must be lawful.
In other words, a tax law passed by the Congress of the Philippines must first be
constitutional. Under Section one (1) of the Bill of Rights (Art. III, 1987 Philippine
Constitution), the tax law must undergo due process for it amounts to an individuals
property (though minimal) being deprived from him. The due process clause is a
constitutional safeguard of the people from the government, which is the taxing authority. If
so proved that the tax law is violative of this constitutionally protected right, under the
principle of ubi jus ibi remedium, it shall be struck down. As in the words of Justice Bradley,
In judging what is due process of law, respect must be had to the cause and object of the
taking, whether under the taxing power, the power of eminent domain, or the power of the
assessment fir local improvements, or some of these; and, if found to be suitable or
admissible in the special case, it will be adjudged to be due process of law, but if found
11
arbitrary, oppressive, and unjust, it may be declared to be not due process of law.
ASPECTS OF DUE PROCESS

There are two aspects under the due process clause substantive and procedural.
Substantive Due Process is the aspect which prohibits the State from encroaching on the
fundamental liberties provided for by the constitution. Simply put, in order that a tax statute
be constitutional, it must be reasonable, fair and just, and not be harsh nor oppressive. In the
event that taxes collected, or to be collected, are confiscatory in nature, such obligation
enforced upon the tax payer is violative of the due process principle, and is therefore
12
unconstitutional.
McCulloch v. Maryland, 17 U.S. 4 Wheat. 316 316 (1819).

MCIAA v. Marcos, 330 Phil. 392, 404 (1996).
10
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In
Taxation Law Compendium (2013 ed., Vol. 1). Rex Book Store.
9
1111
12
Davidson v. New Orleans, 96 US 97 (1878).

Reyes, et al. v. Almanzor, et al., G.R. Nos. 49839 46, 26 APR 1991.
17
Procedural due process, on the other hand refers to the procedural limitations
13
placed on the manner in which a law is administered, applied or enforced. It is but
elementary in democratic forms of government that laws, especially those which impose a
tax obligation on its citizenry, be exercised in accordance with the prescribed procedure. This
is mandatory. To do otherwise shall give rise to a right which the taxpayer may use to ask the
Courts its succor. The tax collector may be stopped if the taxpayer can demonstrate that the
14
law has not been observed. In a case decided by the Supreme Court, it held that due
process was not observed when the trial court classified certain properties of the Roman
Catholic Church were tax exempt under the 1973 constitution where no court hearing was
15
conducted thereon.
the proper value of a taxable item or property, such act is considered as judicial in nature.
Thus, due process is satisfied by giving the opportunity to the taxpayer to be heard
17
respecting such assessment.
PROCEEDINGS IN TAX CASES

Due process in taxation does not mean nor require that a full blown judicial
proceeding be done. Generally, such cases are settled summarily and must be interfered with
18
as little as possible. As government projects are mainly fueled by the revenue generated by
taxes paid by individual taxpayers, the delay which is normally present in judicial proceedings
19
are not required in the enforcement of taxes and assessments and are frowned upon. No
20
government could exist if all litigants were permitted to delay the collection of its taxes.
RULES OF DUE PROCESS IN TAXATION

The exercise of the State of its inherent power to tax its constituency must conform
to the following rules:
a.)
b.)
c.)
d.)
It must be for a public purpose;

Operates uniformly to all who are under its purview;
Exercised only within the jurisdiction of the duly authorized taxing authority
In the assessment and collection of taxes, notice and hearing shall be provided
the taxpayer to guarantee against injustice
e.) Publication is not merely directory, but mandatory;
f.) There must be a right to appeal given to the taxpayer in cases where it is
16
proper, being a statutory, and not a natural right.
It is good to take note, that although the taxpayer is granted the right to have due
notice and hearing, such is only guaranteed when the tax to be imposed shall substantially
affect him. In other words, when the tax to be imposed by the government is not one which
could be changed by hearing the taxpayer, its absence does not violate the constitutional
safeguard. A persons right to due process is therefore not invaded. However, if such tax
would be in the nature of an ad valorem tax which utilizes the use of assessors to ascertain
13

14
Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L 28896, 17 FEB
1988.
15
Province of Abra v. Hernando, etc., et al., G.R. No. L 49336, 31 AUG 1981.
16
Bello v. Francisco, 4 SCRA 134; Rodriguez v. Director of Prisons, 47 SCRA 153.
PRESUMPTION OF VALIDITY OF TAX LAWS; RETROACTIVITY

The courts of law will not declare a statute, passed in accordance with the manner
set out by the Constitution, unconstitutional for being in violation of the due process clause
21
on mere allegations by the taxpayer. Every statute passed by the Congress enjoys the
presumption of validity, including tax laws. The burden of proving that the law is
unconstitutional shall be borne by the taxpayer in accordance with our rules on evidence.
Also, the mere fact that a tax statute is expressed to be retroactive in its application is not
proof in itself that the law is unconstitutional.
EQUAL PROTECTION
No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III, 1987
Phil. Constitution)
17

18
Churchill and Tait v. Rafferty, 32 Phil. 580, 585, 21 DEC 1915.
19
20
Lorenzo v. Posadas, 64 Phil. 353, 368 18 JUN 1937.
21
18
nd
The second (2 ) constitutional limitation is found under the same provision of the
1987 Constitution as the due process clause. Aptly stated, not person shall be denied of the
equal protection of laws. The equal protection clause requires that persons similarly situated
22
should be treated alike, both as to rights conferred and responsibilities imposed. It does
not, however, require equal treatment of all persons, regardless of their situation. The
Constitutional safeguard merely requires that all persons who are within the ambit of the
statute shall be treated alike, under like circumstances and conditions, both with respect to
23
the privileges acquired and liabilities imposed.
DIMENSIONS OF TAX EQUITY AND FAIRNESS

Aside from the aforementioned goals, it has been recommended that the following
dimensions be considered in determining tax equity and fairness
a.)
b.)
c.)
The power of the State to classify, in relation to taxation, property and persons to
be taxed, the rates of such taxes, as well as the methods of assessment, valuation, and
24
collection is unquestioned, but is not absolute. Such classification must be based upon real
and substantial differences between the persons, property or privileges, and those not taxed
must bear some reasonable relation to the object or purpose of legislation or to some
25
permissible governmental policy or legitimate end of governmental action. Thus, the
equality of taxation rule is not violated if classifications or distinctions made are based on
26
substantial and reasonable differences.
GOALS IN DISTRIBUTION
Two different goals in distribution arise when fairness or equality are looked at,
vertical and horizontal. The latter refers to the fair treatment of tax payers with the like
ability to pay. It prohibits the discrimination on the grounds such as race, gender, occupation,
27
28
etc. Stated differently, those similarly situated shall be similarly taxed. Meanwhile, the
former refers to the relative tax burden of tax paying units with different abilities to pay.
29
Vertical equity seeks to tax in a proportional or progressive way.
22
Ichong v. Hernandez, 101 Phil. 1155.

Sison, jr. v. Ancheta, G.R. No. 59431, 25 JUL 1984.
24
Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book
Store.
25
See Thomas P. Matic, Jr., Taxation in the Philippines (Vol. I, pp. 79 80).
26
Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book
Store.
27
28
See AICPA Guiding Principles for Tax Equity and Fairness (2007), p. 3.
29
d.)
e.)
Exchange Equity and Fairness Taxpayers must, over the long run, receive the
appropriate value for the taxes they pay;
Process Equity and Fairness Taxpayers have a voice within the tax system,
are given due process and are treated with respect by the tax administrators;
Time Related Equity and Fairness Taxes are not unduly distorted when
income or wealth levels fluctuate over time;
Inter Group Equity and Fairness No group of taxpayers is favored to the
detriment of another without good cause; and,
Compliance Equity and Fairness All tax payers pay what they owe on a timely
30
basis.
REQUIREMENTS OF VALID CLASSIFICATION OR DISTINCTION

As stated earlier, the State may validly classify or discriminate among its subjects so
long as such is based on a rational basis. The equal protection clause does not require the
universal application of the laws, that is, that it operates on all people without distinction.
31
Such an effect might in fact sometimes result in unequal protection. Thus, in order that a
classification to be a valid one, it must conform to the following:
a.)
b.)
c.)
d.)
That it must be based on substantial distinctions;

It must be germane it the purpose of the law;
It must not be limited to the preexisting conditions; and,
32
It must apply equally to all members of the class.
FREEDOM OF SPEECH AND OF THE PRESS
23
No law shall be passed abridging the freedom of speech, of expression, or of the

press,
or the right of the people peaceably to assemble and petition the government for
30
Ibid.
Cruz, I. (2000). Constitutional law (2000 ed., p. 125). Quezon City, Metro Manila,
Philippines: Central Lawbook Pub.
32
Ormoc Sugar Co. Inc. v. Treasurer of Ormoc City, et al., L 23794, 17 FEB 1968.
31
19
redress of grievances (Section 4, Article III, 1987 Constitution)
There are four (4) primary reasons why freedom of expression, which encompasses
speech, the press, assembly and petition, is essential to a free society. First, the self
expression of an individual enables him to realize his full potential as a human being. Second,
enlightened judgment is possible if one considers all the facts and ideas and tests ones own
against it. It is vital to the attainment and advancement of knowledge. Third, it is necessary
to our system of governance. Democratic Societies development and advancement is largely
dependent on how well informed its citizenry is for if it would be otherwise, the result
would be tyranny and oppression. Lastly, it serves as a safeguard system of the public,
developing a system of checks and balances against the possible corrupt practices of the
33
State.
The provision of the constitution necessarily includes the liberty of the press which
is principally, although not exclusively, immunity from prior restraint and/or subsequent
34
censorship. To discuss further, it is not the censorship of the press per se which is the evil
sought to be prevented. It refers to any action of the government by means of which it might
prevent such free and general discussion of public matters as seems absolutely essential to
35
prepare the people for an intelligent exercise of their rights as citizens.
CURTAILMENT OF FREEDOM
Briefly put, immunity is granted to the press so as to help promote and develop an
informed citizenry. They exist as a vital source of public information. It sheds more light on
the public and business affairs of the nation than any other instrumentality of publicity.
Public opinion, as the most potent of all restraints against the corrupt actions and practices
of the government, is afforded protection by nothing less than the constitution itself. A free
press stands as one of the great interpreters between the government and the people. To
treat it otherwise, as to subject it to taxes, would amount to suppression and abridgement of
publicity results to the curtailment of press freedom and freedom of speech and of
36
expression.
It has been held though that although granted immunity from certain taxes, they
can still be subject to general taxes. However, taxes that may still be validly imposed upon
them must be fair, reasonable, and just, and in accordance with the persons right to the
equal protection of laws. It must not be used as a tool to abridge the freedom of press under
the guise of valid tax, as when it is exercised by the state arbitrarily and capriciously, singling
out the press from other businesses or if such taxes are imposed only on a select few press
members. In such case, the Supreme Court has acknowledged the potential for abuse is
37
present in differential taxation of the press.
RELIGIOUS FREEDOM
No law shall be made respecting an establishment of religion or prohibiting the free

exercise thereof. The free exercise and enjoyment of religious profession and
worship without discrimination or preference shall forever be allowed. No religious
test shall be required for the free exercise of civil or political rights (Sec 5, Art. III,
1987 Philippine Constitution)
In accordance with the above stated provision, our Constitution and laws provide
an exemption from taxation properties which are devoted exclusively for religious purposes.
This grant of immunity of the fundamental law of the land and other tax laws were made to
further realize the declared principle of the State which is The Separation of the Church and
38
the State.
The Constitutional provision, like Sec. 1 of the Bill of Rights, can be further divided
in to 2 clauses: (a) the Non Establishment clause; and (b) the Free Exercise clause.
NON ESTABLISHMENT CLAUSE

The non establishment clause, in general, merely prohibits the State, or any of its
instrumentalities and political subdivisions, from setting up a church. Necessarily, it includes
prohibitions such as:
a.)
The State cannot pass a law which aid nor discriminate a religion;
33

34
Near v. Minnesota, 283 U.S. 697, 283 U.S. 707.
35
Cooleys Constitutional Limitations, 8th ed. P. 866
36
Ibid.
37
Robert M. Howie, Leathers v. Medlock: The Supreme Court Changes Course on

Taxing the Press, 49 Wash. & Lee L. Rev. 1053 (1992), citing Minneapolis Tribune
Co. v. Minnesota Commissioner of Revenue, 460 U.S. 575 (1983)
38
Sec. 6, Art II, 1987 Philippine Constitution
20
b.)
c.)
d.)
It cannot force a person, nor influence him, to join, remain, or to leave a

church or religious sect;
It cannot, openly or secretively, participate in the affairs of any religion or
church; and,
No tax in any amount, large or small, can be levied to support any religious
activities or institutions, whatever they may be called, or whatever form they
39
may adopt to teach or practice religion.
REQUISITES FOR CONSTITUTIONALITY

The wall of separation that must be maintained between church and state is a
blurred, distinct, and variable barrier depending upon the circumstances of a particular
40
41
relationship. The case of Lemon v. Kurtzman enunciated in a three part test to assess
whether a law violates the Establishment clause:
1.)
2.)
3.)
Does the law have a secular purpose?

Is the Primary effect either to advance religion or to inhibit religion?
Does the law foster an excessive governmental entanglement with religion?
If any of these questions are answered in the negative, then the law becomes
unconstitutional as it violates the Establishment Clause
exercise of religion. Albeit, like the press, religious groups may still be subject to general
taxes depending upon the circumstances.
Properties Actua PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF CONTRACTS

No law impairing the obligation of contracts shall be passed. [Section 10, Article III,
Constitution]
The power of taxation cannot be exercised in a manner that would impair the obligation of
contracts. What is prohibited is that a taxing statute be passed that would alter the relative
rights of the parties with each other.
The mere fact that a tax makes the conduct of a business more expensive or makes an
activity more difficult does not result in the impairment of the obligation of contracts.
Contract is impaired only if the relative position of the parties to a contract (i.e. equality that
is assumed when the contract was entered into) is disturbed by the operation of a taxing
statute.
The obligation of a contract is impaired when its terms or conditions are changed
FREE EXERCISE CLAUSE
by law or by a party without the consent of the other, thereby weakening the
The Free Exercise clause, on the other hand, withdraws from the legislative power,
state and federal, the extortion of any restraint on the free exercise of religion. It bars
governmental regulation of religious beliefs as such, prohibiting the misuse of secular
governmental programs to impede the observance of one or all religions even though the
42
burden may be characterized as being only indirect.
position or rights of the latter.
An example of impairment by law is when a later taxing statute revokes a tax

exemption based on a contract. But this only applies when the tax exemption has
been granted for a valid consideration.
A later statute may revoke exemption from taxation provided for in a franchise
RELIGIOUS GROUPS ARE EXEMPT TO PAY TAXES
because the Constitution provides that a franchise is subject to amendment,
Generally, religious groups, sects, and like organizations are exempt from paying
taxes like Income tax, license fees, and similar taxes as it imposes a burden on the free
alteration or repeal.
39
see Everson v. Board of Education

41
403 U.S. 602 (1970)
42
See Dizon, citing Sherbert v. Verner 374 U.S. 398, 402 (1963), Braunfeld v. Brown,
366 U.S. 599, 607 (1961)
40
RULES:
a.
When the exemption is bilaterally agreed upon between the government and the
taxpayer it cannot be withdrawn without violating the non-impairment clause.
21
b.
When it is unilaterally granted by law, and the same is withdrawn by virtue of another
law no violation.
When the exemption is granted under a franchise it may be withdrawn at any time
thus, not a violation of the non-impairment of contracts
c.
Note: A latter statute may revoke exemption from taxation provided for in a franchise
because the Constitution provides that a franchise is subject to amendment, alteration or
repeal. [Sec. 11 Art. XII]
Case Reference
OPOSA vs. FACTORAN
Police power prevails over the non-impairment clause
Tolentino v. Sec. of Finance, supra:

1 issue that was raised was whether the imposition of the VAT on sales & leases on real
estate by virtue of contract s entered into prior to the effectivity of the law would violate the
non-impairment of contracts rule in the constitution.
HELD:
LA INSULAR vs. MANCHUCA
As a rule, the obligation to pay tax is based on law. But when, for
instance, a taxpayer enters into a compromise with the BIR, the
obligation of the taxpayer becomes one based on contract.
A lawful tax on a new subject or an increased tax on an old one, does not interfere
It is enough to say that parties to a contract cannot, through the exercise of

prophetic discernment, fetter the exercise of the taxing power of the state.
For not only are existing laws read into contracts in order to fix obligations as
between parties, but the reservation of essential attributes of sovereign power is
also read into contracts as a basic postulate of the legal order.
The policy of protecting contracts against impairment presupposes the
maintenance of a government which retains adequate authority to secure the
peace & good order of society.
with a contract or impairs its obligation.
The constitutional guarantee of the non-impairment clause can only invoked in the
Revenue bills shall originate exclusively from the House of Representatives
grant of tax exemption.

Section 24, Article VI, Constitution - All appropriation, revenue or tariff bills, bills authorizing
RULES:
an increase of the public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may propose or concur with
1.
2.
3.
If the exemption was granted for valuable consideration and it is granted on the
basis of a contract.
cannot be revoked
If the exemption is granted by virtue of a contract, wherein the government enters
into a contract with a private corporation
cannot be revoked unilaterally by the government
If the basis of the tax exemption is a franchise granted by Congress and under the
franchise or the tax exemption is given to a particular holder or person
can be unilaterally revoked by the government (Congress)
The non-impairment clause applies only to contracts and not to a
franchise.
The non-impairment clause applies to taxation but not to police power
and eminent domain.
Furthermore, it applies only where one party is the government and the
other, a private individual.
amendments.
Case References
Tolentino v. Secretary of Finance
The Constitution simply means that the initiative for the filing of bills must come
from the House of Representatives, on the theory that, elected as they are from
the districts, the members of the House can be expected to be more sensitive to
the local needs and problems.
It is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives, because a bill originating in
the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole, and a distinct bill may be produced.
22
The Constitution does not also prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, as long as action by the Senate
is withheld until receipt of said bill. [Tolentino v. Secretary of Finance]
whether from business, exercise of profession or from property which in no case shall exceed
Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the
total property owned by them and the total gross receipts or earnings derived by them.
Presidential power to grant reprieves, commutations and pardons and remit fines and
forfeitures after conviction (ART. VII, SEC. 19, 1987 CONSTITUTION)
Due Process
Equal Protection
Uniformity
Taxpayer may not be Taxpayers shall be treated alike Taxable articles, or kinds of
deprived of life, liberty under like circumstances and property of the same class,
or property without conditions
both
in
the shall be taxed at the same
due process of law. privileges
conferred
and rate.
There
should
Notice
must, liabilities imposed.
therefore, be no direct
therefore, be given in
double taxation
case of failure to pay
taxes
PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX
Section 20, Article III, Constitution. No person shall be imprisoned for debt or non-payment
of poll tax.
The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a
surcharge, but not to other violations like falsification of community tax certificate and nonpayment of other taxes.
Community Tax v. Poll Tax
Poll tax is a tax of fixed amount imposed on residents within a specific territory
Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how
created or organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in
accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines
owned by it during the preceding year based on the valuation used for the payment of real
property tax under existing laws, found in the assessment rolls of the city or municipality
where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from
its business in the Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the
purpose of the additional tax, be considered as part of the gross receipts or earnings of said
corporation.
Section 159. Exemptions. - The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
regardless of citizenship, business or profession. Example is community tax.
Community tax Cities or municipalities may levy a community tax in accordance

with the provisions of this article. 156 RA 7160.
Section 157. Individuals Liable to Community Tax. - (18) or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive working days, or who
is engaged in business or occupation, or who owns real property with an aggregate assessed
value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income
tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional
tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of
Section 160. Place of Payment. - The community tax shall be paid in the place of residence of
the individual, or in the place where the principal office of the juridical entity is located.
164 (c) The proceeds of the community tax actually and directly collected by the city or
municipal treasurer shall accrue entirely to the general fund of the city or municipality
concerned. However, proceeds of the community tax collected through the barangay
treasurers shall be apportioned as follows:
(1) (50%) shall accrue to the general fund of the city or municipality concerned; and
23
(2) (50%) shall accrue to the barangay where the tax is collected.
Tolentino v. Sec. of Finance, supra,
Equity and uniformity in taxation means that all the taxable articles or kinds of
properties of the same class be taxed at the same rate. The taxing power has the
UNIFORMITY AND EQUITY IN TAXATION

same class, same rate
classification of taxpayers, subject or items to be taxed
authority to make reasonable and natural classifications for purposes of taxation.

To satisfy this requirement, it is enough that the statute or ordinance applies
equally to all persons, firms, and corporations placed in a similar situation.
The rule of taxation shall be uniform and equitable (Sec.28 (1), Art. III, 1987
Constitution).
The tax is uniform when it operates with the same force and effect in every
place where the subject of it is found. "Uniformity" means all property
belonging to the same class shall be taxed alike. It does not signify an intrinsic,
but simply a geographic, uniformity (Churchill & Tait vs. Conception, 34 Phil.
969). Uniformity does not require the same treatment; it simply requires
reasonable basis for classification.
The concept of equality in taxation requires that the apportionment of the tax
burden be more or less just in the light of the taxpayers ability to shoulder the
tax burden and if warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayers ability to pay.
taxation & it has been repeatedly held that the inequalities which result from a
singling out of 1 particular class for taxation or exception infringe no constitutional
limitation.
Manila Race Horse v. Dela Fuente No arbitrary classification
it was said there is equality and uniformity in taxation if all articles or kinds of
property of the same class are taxed at the same rate.
The owners of boarding stables for race horses and, for that matter, the race horse
owners themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other kinds of
horses are taxed less or not at all, considering that equity in taxation is generally
conceived in terms of ability to pay in relation to the benefits received by the
taxpayer and by the public from the business or property taxed.
Taking everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution.
Equity in taxation is generally conceived in terms of liability to pay in relation to the
benefits received by the taxpayer and by the public from the business or property
taxed.
Uniformity v. equity in taxation
The concept of uniformity in taxation implies that all taxable articles or properties
of the same class shall be taxed at the same rate. It requires the uniform
application and operation, without discrimination, of the tax in every place where
It is inherent in the power to tax that the state be free to select the subjects of
the subject of the tax is found. It does not, however, require absolute identity or
equality under all circumstances, but subject to reasonable classification.
Eastern Theatrical Co. Inc., vs. Alfonso

The concept of equity in taxation requires that the apportionment of the tax burden be,
more or less, just in the light of the taxpayers ability to shoulder the tax burden
and, if warranted, on the basis of the benefits received from the government. Its
cornerstone is the taxpayers ability to pay.
there is equality and uniformity in taxation if all articles or kinds of property of the
same class are taxed at the same rate. Thus, it was held in that case, that "the fact
that some places of amusement are not taxed while others, such cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other
kinds of amusements or places of amusement are taxed, is not argument at all
against the equality and uniformity of tax imposition."
Case References
24
The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation.
Uniformity all taxable articles or kinds of property of the same class are taxed at the
same rate.
PEPSI-COLA
BOTTLING
CO.
OF
THE
PHILS.,
INC.
vs.
CITY
OF
BUTUAN
FACTS: The ordinance imposes taxes for every case of soft drinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the agents and/or
consignees by outside dealers or any person or company having its actual business outside
the City.
Equitability the burden falls to those who are more capable to pay.
Progressivity rate increases as the tax base increases.
ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?
HELD: Yes. The tax levied is discriminatory.
Even if the burden in question were regarded as a tax on the sale of said beverages,
it would still be invalid, as discriminatory, and hence, violative of the uniformity
required by the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers,
not acting for or on behalf of other merchants, regardless of the volume of their
sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would be exempt
from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the
authority to classify the objects of taxation.
The classification made in the exercise of this authority, to be valid, must, however,
be reasonable and this requirement is not deemed satisfied unless:
o
(1) it is based upon substantial distinctions which make real differences;
(2) these are germane to the purpose of the legislation or ordinance;
(3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and
(4) the classification applies equally to all those who belong to the same
class.
Summary and Q&A

Uniformity, Equitability And Progressivity Of Taxation (Art. VI, Sec. 28(1), 1987 Constitution)
Q: Is a tax law adopting a regressive system of taxation valid?

A: Yes. The Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. The Constitutional provision means simply that indirect taxes
shall be minimized. The mandate to Congress is not to prescribe, but to evolve, a progressive
tax system. (EVAT En Banc Resolution, Tolentino, et al vs Secretary of Finance, October 30,
1995)
lly, Directly and Exclusively Used for Religious, Charitable and Educational Purposes
Article VI. Section 28 (3) of the Constitution provides:
Charitable institutions, churches and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or educational purposes
shall be exempt from taxation.
a.) Actually, Directly and Exclusively
The phrase is construed as the direct and immediate and actual
application of the property itself to the purposes for which the charitable
institution is organized. It is not the use of the income from the real property that
is determinative of whether the property is used for tax-exempt purposes.
25
The test of exemption is the ACTUAL and EXCLUSIVE use of the property.
Exclusive is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and exclusively is defined, "in a manner to
exclude; as enjoying a privilege exclusively. Thus, if real property is used for one or
more commercial purposes, it is not exclusively used for the exempted purposes
but is subject to taxation. Quoting the Supreme Court in Abra Valley College case,
the lease of a portion of school to a commercial establishment is subject to tax.
b.) The Extension Rule
Prior to the 1973 and 1987 Constitution, the term exclusively used
considers incidental use also and that the exemption in favor of property used
exclusively for charitable or educational purposes is not limited to property actually
indispensable therefor, but also extends to facilities which are incidental to and
reasonably necessary for the accomplishment of such purposes. Case in point:
Roman Catholic Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte
NOTE: The income of whatever kind and nature from any of their properties, real or personal
or from any of their activities for profit regardless of the disposition made of such income
shall be subject to tax.
Thus, being a non-stock and non-profit corporation does not by itself completely
exempt an institution from tax. An institution cannot use its corporate form to prevent its
profitable activities from being taxed.
In cases of gifts or donations:
Donations in favor of religious and charitable institutions are generally not subject
to tax provided, however, that not more than 30% of the said bequest, devise, or legacy or
transfer shall be used for administration purposes.
d.) Non-Violation of the Establishment Clause
Walz vs Tax Commission of City of New York
The exemption in favor of the convent in the payment of the land tax,
include not only the land actually occupied by the church, but also the adjacent ground
(which is being used for a vegetable garden) destined to the ordinary incidental uses of
man, comes under the exemption. Moreover, in regard to the lot which formerly was the
cemetery, while it is no longer used as such, neither is it used for commercial purposes and,
is now being used as a lodging house by the people who participate in religious festivities,
which constitutes an incidental use in religious functions, also comes within the exemption.
The grant of tax exemption is not sponsorship of the organizations because the
government does not transfer part of its revenue to churches but simply abstains from
demanding that the churches support the State. Instead, the tax exemption creates a more
minimal and remote involvement between church and state, far less than taxation of
churches would entail, and it restricts the fiscal relationship between them, thus tending to
complement and reinforce the desired separation insulating each from the other.
NOTE: The prevailing rule now is that the term exclusively does not cover incidental use.
What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized.
Revenue and Assets of Educational Institutions
c.) Exemption from other taxes

1997 NIRC states that the organizations below shall not be taxed with respect to
income received by them:
Nonstock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall belong to or inures to the benefit of any
member, organizer, officer or any specific person.
Article XIV. Section 4 of the Constitution provides:

All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from taxes and
duties.
a.) Meaning and Coverage of Educational Institutions
Such term, when used in laws granting tax exemptions, refers to schools,
school seminary, college or educational establishment.
CIR vs CA, YMCA Inc.
26
The school system is synonymous with formal education, which refers to the
hierarchically structured and chronological graded learnings organized and provided by the
formal school system and for which certification is required in order for the learner to
progress through the grades or move to the higher levels.
NOTE: Incomes which are unrelated to school operations are taxable.
b.) Requirements and Coverage of the Exemption
The educational institution must prove the ff:
It is a non-stock, non-profit educational institution.
Income MUST be derived from activities and/or used actually,

directly and exclusively for educational purposes.
The exemption extends to incidental income from ancillary activities such as those
derived from canteen, bookstore, dormitory and other facilities.
CIR vs Ateneo De Manila University

A cafeteria/canteen is being leased by the school. Although it is owned
and operated by a concessionaire, the canteen is exempted from income tax and
VAT so as long as the rentals paid by concessionaire are actually, directly and
exclusively used for educational purposes.
Importation of books, films, slides and other educational materials and equipment
such as computers to be actually, directly and exclusively used for educational purposes are
LIKEWISE EXEMPT from customs duties, provided guidelines under DO 137-87 are observed.
Interest income from Philippine currency bank deposits and yield from deposit
substitute instruments used actually, directly exclusively are likewise exempt from 20% final
withholding tax subject to certain requirements.
c.) Taxability of Proprietary Educational Institutions
A Proprietary educational institution is any private school maintained and
administered by private individuals or groups with an issued permit to operate from the
Department of Education, Culture and Sports (DECS), or the Commission on Higher Education
(CHED), or the Technical Education and Skills Development Authority (TESDA), as the case
may be, in accordance with existing laws and regulations.
Proprietary educational institutions, including those cooperatively owned, may

likewise be entitled to such exemptions, subject to the limitations provided by law, including
restrictions on dividends and provisions for reinvestment. The presence of the word may
indicates only permissiveness, which means the Congress has the discretion to grant
exemptions. These institutions, at present, are not exempt from income tax but only subject
to a special lower rate.
Preferential Tax on Income and Predominance Test
Proprietary educational institutions and hospitals which are non-profit shall pay a
tax of ten percent (10%) on their taxable income. If the gross income from unrelated trade,
business or other activity exceeds fifty percent (50%) of the total gross income derived by
such educational institutions or hospitals from all sources, the thirty (30%) normal income
tax shall be imposed on the entire taxable income. The term 'unrelated trade, business or
other activity' means any trade, business or other activity, the conduct of which is not
substantially related to the exercise or performance by such educational institution or
hospital of its primary purpose or function.
Illustration:
X Educational Institution earned a net income of 300 million pesos, 150 million of
which came from unrelated activities. On that note, 10% tax shall be imposed on the 300
million. But, if 151 million came from unrelated activities, 30% tax shall be imposed on the
300 million.
Doctrinal Pronouncement on CIR vs St. Lukes Medical Center

To be a charitable institution, however, an organization must meet the substantive
test of charity in Lung Center. The issue in Lung Center concerns exemption from real
property tax and not income tax. However, it provides for the test of charity in our
jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the
burden of government. In other words, charitable institutions provide for free goods and
services to the public which would otherwise fall on the shoulders of government.
As a general principle, a charitable institution does not lose its character as such
and its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the government,
so long as the money received is devoted or used altogether to the charitable object which
it is intended to achieve; and no money inures to the private benefit of the persons
managing or operating the institution.
27
In order to be exempted from income tax, Sec. 30 (B) of the NIRC requires that
both the organization and operations of the charitable institution must be devoted
"exclusively" for charitable purposes. This is qualified by its last paragraph, which states that
if a tax exempt charitable institution conducts "any" activity for profit, such activity is not tax
exempt even as its not-for-profit activities remain tax exempt. Thus, even if the charitable
institution must be "organized and operated exclusively" for charitable purposes, it is
nevertheless allowed to engage in "activities conducted for profit" without losing its tax
exempt status for its not-for-profit activities.
St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It
cannot be disputed that a hospital which receives approximately P1.73 billion from paying
patients is not an institution "operated exclusively" for charitable purposes. Clearly,
revenues from paying patients are income received from "activities conducted for profit."
St. Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its operating
income in 1998. However, if a part of the remaining 34.80% of the operating income is
reinvested in property, equipment or facilities used for services to paying and non-paying
patients, then it cannot be said that the income is "devoted or used altogether to the
charitable object which it is intended to achieve." The income is plowed back to the
corporation not entirely for charitable purposes, but for profit as well.
Government Educational Institutions
Government educational institutions, like the University of the
Philippines, are likewise exempted from taxes with respect to revenues derived
pursuant to its educational purpose and revenues actually, directly and
exclusively used therefor. Conversely, income from trade, business or other
activity which is not related to their educational purposes or functions shall be
subject to internal revenue taxes when the same is not actually, directly,
exclusively used for the intended purpose/s.
Transmissions to Educational Institutions
All bequests, devises, legacies or transfers to social welfare, cultural and

charitable institutions, no part of the net income of which insures to the
benefit of any individual: Provided, however, That not more than thirty
percent (30%) of the said bequests, devises, legacies or transfers shall be
used by such institutions for administration purposes.
Non-Impairment of the Jurisdiction of the Supreme Court

The Supreme Court can review judgments or orders of lower
courts in all cases involving:
The legality of any tax, impost, assessment, or toll;

The legality of any penalty imposed in relation thereto (Sec. 5[2][b],
Art. VIII, 1987 Constitution)
NOTE: These jurisdictions are concurrent with the Regional Trial Courts; thus, the petition
should generally be filed with the RTC following the hierarchy of courts. However, questions
on tax laws are usually filed direct with the Supreme Court as these are imporessed with
paramount public interest. It is also provided under Sec. 30, Art VI of the Constitution that
no law shall be passed increasing the appellate jurisdiction of the Supreme Court without its
advice and concurrence.
Prohibitions against Imprisonment for Non-Payment of Poll Tax

A person may be imprisoned for non-payment of internal revenue taxes,
such as income tax as well as other taxes that are not poll taxes if expressly
provided by law. A person cannot be sent to prison for failure to pay the
community tax.
Sec. 87 of the NIRC is explicit:

The following shall not be taxed:
The merger of usufruct in the owner of the naked title;
The transmission or delivery of the inheritance or legacy by the fiduciary

heir or legatee to the fideicommissary;
The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
Origin of Revenue and Tariff Bills
This is based on the theory that, elected as they are from the districts,
the members of the House of Representatives can be expected to be more
sensitive to the local needs and problems.
NOTE: It is not the law but the revenue bill which must originate exclusively in the House of
Representatives. The bill may undergo such extensive changes that the result may be a
28
rewriting of the whole. The Senate may not only concur with amendments but also propose
amendments.
Chapter 4: Tax Exemptions, Escape from Taxation & Double Taxation

Tax Exemption
o Definition :
it is a grant of immunity,
express or implied,
to particular persons or corporations
from the obligation to pay taxes
in whole or in part
o
Kinds of Tax Exemption:
As to Source:
1. Constitutional
2. Statutory
3. Treaty/Executive Agreements
4. Contractual (for a consideration)
As to Manner of Grant:
1. Express
o Verbally/oral
o In writing/ statutes
2. Implied
o Manifested by conduct
o Considering the totality of circumstances
As to Scope
1. Total/full/All-in/All the way
o Relates to the whole/entire tax
st
2. Partial/1 -base lang
o Affects only a portion
Tax exemptions may be given to achieve long term economic objectives:

Exemptions, incentives and the likes are given, by the state, occasionally
To attract new sexy business; as well as
To resuscitate the old and dying juridical bitches; and more

importantly to
To sensually stimulate and elevate our economy towards

economic prosperity and progress.
o Its designed, not to trigger off an instant surge of revenues on a one
night short term basis, but rather to achieve a longer term symbiotic
relationship which is way better than a one night-er.
29
What is the task of the Court?
CIR vs. Procter and Gamble (204 SCRA 377)
The task of the court is to GIVE EFFECT to the legislative design

and objectives as they are written into the statute ** EVEN IF
SOME REVENUES are lost in that very smart process.
Because the congress knows what theyre doing. lol.
Basis: Separation of powers and stuff like that
Approaches for Exemption

o P I Org - I
1. Exemptions of Property
2. Exemption of Individuals
3. Exemption of Organization
4. Exemptions of Income
o
Exclusions and Deductions:

o Exemption vs. Exclusion
Tax Exemption
Refers to a statutory exception from the payment of

taxes; whereas
Exclusion
Refers to the Total absence/ or want/ or lack of

taxation in a particular circumstance
o example:
the
non-inclusion
in
the
taxpayers taxable gross income
of gifts, bequest, and devises
under Sec 32 (B)(3) of the NIRC
o
Exemption vs. Deduction
Exemption
Refers to removal from taxation of a particular class

or item; whereas
Deduction
Refers to the reduction of taxable items
by way of subtraction of other items.

o example:
Under Section 34 NIRC: the

ordinary business expenses and
depreciation are deductable.
Deduction & Exclusion; Nature:
They are in the nature of Tax Exemptions
Thus, they are STRICTLY CONSTRUED
Exemption of individuals
- certain classes of individual may be granted tax exemption within the
tax system which depends on multiple criteria.
Specific monetary exemptions

- Monetary reduction of the tax base
o Personal allowance
o Which may be claimed to reduce
the taxable income
- Similar to the 50k basic personal exemption
and the 25k additional exemption for every
dependent under Section 35 of the NIRC.
Tax exempt status
- Includes the exemptions to senior
citizens and minimum wage
earners (RA 9994 & 9504)
- A statute which provides a
potential tax payer complete
relief from tax, or a reduction on
the rate, or a tax only on a portion
of the items.
Exemptions of Organizations
An exemption to organizations which meets certain conditions

imposed by the taxing authority
It may be based on definitions or restriction or

characteristics set forth by law
1.
2.
Charitable, Religious and non-profit organizations:

o These entities are considered to serve public
purposes
Government and its entities
o General rule:
30
3.
4.
The government and its instrumentalities

are exempt from tax and the local
government may never ever ever ever tax
the national government. Them boys only
have delegated powers. The delegated
powers cannot be superior to the powers of
the one who delegated the power.
Entities on pension schemes
o Based on social justice. It complements social
legislation.
o Pensions which do not amount to income are not
taxable.
Educational institutions
Exemptions of Income
Includes:
Income earned outside the taxing jurisdiction
Income consisting of compensation for loss
Inherited shit / properties acquired by gifts
Income earned in specific areas, such as the Special

Economic Zone, enterprises zones, etc.
Exemption of Property
Certain properties used for religious/educational/charitable

purposes
Properties owned by the BSP within 5 years from the effectivity

of the General Banking Law are exempt from taxes
Properties owned and used by Government, like for example

the GSIS, provided that they comply with certain conditions.
Reciprocal Exemptions
o Some tax jurisdictions allow tax exemptions Subject to Reciprocity
o States may enter into a bilateral agreement which provides for certain tax
exemptions this stipulation is common in:
tax treaties
Cross border agreements
DTAs Double Taxation Agreements

Limitation under the constitution
o Under Section 28(4) Article VI of the 1987 Constitution:
no law granting tax exemption shall be passed without the

CONCURRENCE of a Majority of all the Members of the
Congress
NOT SUBJECT TO CONSTITUTIONAL LIMITATIONS:
Exemption is not the same as a total absence of taxation

dumbfuckery, thus:
A repeal or withdrawal of a tax law resulting to non taxability of

all taxpayers = or a total absence of taxation is not subject to
the constitutional limitations.
Strict Construction & Burden of Proof:

1.
It is NOT PRESUMED.
Exemption is highly disfavored in law (CIR vs. Manila Jockey

Club)
The law frowns on exemption, hence an exempting

provisions should be construed STRICTISSIMI JURIS.
General Rule: Taxation is the Rule
Exception: Exemption is the Exception

o Thus , Exemptions are CONSTRUED
STRICTLY against the grantee; and
o LIBERALLY in favor of the Taxing authority.
Burden of Proof:
Rests upon the person who is claiming for the

exemption. (Caltex Phil. Vs. Commission on Audit)
o The party claiming the exemption must
therefore
be
clearly/unequivocally/expressly mentioned
in the exempting law or at least within the
purview of the legislative intent.
2.
it must be Justified by Words TOO Plain to be Mistaken

(unequivocal/Clear/Direct to the point)
it must be expressly granted in a statute in a language too clear

to be mistaken, and too categorical to be misinterpreted
3.
It is a PERSONAL Privilege:
Exemptions, like taxes, are personal. It does not extend to yo

mama.
4.
Never created by Implication:
31
5.
An exemption from a common burden cannot be permitted to

exist based on some vague implications (Asiatic Petroleum Co.
vs. Llanes)
There must be Convincing Proof
The term which grants exemption must be crystal clear, and

convincing like a wet pussy cat on a cold damp morning.
6.
F. Equity it does not apply:
it lacks statutory basis fuck justice and equity.
7.
Exemption is Not INHERENT:
Exemption cannot be deduced from concepts an argument

that exemptions are inherent in a special economic zone is a
heresy.
The exemptions of SE proceeds from the law, and not the other
way around. The tail does not wag the dog. (John Hay vs. Lim
(2005))
8.
it cannot be granted by Regulation
the subordinate legislation made by Quasi Judicial Bodies

cannot be superior to the fundamental law. The Constitution
provides for the mechanism for granting tax exemptions.
9.
There is No VESTED Right in a Tax Exemption
Duh
It is a mere statutory privilege which may be modified or

withdrawn at the will of the granting authority, depending on
the external circumstances of the socio political and economic
stuff; depending internally on their whims and caprices;
depending more importantly on your budget.
10. A tax exemption CANNOT be GROUNDED upon the continued existence

of a statute which precludes its change or repeal
No law is irrepealable. Nothing is forever.
Even Sasha Grey will be forgotten in time.
Basis of Strictissimi Juris:

1. Doctrine of Strict interpretation
I.
The lifeblood theory
The blood is the life thus exemptions are highly

disfavored in law.
II.
III.
Equal treatment of taxpayers
Strict construction in order to minimize differential

treatment which results to partiality, unfairness and
some bad stuff.
Sovereign Act
Tax you if you claim to be exempt. Taxation is a high

prerogative of sovereignty whose relinquishment is
never presumed (Luzon Stevedoring vs. CA)
Exceptions to Strict Constructions:

1. If the law is clear , unambiguous, unequivocal there is not room for
construction
2. When the law does not provide a qualification for tax exemption then
the court cannot fucking supply one
Ubi lex non distinguit nec nos non distinguerre debemus.

3. When the exemption refers to public property
In this case the rule is exemption, taxation is the exception

4. Exemption in favor of the Government, its instrumentalities and agencies.
5. When the law itself provide for liberal constructions
6. In case of special laws imposing a special tax
7. Exemption to Religious, Charitable, Educational institutions (the usual
stuff)
Illustrations; Examples ; Application
1. Tax exemption covering items used in Constructions
It does not apply to taxes on unrelated items

2. Exemptions to corporations on things directly connected to something,
does not cover those which are not directly related to it
3. Tax exempt bonds received is not exempt in computing income tax
4. Condonation is in a nature of a tax exemption to be exempt there
must be a clear cut provision in law condoning such taxes.
5. Salaries of Judges are taxable (Nitifan vs. CIR) - what the constitution
prohibits is that their salaries may not be decreased during their
continuance in office.
6. an exemption on the sale of machinery does not extend to the products
produced by such machinery
7. Maceda vs. Macaraeg Jr. the NPC was exempted from both direct and
indirect taxes they are exempt from absorbing the economic burden of
taxes previously paid to the BIR thus the NPC is entitled to be
reimbursed by the BIR.
32
Constitutional Grants do not need legislative enactment:

1. They are presumed to be self executing (Manila Prince Hotel vs. GSIS;
Oposa vs. Factoran) unless stated otherwise.
Otherwise the very purpose and intention of the fundamental

law could be nullified by the legislature; their effectivity would
be subject to the mercy of the congress. @.@
Withdrawal of Exemption
1. Exemption may be withdrawn at the pleasure of the taxing authority.
So if you dont want your exemption to be withdrawn, you

must pleasure the taxing authority.
2. Exception:
When the exemption was granted based on a MATERIAL

CONSIDERATION of a mutual nature, it partakes the nature of a
Contract
Non impairment Clause.
Examples:
If the exemption is based on the constitution:

o It may be withdrawn only by an
amendment to the Constitution.
If the exemption is granted by a special law

o it cannot be withdrawn by a regulation,
o It cannot be withdrawn by a general law:
EVEN when the terms of the

general law is so broad, as to
include the matter in general law,
it cannot be withdrawn
Except if there is a manifest

intent to alter or repeal the
special law; if there is a
special/specific provision in the
general law which clearly intends

to repeal the special law.
If the tax exemption is based on a TREATY

o May be revoked only pursuant to the
withdrawal provision of the treaty.
Only Congress has the power to grant tax incentives
1. Taxation is an inherent power which is legislative in nature. The power to
select the subjects of tax, and the power to grant exemptions is inherent
in the legislature, since it involves the promulgation of laws.
2. Basis:
Article VI Section 28(4) of the Constitution provides: no law

granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the
CONGRESS including Manny Pacquiao
Tax-exempt buyer vs. Tax exempt transaction
1. If the BUYER is EXEMPT
Seller is still taxable/liable as the tax is not a tax on the buyer

2. If the TRANSACTION is EXEMPT
Seller is not liable for tax. There is no tax due.
If the buyer is not so smart and he pays taxes despite the fact
that the transaction is exempt
It is the sellers obligation to hold in trust for the

buyer the refunded tax
HORNBOOK DOCTRINE in applying tax exemption principles
Before determining if the person is tax exempt, we must first

determine if he falls within the scope covered by the law
imposing taxes
It is illogical and impractical to determine who are exempted

without first determining who are covered by the tax
provisions.
2. It is a HORNBOOK DOCTRINE in the interpretation of tax laws:
That a Statute will not be construed as imposing a tax

>>>>Unless
it
does
so
Clearly,
expressly,
and
unambiguously.<<<<<
A tax cannot be imposed without clear and express words for

that purpose.
3. The provision of a taxing act cannot be extended by mere implication.
4. In case of doubt,
it is construed most strongly against the government and in

favor of the tax payers,
33
Because burdens are not to be imposed nor presumed to be

imposed beyond what statutes expressly and clearly import
(CIR vs. CA)
REFUNDS
1. Definition
Tax refunds is the return of excess amounts of income tax that

a taxpayer has paid to the state or local government
throughout the past year
In Reality it represents an interest free loan that a taxpayer

makes to the government because the government merely
returns the exact amount regardless of the period that has
lapsed.
2.
It partakes an absolute forgiveness or WAIVER by the

Government of its right to collect what otherwise would be due
to it,
And to give tax evaders and other fuckers, who wish to relent
and are willing to reform, a chance to do so, to become part of
the new society with a clean slate. (CIR vs. Botelho corp)
3 General Characteristics of a Typical Amnesty
I.
Short lived (2-3 months)
II.
Voluntary (participation is up to them)
III.
Waiver of fines and penalties but not the principal amount of taxes
that are due.(unless if the amnesty law provides otherwise)
3.
CONTROVERSIAL ISSUE: Tax Amnesty
The proponent of a tax amnesty claims that the government

can raise more tax revenue
Not only in the short run from collecting overdue

taxes
But also by bringing them old bitch fucks into the tax
system for the long run.
However, some questions as to whether this shit really

produces additional revenue given that they simply collect
revenue that could have been raised in a normal enforcement
procedures.
They said that tax amnesties induces or provides

incentives to honest tax payer to start evading taxes,
in hope of an amnesty in the future, and this shit
tends to weaken tax compliance.
4.
Amnesty is not presumed
Strictissimi juris
Not covered by the Presidents Amnesty Powers under the RPC.

Based on the Constitution Article 6 Section 28 a tax
exemption can only by granted with the concurrence of all the
members of the congress.
5.
Government is never estopped from questioning a tax liability even if

amnesty tax payments were already received by it.
The erroneous application of a tax law by a public officer do

not prohibit subsequent correction
Basis: lifeblood
NATURE:CONSTRUCTION; EVIDENCE
Tax Refunds are in the nature of a tax exemption/ a derogation

of sovereign authority
Construed Strictissimi Juris against the person claiming the

refund; as well as the pieces of evidence presented which
must be scrutinized.
burden of proof is upon him who claims the exemptions
Persons entitled in case of indirect tax

1. The Statutory Taxpayer
The proper party
The person on whom the tax is imposed by law, and who paid
the same even if he shifts the burden to another.
2. The person who shoulders the burden (indirect tax = part of the purchase
price) has no cause of action against the taxing authority.
TAX AMNESTY
1. Definition
It is an OPPORTUNITY afforded to a taxpayer to RECTIFY errors

or omissions in past tax years or returns relieving delinquent
tax debts and criminal prosecution.
It is a GOVERNMENT PROGRAM (permanent or for a limited

period) which allows the taxpayers to address the collecting
agency and disclose inaccurate information from the past tax
years, without penalty or prosecution
2.
Nature and Characteristics

EXCEPTION
34
6.
Republic vs IAC(1991)
Issue: Won the payment of deficiency income tax

under the tax amnesty (PD#213) and its acceptance
by the government operated to divest the
government of its right to further recover from the
taxpayer, even if there was an existing assessment
against the latter at the time he paid the amnesty tax.
HELD:
o Even assuming that the deficiency tax
assessment were correct, since the latter
have already paid almost the equivalent
amount to the government by way to
amnesty taxes under PD#213, and were
granted not merely an exemption BUT
AN AMNESTY for the past tax failings, the
Gov. is not ESTOPPED from collecting the
difference.
Availment of tax amnesty is a purely personal defense and not available

to co conspirators
- People vs. Castan~eda
- The defense relates to the circumstances of a particular
accused and not to the character of the acts charged in the
criminal information.
7.
Effects of Use of All Encompassing Words

- Metropolitan Bank & Trust Co. vs. CIR
If the amnesty law uses an ALL-ENCOMPASSING
WORDS
There is absolutely no basis to limit immunity
resulting from the payment of the tax amnesty only
to income tax and to exclude others.
8.
Amnesty in case of Merger

- Tax liabilities of the Merged Corporation are ABSORBED by the
surviving corporation.
Escape From Taxation

SHI T Ca P- ha- D S- a-D
Forms of Escape from Taxation
1. Tax Shifting
2. Tax Transformation
3.
4.
5.
6.
7.
8.
9.
Tax Capitalization
Transfer Pricing
Resort to tax Haven
Tax Deferral
Tax Shelter
Tax Avoidance
Tax Dodging/Evasion
;
Tax Shifting:
o It is the transfer of the burden of tax by the original payer (impact) to
another (incidence)
Impact of taxation the point on which the tax is originally

imposed
Incidence the point where the final burden settles down

o Direct tax cannot be shifted.
o Tax cannot be shifter if:
i.
Purely personal (poll tax)
ii.
It has no relation to any business dealing of the taxpayer
(donors/estate tax)
iii.
If it is levied on economic surplus (income tax)
o
Kinds of shifting
i.
Forward s. when the burden is transferred from a factor of
production thru the factors of distribution until it finally settles
on the ultimate purchaser/consumer. (example : seller increase
price of beer)
ii.
Backward s. when the burden is transferred from the
consumer thru the factors of distribution to the factors of
production (example: seller doesnt increase the price of beer
but reduces the price in materials)
iii.
Onward s. when the tax is shifted 2 or more times either
forward or backward.
Tax Capitalization/amortization
- Circumstance where the purchaser of a taxable object, by
cutting down the purchase price, discounts all the taxes which
he may be called to pay upon in the future.
- By depreciating the capital value to a sum equal to the
capitalized value of the tax (1/5 = 20%)
Tax Transformation
35
In a situation where the producer upon whom the tax is imposed

fearing that the consumers would not opt to buy his shit if he adds the
tax to the price
- The producer pays the tax; and
- endeavors to recoup himself by improving/transforming his process of
production to make it more cost effective.
- The loss due is TRANSFORMED to a gain.
Resort to TAX Haven/ secrecy jurisdiction
- Definition
It is a place that deliberately provides an escape route for

people or entities elsewhere, shielding them from whatever
taxes, criminal laws, licking their balls clean
It is a State where certain taxes are levied at a low rate or not at

all while offering due process, good governance, and low
corruption rate.
It is a country that imposes little or no tax on profits.

- When is a place considered as a tax haven?
If it has a composite tax structure established deliberately to

take advantage of a worldwide demand for opportunities to
engage in tax avoidance
- Examples?
Liechtenstein
Panama
Bahamas
British Virgin Islands

Transfer Pricing
- It is the price charged by 1 segment of an organization
For a product/service supplied to another segment of the same

organization
Especially, the charged assigned to an exchange of goods or

services between a corporations organizational units.
- When subsidiaries inside 1 company trade with each other across
borders, they can manipulate the internal transfer prices in order to
shift their cost into high tax countries, and shift the profit into low taxing
countries/haven.
Transfer Mispricing
o Happens when transfer pricing is ABUSED.
- Unitary Taxation
o Related to Transfer Pricing
o The income of all related parts of the company are combined
and the profits are shared between different countries where
they were actually created by using an agreed formula based

on a ratio of sales, employment costs and capital invested
There is a need to regulate it : because it has grave implications on tax
liabilities.
Section 50 of NIRC:
o Authorizes the CIR to distribute/allocate gross income or
deductions between 2 or more organizations owned directly or
indirectly by the same interests if such distribution
apportionment or allocation is necessary in order to prevent
evasion of taxes or clearly to reflect the income of any such
organization, trade or business.
Stateless Income/Homeless Income:
o It is the result of transfer pricing/mispricing.
o It means profit earned in a country other than where the firm
is headquartered and subject to tax only in another country
which imposes little or no tax.
o Particularly, stateless income comprises income derived for tax
purposes by a multinational group from business activities in a
country other than the domicile of the groups ultimate parent
company, but which is subject to tax only in a jurisdiction that is
neither the source of the factors of production through which
the income was derived, nor the domicile of the groups parent
company.
Tax Deferral
o Paying taxes in the future for income earned in the current year
o Some bitches leave their profits offshore untaxed they dont have to
pay shit unless they repatriate said income to their home base
Tax Shelter
o It is a sexy device used by a taxpayer to reduce or defer payment of
taxes; or any financial investment made in order to acquire expenses,
depreciation allowances, etc, or to defer income so as to reduce ones
income tax.
o It includes investment or deposits in accounts that are not heavily taxed
and shit (example long term deposits); and investing in real estate to avail
deductions such as mortgage loan interest, mortgage insurance and
property taxes.
Tax Avoidance and Evasion
o This 2 sons of bitches are the 2 most common ways used by your average
motherfucker in escaping taxation (CIR vs Estate of Benigno Toda)
36
o
o
TO AVOID IS LEGAL
TO EVADE IS ILLEGAL
o
Tax Avoidance/Loophole
o A tax saving device within the means sanctioned by law
o Should be used in good faith and at arms length.
o
To get around/avoid the spirit of the law and the will of the legislature,
WITHOUT ACTUALLY BREAKING THE FUCKING LAW
o It is the lessening of tax liabilities thru maximizations of deductions
exclusion and exemptions and the minimization of income by legal
means.
Tax Evasion- Dodge/Dodging

o A scheme used outside of those lawful means and when availed of, it
usually subjects the taxpayer to further civil or criminal liabilities (CIR vs
Estate of Benigno Toda)
o Illegal method of paying taxes
Criminal activity
Usually thru deception

o Elements of Tax Evasion; 3 factors
1. The END to be Achieved
o Pay less- or not pay at all bitch
2. State of mind
o It must be fucking intentional
o Bad faith / willful
3. A course of action or failure of action which is
unlawful
Tax Fraud (intentional fraud)
o The use of deceit in order to evade taxes
o Fraud
1. Actual
2. Constructive
3. Anything calculated to deceive them bitches
Including all acts, omissions, and concealment involving a

breach of legal/equitable duty, trust or confidence justly
reposed, resulting in the damage to another, or by which an
undue and unconscionable advantage is taken of another.
o Cannot be usually proven by direct proof
It
must
be
proven
by
circumstantial evidence and
reasonable inference
Negligence is not equivalent to fraud(whether slight or gross)
The fraudulent intent cannot be presumed
Intentional fraud must be established: he must act knowingly

and willfully
Assessment is not necessary
Ungab vs. Cusi, Jr.
An assessment of deficiency is not necessary to a

criminal prosecution for willful attempt to defeat and
evade the income tax xxx A crime is complete when
the motherfucker with intent to evade - acted
knowingly and willfully. The fact that the government
failed to discover the error and failed to assess
promptly xxx has no connection with the commission
of the crime
It must first be proved that a tax is due
In CIR vs CA:
before 1 is prosecuted for tax evasion, the fact that a

tax is due must first be proven.
No prima facie case not fraudulent unless and

until the BIR has made a final determination of what
is supposed to be the correct tax, the taxpayer should
not be placed in the crucible of criminal prosecution
In Ungab vs. Cusi Jr:
For a criminal prosecution to proceed without

st
assessment there must 1 be a PRIMA FACIE
showing of willful attempt to evade taxes.
Substance over form
The court should examine with particular care the

forms used by him for the accomplishment of his
purpose and if his ingenuity fails at any point, such
court should not lend him its aid by resolving doubts
in his favor.
Payment is NOT A VALID DEFENSE
Payment after apprehension is fucked up it is not

a valid defense. Because he already transgressed the
law.
37
o
o
Prima facie evidence of fraud

1. Sec. 248 B NIRC: A Substantial Underdeclaration of taxable
income/sales/receipt
Or a Substantial OVERDECLARATION of Deductions

o Shall constitute PRIMA FACIE evidence of
false or fraudulent return
Failure to report sales/income/ receipt in an amount

exceeding 30% of that declared per return
o And a claim of deductions in an amount
exceeding 30% of actual deductions
o Shall render the taxpayer liable for
substantial underdeclaration of sales,
receipts or income or for overstatement of
deductions
2. Failure to declare for taxation purposes True and Actual income
derived from business for 2 consecutive years
3. Substantial under declaration of income in the tax returns for 4
consecutive years coupled with intentional overstatements of
deductions.
Must be proven by Circumstantial evidence and reasonable inferences
It generally involves the following elements:
1. Deception
2. Misrepresentation of material facts
3. False or altered documents
4. Evasion/ diversion / omission
Badges of Fraud
5. Improper deductions
6. Accounting irregularities
7. Inconsistent explanation/behavior
8. Attempt to conceal illegal acts
9. Inadequate records
10. Failure to file returns
11. Destruction of records (acts)
Honest difference in opinion and inadvertence do not amount to fraud
There must be a clear and convincing evidence to prove that
some part of the underpayment of a tax was due to fraud.
Intent is different from mere inadvertence, honest difference
in opinion, reliance on an incorrect technical advice, negligence
or carelessness, dumbfuckery.
Tax credit
Tax Credit vs Tax Deduction
o Tax Credit
Generally refers to an amount that is subtracted directly from

ones total tax liability
It is an allowance against the tax itself, or a deduction from

what is owed by a taxpayer to the government
Examples
Withheld taxes, payments of estimated tax, and

investment tax credits
o Tax Deductions
A subtraction from income for tax purposes, or an amount that

is allowed by law to reduce income prior to the application of
the tax rate to compute the amount of tax which is due.
Tax Liability is required for tax credit
o There ought to be a tax liability before a tax credit can be applied
Since the purpose of a tax credit is to reduce the tax liability.

Without any tax liability, the tax credit is a piece of shit. It
would be PREMATURE and IMPRACTICAL.
o The existence of a tax credit is not the same as the availment (tax credit
is mandatory; whereas the availment of such credit is optional)
Prior tax payment not necessary
o While tax liability is necessary for the availment of a tax credit prior tax
payments are not. Payment is not indispensible.
o Nirc is replete with provisions granting tax credits even though no taxes
have been previously paid
Examples
Under Section 86(E) in computing estate tax due a

tax credit is allowed subject to certain limitations. The
tax credit in this instance allude to the prior payment
of taxes, even if not made to out government.
Sec 110 a VAT registered person engaging in

transactions is allowed a tax credit that includes a
ratable portion of any input tax xxx which does not
need to be paid etc etc.
Tax credit is not the same as a discount
o Tax credit
Is a deduction after the income is computed
38
1.
2.
3.
4.
Discount
Is a deduction before the income is computed

Cash discount
One granted by business to credit customers for their prompt payment
Purchase discount is on the part of the seller
Quantity discount
Reduction in price allowed for purchase made in large quantities justified
by savings in packaging, shipping and handling
- A.k.a : Volume or Bulk discount
Trade discount
Percentage reduction from the list price allowed by manufacturer to
wholesalers.
Chain Discount a series of discounts from one list price is recorded at
net
Functional discount
Similar to trade discount
Double Taxation
Double Taxation
o Definition
Taxing twice the same subject matter -done by the same

taxing authority, within the same taxing district, for the same
purpose, in the same taxing period.
o No constitutional prohibition
It is not forbidden by our fundamental law
It is not favored but is still permissible
Discretion of the Legislative
General Rule:
o Double taxation should not be permitted
unless the legislature has authority to
impose it.
However
o Since the taxing power is exclusively a
legislative function, and since it is absolute
and unlimited: it is generally held that there
is nothing to prevent the imposition of
more than one tax on the same subject
matter, in the absence of an express or
implied constitutional prohibition xxx such
shit is a matter within the discretion of the
legislature.
Kinds of double taxation

1. Direct Duplicate taxation (obnoxious double
taxation)
o In order to constitute double taxation in the
objectionable/prohibited sense:
The same subject matter must e

taxed twice for the same
purpose, by the same taxing
authority, within the same taxing
jurisdiction, during the same
period, and they must be of the
same kind or character.
2.
Indirect duplicate taxation

o When any or some of the requisites of
direct duplicate taxation are not present.
This is permissible.
Schemes to AVOID double taxation

1. Tax Credit
o A sum deducted from the total amount a
taxpayer owes to the taxing authority
2. Tax Deduction
o Fixed amount or percentage write-off or
permitted reduction in the gross amount on
which a tax is calculated.
3. Tax Reduction
o Relinquishing or reducing the amount or
rate of tax a taxpayer has to pay.
o Example
The TAX SPARING CREDIT RULE

under Section28 of the NIRC.
4. Tax Exemption
o Immunity from this shit
5. Tax Treaties
o Agreement between 2 jurisdictions that
mitigates the problem of double taxation
that can occur when tax laws consider a
39
taxpayer a resident of more than 1

jurisdiction.
x----------------x
INTERNATIONAL JURIDICAL DOUBLE TAXATION (IJDT)
o The imposition of comparable taxes in 2 or more states on the same
taxpayer in respect of the same subject matter and for identical periods.
o Rationale for doing away with this shit:
To encourage free flow of goods and services and the

movement of capital, technology and persons between
countries, conditions deemed vital in creating robust and
dynamic economies.
Foreign investments will only thrive in a fairly predictable and

reasonable international investment climate and the protection
against double taxation is crucial in creating such a climate.
o 2 General Approaches to AVOID IJDT
1. Territorial based system
o The foreign source income is normally
exempted from domestic tax
o it generally leaves the taxation of foreign
income to the government whose territory
the activity occurs
2. Worldwide income/global
o This
approach
necessitated
the
development of specific mechanisms to
reduce double taxation when the country
within whose borders the income had been
derived also imposed a tax on that income
o Methods in tax treaties
st
1 method
Tax Treaty sets out the respective right to tax of the

STATE OF SOURCE and the STATE OF RESIDENCE with
regard to certain classes of income or capital.
In some cases an EXCLUSIVE right to tax is conferred

on one madafaking state
nd
2 method
o The STATE OF SOURCE is given a full or
limited right to tax together with the STATE
OF RESIDENCE
In this case the treaties make it

incumbent upon the state of
residence to tallow relief in order
to avoid double taxation.
1.
2.
EXEMPTION METHOD
a. The income which is taxable in the state of
source is exempted in the state of residence
b. This may be done by using tax deduction
methods which allows foreign income to
be deducted from the gross income :in
effect exempting the payment from being
further taxed.
c. The focus is on the income or capital
Credit Method
a. Although the income is taxed in both the
State of Source and the State of Residence
the tax paid in the state of source is
credited against the tax levied in the state
of residence.
b. The focus is on the tax
Income tax credit under Philippine law

o NIRC
Credit against Tax for taxes of Foreign countries

- If a taxpayer signifies in his return his desire to have
the benefits of this paragraph, the tax imposed by
this Title shall be credited with:
o Citizen and Domestic Corporation
o Partnership and Estates
An alien individual and a foreign

corporation shall not be allowed
the credits against the tax for the
taxes of foreign countries
allowed under this paragraph.
Read Sec 34 and 86 if NIRC.
Limitations on Credit
Tax Credit for Estate Tax Paid to a Foreign Country

Most favored nation clause
o The purpose of this clause is to grant to the contracting party treatment
not less favorable than that which has been granted to the most favored
among other countries.
o Intended to establish a principle of equality of international treatment by
providing that the citizens or subjects of the contracting nations may
enjoy the privileges accorded by either party to those of the most
favored nation.
40
To allow the taxpayer of 1 state to avail the more liberal

provisions granted in another tax treaty. For equality of
treatment.
Chapter 5
Tax Laws and Regulations
Tax Law it is a body of rules under which the public authority has a claim on taxpayers
requiring them to transfer to the authority party of their income or their property
Tax laws may be:

1.
Material Tax Law it is the analysis of the legal provisions giving rise to the
charging of tax
2.
Formal Tax Law it concerns the rules laid down in the law as to assessment,
enforcement, procedure, coercive measures, administrative and judicial appeal,
and other matters.
Tax provisions are:
Mandatory which means that the security of the citizens or which are
designed to ensure equality of taxation or certainty as to the nature and
amount of each persons tax.
o
Failure to follow renders invalid the act or proceeding to which

it relates.
Directory it is for the information or direction of officers or to secure

methodical and systematic modes of proceedings
o
Failure to follow makes the act merely irregular
Nature of Tax Laws

a.
A public law - falls within the domain of public law
b.
Special Law - prevails over a general law
c.
Not Political in Nature - deemed to be the laws of the occupied territory and not of
the occupying enemy.
41
d.
Not Penal a statute is penal when it imposes punishment for the offense
committed against the state which is under the constitution. It is not a penal law
cases
but a law with a penal sanction.

o
Its main purpose is to cover the rules, policies and laws that oversee
the revenue-raising process.
Implications of Tax not being a Penal law

I.
Prohibition on ex post facto law is not applicable
It applies only to criminal matters
Ex post facto law is one which alters the legal rules of evidence and
authorizes conviction upon less or different testimony than the law
This is due to the difference in the quantum of proof in civil and criminal
Double jeopardy is also inapplicable
An acquittal of a charge of willful attempt to evade payment of taxes

does not bar assessment and collection of surcharge and penalties.
Sources of Tax laws
It covers national and local taxes
National Taxes it comes from the National Internal Revenue Taxes and Tariff
imposed and collected by the national government through the agencies
required at the time of the commission of the offense.

Local Taxes it is imposed and collected by the local government
II.
No retroactive effect even if beneficial to the tax payer
Tax laws, even if beneficial to the taxpayer cannot be given retroactive

effect in the absence of legislative intent to that effect
The following are the sources of tax laws:

1.
The Constitution the 1987 Philippine Constitution sets the restrictions on the
However, the nature of the tax and the circumstances in which it is laid
exercise of the power to tax. It is a limitation upon the lawmaking power of
must be considered before it can be said that its retroactive application is
the states legislature.
so oppressive as to transgress the Constitutional limitation.
Exception: local government taxation in the Philippines is based on the

Constitutional grant of the power to local governments. It gives the
III.
It is applied prospectively
They are prospective in operation
However, while it is not favored, a statute may still operate retroactively
power to create its own source of revenue
2.
Customs Code.
provided that it is expressly declared or is clearly the legislative intent.
IV.
Res judicata is inapplicable
Laws The National Internal Revenue Law; Local Tax Law; and Tariff and
3.
Case Law these are the decisions of the Supreme Court which form part of
the law of the land.
42
4.
Administrative Issuances/Interpretations administrative agencies may fill in
other matters arising under the NIRC or other laws
what the congress may have no opportunity or competence to provide.
administered by the Bureau of Internal Revenue.
However, no provision of any regulation can supplant or modify the acts

of congress. A law cannot be amended by a regulation.
The law must prevail over a regulation
A revenue regulation is binding on the courts as long as the procedure

fixed for its promulgation is followed.
o
The following requisites must be complied with:

1.
Difference between RR, RMO, RMR, RMC, RB and BIR Ruling:

Revenue Regulations (RRs)
It must be germane to the object and purpose of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and
law
2.
are issuances signed by the Secretary of Finance, upon recommendation of the
regulations for the effective enforcement of the provisions of the National Internal
It does not contradict, but conform to the standards
Revenue Code (NIRC) and related statutes
the law prescribes

3.
It must be issued for the sole purpose of carrying into

effect the general provisions of our tax laws.
The power of the Commissioner of Internal Revenue and Secretary of
Revenue Memorandum Orders (RMOs)
are issuances that provide directives or instructions; prescribe guidelines; and outline
Finance under Section 244 of the 1997 National Internal Revenue Code
processes, operations, activities, workflows, methods and procedures necessary in the
are the following:
implementation of stated policies, goals, objectives, plans and programs of the Bureau
in all areas of operations, except auditing.
The Secretary of Finance, upon the recommendation of the

Commissioner promulgates rules and regulations for the
effective enforcement of the provisions of the Tax Code.
It has the power of interpretation of the 1997 NIRC and other

tax laws which is under the exclusive and original jurisdiction of
the Commissioner subject to the review of the Secretary of
Finance.
The Commissioner, subject to the exclusive appellate

jurisdiction of the Court of Tax Appeals, has the power to
Revenue Memorandum Rulings (RMRs)
are rulings, opinions and interpretations of the Commissioner of Internal Revenue with
respect to the provisions of the Tax Code and other tax laws, as applied to a specific set
of facts, with or without established precedents, and which the Commissioner may issue
from time to time for the purpose of providing taxpayers guidance on the tax
consequences in specific situations. BIR Rulings, therefore, cannot contravene duly
issued RMRs; otherwise, the Rulings are null and void ab initio
decide disputed assessments, refund of internal revenue taxes,

fees or other charges, penalties imposed in relation thereto, or
43
Revenue Memorandum Circular (RMCs)
6.
American jurisprudence has persuasive effect on the interpretation of our own tax laws.
7.
Contemporaneous construction is given weight. The construction given by a particular
are issuances that publish pertinent and applicable portions, as well as amplifications, of
laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
government agency that has acquired specialisation on the subject is entitled to great
respect and should be accorded great weight by the courts.
Revenue Bulletins (RB)
refer to periodic issuances, notices and official announcements of the Commissioner of
8.
the errors or mistakes of its agents in the interpretation or execution of tax laws.
Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain
specific issues of law or administration in relation to the provisions of the Tax Code,
relevant tax laws and other issuances for the guidance of the public.
Estoppel, generally, does not apply to the government. The state cannot be bound by
9.
Enforcement of tax measures by responsible officers and agencies of government

should be interfered with at the lowest minimum. This is because delays in the
implementation of such tax measures will only retard the operations of government by
BIR Rulings
are official positions of the Bureau to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.
impairing the collection of taxes.

10. Words and phrases used in tax statutes shall be given their plain, ordinary and usual
meaning absent special circumstances indicating an intent to use such words or phrases
in a different light.
Principles on Interpretation/Construction of Tax Laws

1.
Interpretation is not necessary when the statute is clear and categorical.
2.
The imposition of tax, in case of doubt, is construed strictly against the government and
11. Administrative regulations, issued for the proper implementation and in accordance
with tax laws shall have the same force and effect as the law itself. The sheer
impossibility and impracticality of Congress having to fill-in every minute detail in the
statute makes it necessary for administrative agencies to acquire the power to issue
subordinate legislations. To be valid however, the following requisites are imperative:
liberally in favor of the taxpayer.

3.
Tax laws shall not be interpreted to extend their provisions by implication beyond the
authority conferred by law)
clear import of the language used or to enlarge their scope not particularly specified.
4.
In case of conflict, Special Tax laws shall prevail over General Tax statutes.
Must be in harmony with the provisions of the law ( within the
Must be published( Official Gazette or Newspaper of General

Circulation)
5.
Ubi Lex non distinguit neck now distinguire debemos (When the law does not
distinguish neither should we.)
44
Except: When regulation is merely internal or

interpretative in nature ( regulating only the personnel
Public hearing and notice required
No need for public hearing and notice
of the administrative agency and not the public)
Rationale: Essentially statutes also, hence, Rationale: Merely provide internal guidelines
hearing and notice requirements apply
for more effective admin implementation
Must be reasonable
Note: If Congress subsequently re-enacts a tax law using the meaning given to it by the
administrative agency, the re-enactment effectively confirms that the administrative
interpretation was correct.
The Power of Oversight
DEFINITION: All activities undertaken by Congress to enhance its understanding of and
Legislative Rules vs. Interpretative Rules
influence over the implementation of legislation it has enacted. In other words, these are
Legislative Rules
Interpretative Rules
Rules promulgated to fill in the details of Rendition of opinion or statement of policy, in

existing law
interpreting existing law
necessarily post-enactment activities which raises issues as to their constitutionality (see

below).
CATEGORIES:
Scrutiny
Have the force and effect of law Courts
must decide in accordance with these
rules, even if they do not agree with the
underlying policy
Are
coupled
noncompliance
with
sanctions
Merely advisory Courts can exercise their

power to interpret these rules, i.e., these are
subject to judicial determination of whether
correct or not
Congressional
Legislative Supervision
Investigation
Passive oversight
Active oversight
Active oversight
for No sanctions imposed
45
The SC has ruled that oversight is not in itself unconstitutional, and may in fact enhance
Reports and information
periodically required from
agencies. Uses facts that
are readily available.
More
thorough
solicitation
of
information from the
agencies concerned
Continuing
and
informed
awareness.
Implies
constant
legislative guidance, e.g., through
a legislative committee especially
assigned to an area of admin
activity.
separation of powers because it prevents too much authority from lodging in the executive
department. I.e., integral to checks and balances.
But it qualified this holding to scrutiny and investigation only; in particular, (a) scrutiny over
appropriations, budget, confirmation, and (b) investigation in aid of legislation as provided in
Art. VI. Any action or step beyond that will undermine the separation of powers guaranteed
by the Constitution. Legislative vetoes fall in this class.
Legislative Veto
For determining efficiency Exercise
of Examination of administrative
of
administrative Constitutional authority exercise of legislative power, plus
implementation
to conduct inquiry in aid curtailment if necessary
of legislation (Art. VI Sec.
21)
This is a form of legislative supervision exercised through veto provisions included in enacted
laws. Through veto provisions, Congress gives itself authority to approve or disapprove the
implementing rules and regulations promulgated by the executive before they take effect.
Inquires
into
past Inquires
into
past Examination of current activity,
administrative activities to administrative activities i.e.,
exercise
of
legislative
influence future acts
to influence future acts
authority
Arguments For
Necessary to maintain balance of powers
CONSTITUTIONALITY
Arguments Against
Intrudes into powers vested on the

Gives Congress a way to control the executive
exercise of delegated legislative powers
Interferes
with
without having to repeal defective laws
implementation
or enact reparative ones
Once a law becomes
effective, it is deemed to
have left the hands of
Congress
It has been argued that oversight violates separation of powers because implementation
(i.e., post-legislation) is already within the domain of the executive department.
46
Promotes admin accountability
Intrudes into powers vested on the

judiciary
Too deeply embedded in our law and practice
Allows
Congress
to
determine w/n the rules
conform to law
Permits evasion of the Presidents

own veto power
Chapter 6: Local Taxation

(Dublin 1-12, Guillermo 12-19, General 20-31)
Powers and Limitations
Constitutional grant
Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees and charges subject to such guidelines and limitations as the Congress
many provide, consistent with the basic policy of local governments. (Sec. 5, Article 10 of
1987 Constitution)
Rationale: to safeguard viability and self-sufficiency of local governments by directly granting
hem general and broad tax powers. (Fels Energy, Inc. vs. Province of Batangas)
-
Ensures that the legislative intent behind an

enactment is carried through to implementation
Problem
often
arises
because
implementing agency did not participate
in the crafting of the law, i.e., usually
ignorant of the policy sought to be
enforced
Permits incorrect enactments from being enforced

at all
Unlike mere scrutiny and investigation,

which can only act after the fact
Taxing power of local governments is NOT absolute.

o Limited by constitutional restrictions.
Taxation not is not an inherent power of local governments.
Local tax laws should be construed strictissimi juris
Doubts to be resolved against the local government.
Tax power is deemed to exist.
o Municipal corporations have a general power to levy taxes and create
other sources of revenue. They no longer have to wait for statutory grant.
o Power of legislature is to reduce this power by imposing limitations.
o Congress cannot enact laws depriving LGUs of the power to tax.
Legislature must still see to it that:

o Taxpayer is not over-burdened or saddled with multiple and
unreasonable impositions
o Each local government unit will have its fair share of available resources
o Resources of the national government will not be unduly disturbed
o Local taxation will be fair, uniform, and just.
Doctrine of Necessary Implication
Legislative power to create political corporations for purposes of local selfgovernment carries with it the power to confer on such local government agencies
the power to tax.
Nature of the Taxing Power of LGUs
Not an inherent power; may only be exercised if delegated by law or Constitution
Not absolute; subject to limitations provided by law or Constitution
Legislative; can be exercised by local legislature
Territorial; bound by geographical limits
47
[NI-NA-LT]
Sources of Revenue (sec. 287, NIRC)
1. Local sources
tax revenues from real property tax and business tax
non tax revenues from fees and charges
receipts from government business operations
proceeds from sale of assets
2. External sources
Internal Revenue Allotment (IRA)
Special laws
Grants
Aids and borrowings
Fundamental Principles of Local Taxation

a. Taxation shall be uniform
b. Taxes, fees and charges shall be:
Equitable
Based as far as practicable on taxpayers ability to pay
For public purposes
NOT unjust, excessive, oppressive or confiscatory
NOT contrary to law, public policy, national economic policy, or in

restraint of trade
c. Collection not to be left to private person.
d. Revenue to inure solely to the benefit of the LGU levying the tax
e. Each LGU to have a progressive system of taxation.
Common Limitations (15)
LGUs power to tax shall not extend to any of the following (15):
1.
2.
3.
4.
5.
6.
Income tax, except when levied on banks and other financial institutions
Documentary stamp tax
Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa
[AGILE]
Customs duties, registrations fees of vessels, and wharfage on wharves, tonnage
dues, all other kinds of customs fees
Goods carried into or out of, or passing through territorial jurisdictions of LGUs
Agricultural and aquatic products
7.
8.
9.
10.
11.
12.
13.
14.
15.
Business enterprises certified to by the Board of Investments as pioneer or nonpioneer for a period of six (6) and four (4) years, respectively from the date of
registration;
Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;
Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided in the LGC;
Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in the LGC;
Taxes on premiums paid by way of reinsurance or retrocession;
Taxes, fees or charges for the registration of motor vehicles and for the issuance of
all kinds of licenses or permits for the driving thereof, except tricycles;
Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided;
Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under Republic Act No. 6810 "Magna Carta for
Countryside and Barangay Business Enterprises (Kalakalan 20)" and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) "Cooperatives Code of
the Philippines"
Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
[VP-PRECIPITANCES]
Income Tax
tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business
LGU cannot impose tax on income, except in case of banks and other financial
institutions
gross receipts
from interest, commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property, profit from exchange or sale of
property, insurance premium
Interest and Dividend Incomes
any tax imposed on interest or dividends received by non-bank and non-financial
institutions assume the nature of income tax
banks and other financial institutions derive such gross receipts in the ordinary
course of their business as financial institutions
48
for non-bank and non-financial institutions, interest and dividend incomes are
merely passive investment income
nature of ordinary business income
tax imposed thereon the nature of ordinary business tax
Documentary Stamp Tax

tax on documents, instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto
imposed on the privilege of conducting a particular business or transaction and not
on the business or transaction itself
the law taxes the document because of the transaction so that the tax becomes
due and payable at the time the transaction is had or accomplished
cannot be imposed by the LGU pursuant to the LGC, presumably to avoid indirect
duplicate taxation
Taxes on Gratuitous Acquisitions
tax on these subjects is covered by the Tax Code and is collected by the national
government
estate tax is a tax on the net value of property left by a deceased on the date of his
death
inheritance tax is a tax calculated on the property received by a person from a
deceased through succession
Section135 of the LGC, provinces and cities may impose a tax on the sale, donation,
barter, or any other mode of transferring ownership or title of real property
Customs Duties, Vessel Registration Fees, and Wharfage
Custom Duties
customs duties is covered by the Tariff and Customs Code and implemented by the
Bureau of Customs
LGU cannot validly impose a tax based on a cargo manifest or bill of lading
tax partakes of the nature of an import duty, which is beyond the LGU's authority
to impose by express provisions of law
Vessel Registration
Section 149 of the LGC, municipalities may impose license fees for the operation of
fishing vessels of three (3) tons or less
Wharfage
a fee assessed against the cargo of a vessel engaged in foreign or domestic trade
based on quantity, weight, or measure received and/or discharged by vessel
wharfage fee is prohibited only on wharves constructed and maintained by the
national government not on those owned and operated by the LGU
Sections 153 and 155 of the LGC, LGUs, through their Sanggunian
imposition of toll fees or charges for the use of any public roads, pier, or wharf
funded and constructed by them
Goods Carried Into, Out of, or Passing Through
on goods or merchandise
also because it is an impediment or restraint against free flow of trade and
commerce within the territory of the LGU, adjacent and adjoining LGUs and the
country as a whole
No Unjust Enrichment on the Part of the Users
those benefits resulted from the infrastructure that the LGU is mandated by law to
provide
no unjust enrichment where the one receiving the benefit has a legal right or
entitlement
when there is no causal relation between one's enrichment and the other's
impoverishment
Agricultural and Aquatic Products
whether in their original form or not
imposition of the tax will definitely restrict the free flow because the price will have
to increase
Marginal Farmer as Fisherman
individual engaged in subsistence farming or fishing limited to the sale, barter or
exchange of agricultural or marine products produced by himself and his
immediate family, and whose annual net income does not exceed Fifty Thousand
Pesos or the poverty line established by NEDA
BOI-Certified Enterprises
incentives to Registered Enterprises
six (6) years from commercial operation for pioneer firms and four (4) years for
non-pioneer firms, new registered firms shall be fully exempt from income taxes
levied by the National Government
No Retroactivity
only upon the effectivity of LGC which was on January 1, 1992
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Excise Taxes and Petroleum Products

LGUs are prohibited from imposing taxes on alcohol products, tobacco products,
petroleum products, miscellaneous products such as fireworks, cinematographic
films, jewelry, perfume, mineral products because they are covered by the Tax
Code
specific tax based on the unit or number, weight or volume capacity or any other
physical unit of measurement of the objects to be taxed
ad valorem tax based on the selling price or other specified value of the goods
however, LGU may impose business tax on any business not exceeding two percent
(2%) of gross sales or receipts of the preceding calendar year
Tax on Petroleum Business
Section 133(h) 'taxes, fees or charges on petroleum products' does not qualify the
kind of taxes, fees or charges that could withstand the absolute prohibition
absence of such a qualification leads to the conclusion that all sorts of taxes on
petroleum products, including business taxes, are prohibited by Section 133(h)
The language of Section 133(h) makes plain that the prohibition with respect to
petroleum products extends not only to excise taxes thereon, but all 'taxes, fees
and charges'
While local government units are authorized to burden all such other class of goods
with 'taxes, fees and charges,' excepting excise taxes, a specific prohibition is
imposed barring the levying of any other type of taxes with respect to petroleum
products
Percentage Tax and VAT
Under the Tax Code, in the course of trade as business, sells, barters, exchanges,
leases goods or properties, or renders services, and any person who imports goods
shall be subject to the value-added tax (VAT)
any person whose sales or receipts are exempt and who is not a VAT-registered
person shall be liable to pay a percentage tax of three percent (3%) of his gross
quarterly sales or receipts
a percentage tax is a "tax measured by a certain percentage of the gross selling
price or gross value in money of goods sold, bartered or imported; or of the gross
receipts or earnings derived by any person engaged in the sale of services
Authority to Levy Amusement Tax
provinces are not barred from levying amusement taxes even if amusement taxes
are a form of percentage taxes
"except as otherwise provided"
Section 140 of the LGC expressly allows the imposition of amusement taxes
Transportation Contractors
LGUs may tax transportation contractors and common carriers on a basis other
than gross receipts
exception is the business tax on contractors and other independent contractors,
which is a fixed graduated tax based on gross receipts
Common Carrier
legislative intent is to prevent a duplication of the so-called "common carrier's tax"
common carrier is already paying 3% common carrier's tax on its gross
sales/earning under the Tax
Tax on Premiums
Reinsurance is a contract by which an insurer procures a third person to ensure him
against loss or liability by reason of original insurance
retrocession is the practice of one reinsurance company essentially insuring
another reinsurance company by accepting business that the other company had
agreed to underwrite
tax on insurance premiums is not included in the prohibition
only receipts of insurance premiums may be taxed by the LGU
Motor Vehicle Registration
except tricycles
a motor vehicle is any vehicle propelled by any power other than muscular power
using the public roads excluding road rollers, trolley cars, street-sweepers,
sprinklers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and
cranes if not used on public roads, vehicles which run only on rails or tracks,
tractors, trailers, and traction engines of all kinds used exclusively for agricultural
purposes
Power over Tricycles
under Section 458[a][3][VI], the power to regulate their operation and to grant
franchises for the operation thereof
must not have had the effect of withdrawing the express power of LTO to cause the
registration of all motor vehicles and the issuance of licenses for the driving thereof
Registration and Licenses not Included
delegated powers to LGUs pertain to the franchising and regulatory powers
exercised by the Land Transportation Franchising and Regulatory Board ("LTFRB")
and not registration of motor vehicles and issuance of licenses for the driving
thereof
motor vehicles "used or operated on or upon any public highway"
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Export Products
Philippine products actually exported
foreign products are not covered by the limitation
prohibition pertains to the exported products, while business tax, to the business
exporting itself
Countryside and Barangay Business Enterprises and Cooperatives
"countryside and barangay business enterprises" means any registered business
entity, association or cooperative whose:
o Number of employees does not exceed twenty (20) at any time for the
purpose of undertaking a productive business enterprise recommended
by the Department of Trade and Industry (DTI) provincial office that will
help develop the economy in its area.
"productive business enterprise" shall not apply to business

enterprises engaged principally in: professional services,
retailing, wholesaling or trading of commodities, products or
merchandise
o Assets, do not exceed Five hundred thousand pesos (Php500,000.00)
before financing;
o Principal office and location located in the countryside
exemption does not extend to service charges or rental for the use of property and
equipment or public utilities owned by LGU
National Government
exemption does not include government-owned or controlled corporations
Power to prescribe penalties for violation of tax ordinance
sanggunian is authorized to prescribe fines subject to the following limitations:
o in no case shall fines be less than Php1,000.00 nor more than
Php5,000.00;
o Nor shall the imprisonment be less than one (1) month nor more than six
(6) months
sangguaniang barangay prescribe a fine of not less than One hundred pesos
(Php100.00) nor more than One thousand pesos (Php1,000.00)
Adjustment of Rates of Tax
subject to the following limitations:
o not oftener than once every five (5) years
o in no case shall such adjustment exceed ten percent (10%) of the rates
fixed under the Local Government Code
EXCEMPTION FROM LOCAL TAXES

Grant of Tax Exemptions
grant tax exemptions, incentives or reliefs
tax exemptions are conferred through, non-transferable tax exemption certificate
does not apply to regulatory fees because they are levied under the police power
of the LGU
Guidelines
grant of tax exemptions or tax reliefs:
o may be granted in cases of natural calamities, civil disturbance, general
failure of crops, or adverse economic conditions
o through an ordinance
o exemption or relief granted to a type or kind of business shall apply to all
business similarly situated
o only during the next calendar year for a period not exceeding 12 months
as may be provided in the ordinance
o shared revenues, the exemption or relief shall only extend to the LGU
granting
grant of tax incentives
o same shall be granted only to new investments in the locality and the
ordinance
o grant shall be for a definite period of not exceeding one (1) calendar year
o grant shall be by ordinance passed prior to the 1st day of January of any
year
o any grant to a type or kind of business shall apply to all business similarly
situated
Withdrawal of Tax Exemption Privileges
Section 193
tax exemptions or incentives granted to, or presently enjoyed by all persons are
hereby withdrawn upon the effectivity of this Code
General Withdrawal
the taxpayer has the heavy burden of proving exemption
The later general law prevails
the rule that a special law must prevail over the provisions of a later general law
does not apply as the legislative purpose to withdraw tax privileges enjoyed under
existing laws or charters is apparent from the express provisions of Sections 137
and 193 of the LGC
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The exemption is limited to three entities

local water districts
cooperatives duly registered under Republic Act No. 6938
non-stock and non-profit hospitals and educational institutions
Regional or Area Headquarters (RHQs) and Regional Operating Headquarters (ROHQs)
regional or area headquarters and regional operating headquarters of
multinational companies exempt from all kinds of local taxes, fees or charges
imposed by a local government unit except real property tax
Exemption is Limited to Taxes
are liable to pay building permit and related fees
Congress Prevails over LGU
legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers, doubts must be
resolved in favor of municipal corporations
in case Congress enacts a later law granting exemption, same prevails over the
provision withdrawing exemption under the LGC
ENACTMENT OF LOCAL TAX ORDINANCES
Conduct of public hearing is mandatory
public hearings conducted for the purpose
Procedure
within ten (10) days from filing of any proposed tax ordinance published for three
(3) consecutive days in a newspaper of local circulation at least four (4)
conspicuous public places
sanggunian shall cause the sending of written notices of the proposed ordinance,
enclosing a copy to the interested or affected parties operating or doing business
within the territorial jurisdiction of the LGU concerned
specify the date or dates and venue of the public hearing or hearing shall be held
not earlier than ten (10) days from the sending out of notice or the last day of
publication, or date of posting thereof, whichever is later
all affected or interested parties shall be accorded an opportunity to appear and
present or express their views, comments and recommendations until all issues
have been presented fully deliberated upon or consensus is obtained
secretary of the sanggunian prepare the minutes attach to the minutes the
position papers, memoranda, other documents submitted by those who
participated
Burden of Proof
lack of a public hearing is a negative allegation essential to the taxpayer's cause of
action
taxpayer is the party asserting has the burden of proof
general rule regularity of the enactment of an officially promulgated statute or
ordinance may not be impeached by parol evidence or oral testimony
presumption in favor of the regularity of official conduct absent a clear showing to
the contrary
Approval of Ordinance
ordinance enacted by the sangguniang panlalawigan, sangguaniang panlungsod,
sangguniang bayan presented to the provincial governor or city or municipal
mayor
ordinances enacted by the sangguaniang barangay signed by the punong barangay
affix his signature on each and every page
veto it and return the same with his objections
sangguanian concerned may override the veto of the local chief executive by twothirds (2/3) vote of all its members, making the ordinance or resolution effective
for all legal intents and purposes
veto shall be communicated by the local chief executive concerned to the
sanggunian within fifteen (15) days in the case of a province, ten (10) days in the
case of a city or a municipality; otherwise, the ordinance shall be deemed approved
as if he had signed it
Publication and Dissemination
published and disseminated
within ten (10) days after their approval, certified true copies of all provincial, city,
municipal tax ordinances or published in full for three (3) consecutive days in a
newspaper of local circulation
at least two (2) conspicuous and publicly accessible places
barangay tax ordinances furnished the respective local treasurers for public
dissemination
if the tax ordinance or revenue measure contains penal provisions, the gist of such
tax ordinance or revenue measure published in a newspaper of general circulation
within the province where the sanggunian concerned belongs
shall be considered as falling at the beginning of the next ensuing quarter the taxes,
fees, or charges, due to accrue therefrom
Purpose of Publication
52
a condition precedent to the effectivity and enforceability of an ordinance to

inform the public of its contents before rights are affected by the same
Review of Ordinance. The Secretary of justice reviews the validity of the tax ordinance or
revenue measure.
On appeal, the constotutionality or legality of tax ordinances or revenue maesures may be
raised within 30 days form the effectivity thereof to the Secretary of justice who shal render
a decision within 60 days from the date of receipt of the appeal.
NOTE: The appeal has no effect of suspending the effectivity of the ordinance and the accrul
of the payment of the tax, fee or charge levied therein.
If the Secretary of Justice did not act on the appeal or after the lapse of 60 days, the
aggrieved party may file an appropriate proceedings with a court of competent jurisdiction.
Power of Supervision. The review power of the Secretary of Justice of tax measures enacted
by the local government unit to determine if the officials performed their function in
accordance with law, the same is an act of mere supervision, not control.
Power of RTC Judge. An RTC judge has the authority to pass upon the validity of a city tax
ordinance even after its validity had been contested by the Secretary of Justice and a
decision rendered thereon by said official.
Applicable case: San Miguel Corporation v. Avelino, GR No. L-39699, March 14, 1979
Facts: A city demanded from a taxpayer the payment a specific tax, but the latter contested
that the ordinance was illegal or void. The taxpayer went to the Secretary of Justice who
rendered the opinion that it is of doubtful validity. However, a suit for collection was filed by
the city where it squarely put in issue the validity of such ordinance, thus contesting the
opinion of the Secretary of Justice. The taxpayer moved to dismiss the case on the ground of
lack of jurisdiction. The Supreme Court held the issue on this manner.
Mandatory Periods
Under the LGC, a dissatisfied taxpayer who questions the validity or legality of a tax
ordinance must file his appeal to the Secretary of Justice within 30 days from effectivity
thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for the
aggrieved party to go to court. But if the Secretary does not act thereon after the lapse of 60
days, a party could already proceed to court to seek relief.
A decision is rendered--- 30 days to appeal to the Secretary of Justice.
Another 30 days to go to court after the appeal is decided upon by the Secretary.
In case of inaction of the Secretary or after the lapse of 60 days, the aggrieved party may go
directly to the court to seek relief.
NOTE: These three separate periods are clearly given for compliance as a prerequisite before
seeking redress in a competent court. This is MANDATORY.
Purpose: To prevent delay as well as enhance the orderly and speedy discharge of judicial
functions. Consequently, any delay in implementing tax measures would be to the detriment
of the public. It is for this reason that protests over tax ordinances are required to be done
within certain time frames.
Suspended or Disapproved Ordinance.

A suspended or disapproved tax ordinance or revenue measure cannot be enforced. If
enforced despite due notice of disapproval or suspension, the same is sufficient ground for
administrative discilinary action against the local officials and emloyees responsible thereof.
Reserved/Residual Taxing Power.
The LGUs exercise the power to levy taxes, fees,charges on any base or subject not otherwise
specifically provided in the LGC or taxed under the provisions of the NIRC, as amended, or
other applicable laws PROVIDED THAT:
1. The taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory, or contrary to the declared national policy;
2. A prior public hearing was conducted for that purpose.
NOTE: The exercise of such residual/reserved taxing power mustobserve and conform to the
inherent and constitutional limitations, common limitations, fundamental principles and the
procedures under the LGC.
Principle of the Pre-emption/Exclusionary Doctrine and Concurrent Power
Pre-emption- refers to the instance where the national government elects to tax a particular
area, impliedly withholding from the local government the delegated power to tax the same
field. This doctrine primarily rests upon the intention of the Congress.
The pre-emption will not apply if there is express grant of autority (i.e allow municipal
corporations to cover fields of taxation it already occupies).
Pre-emption applies to the following taxes (hence, may not be levied by the LGU):
Taxes levied under the NIRC; taxes, fees imposed under the TCC; taxes charge under special
laws.
NOTE: Pre-emption does not apply between or among LGUs. They may tax the same subject
as long as it is within their jurisdiction. In this case, there exists concureent taxing power
where the power is shared by both the national and local government. The power may also
be exercised simultaneously within the same territory and in relation to the same subject.
SITUS OF LOCAL TAXATION
General Rule: An LGU has tax jurisdiction over tax subjects within its territory.
EXCEPTION: Issues which the LGU has authority arise (meaning there is a question whether
the LGU has authority to tax or not) when a business enterprise operates in several
jurisdictions as when the principal office, branch, factory, etc. are situated in different LGUs.
(Meaning, business decisions are made in the principal business while the implementation is
carried out through the business units.)
To address this issue, the LGC provides for rules on situs to ensure that each of the LGU gets
a rightful share in the collection.
Definitions:
Principal Office- the head or main office of the bisiness appearing in the pertinent
documents submitted to the SEC or DTI or other appropriate agencies, as the case may be.
MEANING, the city or municipalityspecificially mentioned in the in the AOI of official
53
registration papers as being the official address of said principal office sahll be considered the
situe thereof.
NOTE: In case of relocation of the the principal office to another city or municipality, it shall
be the duty of the owner, operator or manager of the business to give due noticeof such
transfer to the local chief executive (mayor) of the cities or munics concerned within 15 days
after such transfer is effected.
Branch or Sales Office- a fixed place in a locality which conducts operations of the business
as an extension of the principal office. Example- warehouses which accept orders and/or
issue sales invoises independent of a branch with sales office are considered as sales offices.
NOTE: Offices used as display areas of the products are not wihtin the purview of branch or
sales office.
Warehouse- a building utilized for the storage of products for sale and from which goods are
withdrawn for delivery to customers or dealers or by persons acting in behalf of the business.
SALES ALLOCATION. Recording of sales shall be governed by the following rules:
1. Sales made in a locality where there is a branch or sales office or warehouse shall
be recorded in said branch and the tax shall be payable to the city or munic where
the same is located.
2.
In cases where there is no such branch, the sale shall ne recorded in the principal
office along with the sales made by the principal office and the tax shall accrue to
the city or munic where said principal office is located.
3.
In case where there is a factory project office or plantation in the pursuit of the
business, 30 per cent of all sales recorded in the principal office shall be taxable by
the city or munic where the principal office is located and 70 per cent of all sales
recorded in the principal office shall be taxable in the principal office where the
factory projecto office or plantation is located.
NOTE: LGUs where only experimental farms are located shall not be entitled to the sales
allocation.
A.) In case of a plantation located in a locality other than that where the factory is
locadted, the 70 per cent sales allocation shall be divided as follows:
a.) 60 per cent to the city or munic where the factory is located
b.) 40 per cent to the city or munic where the plantation is located
B.) In case where there are 2 or more factories, plants located in different localities,
the 70 per cent sales allocation shall be prorated among the localities where such
factories or plants are located in proportion to their respective volumes of
production during the period for which the tax is due.
C.) The foregoing sales allocation shall be applied irrespective of whether or not slaes
are made in the locality where the factory or plantation is located.
D.) In case of manufacturersor producers which engage the services of an independent
contractor to manufacture or produce some of their products, these rules on situs
of taxation shall apply except that the factory or plant and warehouse of the
contractor utilized for the production and storae of the manufacturers products
shall be considered as the factory or plant or warehouse of the manufacturer.
Port of Loading. The city or munic where the port of loading is located shall not levy and
collect the tax impossable on business and occupation UNLESS the exporter maintains in said
city or municipality its prinicpal office.
Situs of Excise Tax. The situs of an excise tax depends upon the place in which the act is
performed or occupation engaged in. it does not depend on the domicile of the person
subject to the excise tax nor upon the physical location of the property but depends upon the
place in which the act is performed or occupation engaged in.
Situs of Sale. The place of the consummation of the sale determines the situs. An LGU can
validly tax the sales to customers outside of its territory as long as the orders were booked
and paid for in the companys branch office in the city.
SPECIFIC TAXES THAT MAY BE LEVIED BY LGUs
Taxing Powers of Provinces
The province may levy only the following taxes, fees and charges:
1.
Taxes on transfer of Real Property Ownership at rate not more than 50
per cent of 1 per cent of total consideration;
2.
Franchise tax- at a rate not exceeding 50 per cent of 1 per cent of the
gross receipts for the preceeding calendar year;
3.
Tax on Sand, gravel and other Resources- at a rate not more than 10 per
cent of fair market value;
4.
Tax on business of Printing and Publication- at a rate not exceeding 50
per cent of 1 per cent;
5.
Professional Tax- at a rate not more than 300 pesos annually.
6.
Amusement Tax- at a rate not more than 10 per cent of gross receipts
from admission fees;
7.
Annual fixed tax for every Delivery truck or van of manufacturers in
certain products- at a rate not exceeding 500 pesos annually.
[PD FRAPS]
Taxes on transfer of Real Property Ownership. Taxes on the sale, donation, barter or on any
other mode of transferring ownership or title of real property at rate not more than 50 per
cent of 1 per cent of total consideration involed in the acquisition of property or their fair
market value in case the monetary consideration involved in the transfer is not substantial,
whicever is higher.
Exemption. The sale, transfer or any disporition of real property pursuant to RA No. 6657
(The Comprehensive Agrarian Reform Law of 1998). Also, socialize housing for the benefit of
the underprivileged and homeless is exempt from transfer tax. Also, the change in ownership
of the corporation will not trigger the tax on transfer of real property. Moreover, the
54
subsequent registration of title to the land in the name of condominium corporation is not
subject to transfer tax.
NOTE: Transfers without monetary consideration such as donations, braters and succesion
are taxbale. What is being taxed is the exercise of privilege to transfer or convey a property.
The determining factor is whether or not there is indeed a transfer of ownership or title over
the real property.
The acquisition for official use of embassies, consulates or diplomats is exempted from
transfer tax under the generally accepted principles of international laws.
Tax on business of Printing and Publication. Tax on the business of persons engaged in the
printing of and publication of books, cards, posters, leaflets, etc. at a rate not exceeding 50
per cent of 1 per cent of the gross annual receipts for the preceeding calendar year. In case
of a newly started business, it shall not exceed the 1/20 of 1 per cent of the capital
investment.
Exemption: the recepts from the printing of books or other reading materials prescribed by
the DepEd as school texts or references.
Franchise Tax. Tax on the business enjoying franchise at a rate not exceeding 50 per cent of 1
per cent of the gross receipts for the preceeding calendar year based ont eh incoming receipt
realized within its territorial jurisdiction. In case of a newly started business, it shall not
exceed the 1/20 of 1 per cent of the capital investment. In the succeeding year, the tax shall
be based on the gross receipts for the preceeding claendar year.
Franchise- a right or privilege, affected with public interest which is conferred upon private
persons or corporations, under such terms and conditions as the government may impose in
the interest of public welfare, security and safety.
Franchise tax- tax on the privilege of transacting business in the state and exercising
ccorporate franchise by the State. It is a concurrent power simultaneously exercised by
national and local governments. Aside form national franchise tax, the franchisee is still liable
to pay a local franchise tax, unless it is expressly and unequivocally exemtped from the
payment thereof.
Territorial Limits. Provinces should impose the franchsie tax on businesses whitin its
territorial jurisdiciton, thus excluding the territorial limits of any city located therein.
Tax on Sand, gravel and other Resources. Levy and collect at a rate not more than 10 per
cent of fair market value in the locality per cubic mter of ordinary stones, sand, gravel and
other os similar nature as defined in the NIRC extracted from public lands or from the beds of
seas, lakesm streams, creeks and other public waterswithin its territorial jurisdiction.
The proceeds on the tax shall be distributed as follows:
Province- 30 per cent
Component city or municipality where the sand, gravel, etc are extracted
- 30 per cent
Barangay where the sand, gravel, etc. are extracted- 40 per cent
NOTE: The permit to extract shall be issued exclusively by the provincial governor.
The Regalian doctrine does not apply because tax a burdens and are construed strictissimi
juris against the government.
The authority to impose taxes on such nature belongs to the province and not to the
municipalitywhere they are found.
Professional Tax. Annul professiznal tax on each person engaged in the exercise or practice
of a profession requiring government examination at such amount and resaonable
classification as the sangguniang panlalawigan may determine but shall in no case exceed
300 pesos.
Where to pay? It shall be paid to the province where he practices his profession or where he
maintains his principals in case he practices his profession in several places. However, such
person who has paid the corresponding professional tax shall be entitled to practice his
profession in any part of the Philippines without being subject to any other national or local
tax, license, or fee for the practice for such profession.
It is the duty of the employer to require the payment of his employees profesional tax on his
profession beofre employment and annually thereafter. It shall be payable annuall or on or
st
before the 31 day of January.
NOTE: Professionals exclusively employed in the government shall be exempt from the
payment of this tax.
Those covered professionals are those who only passed the bar examination or any board or
other examinations conducted by the PRC.
Amusement Tax. Provinces may levy tan amusement taxt to be collected from the
proprietors, lesees or operatoers of theathers, cinemas, concert halls, boxing stadiaand other
places of amusements at a rate not more than 10 per cent of gross receipts from admission
fees.
Amusment is a pleasurable diversion and entertainment. It is synonymous to relaxation,
pastime or fun.
EXEMPTION: The holding of operas, concerts, dramas, paintings, flower shows, musical
programs, literay and oratorical presentations except pop rock or similar concerts shall be
expemt from the payment of the tax.
The proceeds from the amusment taxt shall be shared equally by the province and the
municipality where such amusement places are located.
Amusement not covered by amusment tax:
1. Professional basketball games
2. Resorts, swimming pools, bath houses, hot springs and tourist spots
NOTE: LGUs cannot impose amusement tax pursuant to the principle of pre-emption.
Annual fixed tax for every Delivery truck or van of manufacturers in certain products.
Annual fixed tax for every truck, van or any vehicle used by manufactures, producer,
wholesalers, dealers, etc in the delivery or distribution of distilled spirits, fermented liquors,
soft drinks, cigars, etc wihtin the province at a rate not exceeding 500 pesos annually.
Taxing Powers of Municipalities
55
Municipalities may levy taxes, fees and charges not otherwise levied by the province.
Tax on business. See Section 143 of the LGC.
NOTE: SERVICE is not an article of commerce. The word article refers to such material or
corporeal things as goods or physical property, which is distinguished from service which is
intangible product.
Taxing Powers of Cities
There are three classifications of cities provided in the Local Government Code, namely, (1)
highly urbanized city, which is a city of at least 200,000 inhabitants AND an income of at least
50 million pesos at 1991 prices; (2) component city, which is a city which that does not meet
the criteria for highly urbanized cities; and (3) independent component city, which is a
component city whose charter prohibits its inhabitants from voting in the provincial
elections.
Among local government units, the city has the widest scope of taxing. Section 151 of the
Local Government Code states:
[A] city may levy the taxes, fees, and charges which the province or municipality
may impose The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes.
From that provision, a city covers the scope of taxing of either a municipality or a province. It
is also authorized to collect a higher tax rate, i.e. 50% of the maximum rates allowed for the
province or municipality. (Insight) The reason why a city is provided a much wider scope and
a greater power is that cities are generally the centers of commerce, transportation, religion,
education, finance, and culture of a certain province or locality. Being centers of such
activities, cities need more revenues to fund its many activities and projects that are involved
in the mentioned activities.
The provision above is the general scope of taxation for cities. In addition to such general
scope, cities may also levy and collect a percentage tax on any business not provided in the
list of specific businesses a municipality may taxed on, at rates not exceeding three percent
(3%) of the gross sales or receipts of the preceding calendar year. Moreover, cities may
collect a professional tax at a rate of 300.00 Pesos per calendar year per professional, and an
amusement tax on paid admission at a rate not exceeding 10% of the gross receipts from
admission fees. Lastly, highly urbanized cities has a share of 60%, of the proceeds of the tax
on sand, gravel, and other quarry resources extracted from within the boundaries of the city.
The taxes, fees and charges levied and collected by highly urbanized and independent
component cities shall accrue to them. The provinces do not have a share as such cities are
fiscally and politically independent from the province
Taxing Powers of Barangays
As stated, cities have the greatest scope of taxing. As a contrast, barangays have the
narrowest scope of taxing and has the least revenue-raising powers. Its scope of taxation is
listed in Section 152 of the Local Government Code, and it states that barangays may levy or
collect the following:
1.
Taxes on stores or retailers with fixed business establishments with gross

sales of receipts of the preceding calendar year of fifty thousand pesos
(P50,000.00) or less, in the case of cities and Thirty thousand pesos
(P30,000.00) or less, in the case of municipalities, at a rate not exceeding
one percent (1%) on such gross sales or receipts.
2.
Service fees or charges for services the barangay rendered in connection

with the regulations or the use of barangay-owned properties or service
facilities such as palay, copra, or tobacco dryers.
3.
Barangay clearance fees for the issuance of such barangay clearance,

which is a document required for the issuance of any license or permit for
any business.
4.
Other fees and Charges on

(1) Cockfights, cockpits, and commercial breeding of fighting cocks,
(2) Billboards, signboards, neon signs, and outdoor advertisements, and
(3) Recreation places which charge admission fees.
[BROS-CAR]
Common Revenue-Raising Powers of Local Government Units

Under Sections 153-155 of the Local Government Code, any local government unit may
collect the following:
1.
Service Fees and Charges for services rendered.
2.
Toll Fees or Charges for the use of any public road, pier, or wharf,
waterway, bridge, ferry or telecommunication system funded and
constructed by the local government unit concerned.
56
3.
Public Utility Charges for the operation of public utilities owned,

operated and maintained by them within their jurisdiction.
1.
For every Five thousand pesos (P5,000.00) worth of real property in the
Philippines owned by it during the preceding year based on the valuation
used for the payment of real property tax under existing laws, found in
the assessment rolls of the city or municipality where the real property is
situated - Two pesos (P2.00); and
2.
For every Five thousand pesos (P5,000.00) of gross receipts or earnings

derived by it from its business in the Philippines during the preceding
year - Two pesos (P2.00).
[SToP]
Toll fees may not be collected from the following classes of people: (1) Members of the PNP
and AFP who are on mission; (2) post office personnel delivering mail; (3) physicallyhandicapped individuals; and (4) disabled individuals who are at least 65 years old. Toll fees
may also not be collected when public safety and welfare so require.
Community Tax
A community tax, or a residence tax (certificate), is a form of identification, which has its
origins from the Spanish period. (Insight) The English term community tax certificate is a
euphemism of the Spanish word cdula (sedula in Tagalog), which has a strongly negative
connotation due to the events that took place during the Philippine Revolution, particularly
43
when the revolutionaries cried Punitin and sedula! at Pugadlawin as a sign of protest and
revolt against the Spaniards who had been taxing the Filipinos heavily for centuries.
Although it has been a traditional form of identification for centuries, for notarial purposes,
however, it is no longer valid.
Individuals who are liable for community tax are inhabitants of legal age who:
1. Is engaged in business or occupation; or
2. Is required by law to file an income tax return; or
3. Owns real property with an aggregate assessed value of 1,000 pesos or
more; or
4. Has been regularly employed on a wage or salary basis for at least 30
consecutive working days.
[BROS]
They shall pay an annual community tax of five pesos and an addition tax of one peso for
every one thousand pesos of income, which in no case shall exceed 5,000 pesos.
As for juridical persons, every corporation no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an
annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which,
in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following
schedule:
43
There are only two kinds of persons who are exempt from paying the community tax, and
they are:
1. Diplomatic and consular representatives, for reasons of international
comity; and
2. Transient visitors when their stay in the Philippines does not exceed
three months, which is often the period granted to tourists arriving in the
country. (Insight) As the community tax certificate is a residence
certificate, it is illogical to impose such to transient visitors for the simple
reason that they do not intend to reside here.
Since a community tax certificate is a form of identification, it is required to be presented on
certain occasions when an individual or juridical person transacts with the State, particularly:
1. When an individual acknowledges any document before a notary public, takes
the oath of office upon election or appointment to any position in the
government service; receives any license, certificate. or permit from any
public authority; pays any tax or free; receives any money from any public
fund; transacts other official business; or receives any salary or wage from any
person or corporation with whom such transaction is made or business done
or from whom any salary or wage is received; and
2.
When, through its authorized officers, any corporation receives any license,
certificate, or permit from any public authority, pays any tax or fee, receives
money from public funds, or transacts other official business.
For voters registration purposes however, the individual is not required to present such
community tax. (Insight) The reason is that the State, and no less other than the
Constitution, recognizes the sanctity of the right of an individual to vote. It is an exercise of
civil rights that enjoys a higher privilege over the States need to have a system of identifying
Tear all cedulas!

57
its citizens. The State has means, other than requirement of presentation of the community
tax certificate, to identify a registrant.
Collection of Local Taxes
Generally, the tax period is the calendar year. The taxes may be paid in quarterly
installments. (Insight) Such manner of payment is for the benefit of the taxpayer. This is also
consistent with the prevailing Filipino culture that favors small payments so as not to feel the
impact of spending a big amount in one transaction to pay his or her taxes.
As for accrual, it is on the first day of January, or New Years Day. Payment should be made
within twenty days from the date of accrual of the tax, that is until January 20, or for
installments, until April 20, for the second quarter; until July 20, for the third; and until
October 20, for the last.
The Sanggunian, however, may extend the time for payment without imposing any
surcharges or penalties, but only for a period not to exceed six months.
If payment is not made within the allotted time, a surcharge not exceeding 25%, and an
interest not exceeding 2%, may be imposed. Interest shall, however, stop from accruing at
th
the end of the 36 month.
It is the treasurer of the local government unit (i.e. the barangay, municipal, city, or
provincial treasurer) or his duly authorized deputy who shall collect the taxes, fees and other
charges. Such treasurer has the power to examine the books of accounts and pertinent
records of any natural or juridical person for the purpose of ascertaining, assessing and
collecting the correct amount of tax.
Remedies for Collection of Revenues
There are two major remedies for the collection of revenues, and they are (1) the imposition
of a local governments lien and the (2) availing of civil remedies.
A local governments lien, which is superior to all liens, charges or encumbrances in favor of
any person, enforceable by appropriate administrative or judicial action, is imposed to any
property or rights therein, which includes property used in business, occupation, practice of
profession or calling, or exercise of privilege, for the payment of local taxes, fees, charges
and other revenues. The lien may only be extinguished upon full payment of the delinquent
local taxes fees and charges including related surcharges and interest.
Civil remedies may either be an administrative action through the distraint of personal,
including incorporeal, property, and the levy upon real property and interest in or rights to
real property, or a judicial action.
For distraint of personal property, the procedure is as follows:
1. Seizure
2. Accounting of distrained goods;
3. Publication;
4. Release upon payment before sale;
5. Sale;
6. Disposition of proceeds
44
[Sisa And Pepe Rizal Shall Die]

In seizure, upon failure to pay a tax within the required time, the LGU treasurer or his deputy
shall send a written notice to the delinquent taxpayer. After sending the notice, the treasurer
then shall proceed to seizure proper and before doing so, he shall issue a duly
authenticated certificate based upon the records of his office showing the fact of
delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate shall
serve as sufficient warrant for the distraint of personal property, subject to the taxpayer's
right to claim exemption under the provisions of existing laws. He may thereafter seize or
confiscate any personal property belonging to that person or any personal property subject
to the lien in sufficient quantity to satisfy the tax, fee, or charge in question. Distrained
personal property shall be sold at public auction in the manner hereon provided for.
Right after seizing, the officer executing the distraint shall make an accounting and issue a
copy of such to the owner, to the person who had possession of the property seized or to
someone of suitable age and discretion who is found at the residence or place of business of
the person whose property is seized.
A notice of sale shall be posted at three public and conspicuous places and such notice shall
be published.
If, however, before the consummation of the said sale, the person whose property has been
seized, pays up his delinquent taxes, charges or fees, the property so seized may be released.
During the sale, the property shall be awarded to the highest bidder for cash. If the property
remains unsold for a period of 120 days from the day of distraint, the property shall be
considered sold to the LGU for the amount of the assessment made by the Committee on
Appraisals.
Finally, the proceeds shall be disposed by applying it to satisfy the tax, and to the penalties,
interests and surcharges that accrued because of the delinquency. Also it shall be applied to
the expenses of the sale.
If the proceeds are not sufficient, another distraint may be effected.
For levy on real property, it may be done before, simultaneously or after distraint of personal
property. The procedure may be best demonstrated by the following:
Duly Authenticated Certificate
Such certificate shall be issued by the local
treasurer for the purpose of identifying the
delinquent taxpayer, his unpaid taxes, and the
fees, charges or penalties.
Writing Upon Certificate a Description of the Property

44
Based on literary, historical, philosophical and biological truths.

58
Levy shall be effected upon writing the

description of the property to be levied and
upon notice to interested persons
Notice of levy
1.
2.
3.
Written notice shall be served upon:

The assessor
Registrar of deeds
The delinquent taxpayer
Redemption
Within one year from the sale,
the delinquent taxpayer has
the right to redeem the
property upon payment of the
taxes, etc. plus an interest of
2% per month on the purchase
price.
Final Deed to Purchaser

If the taxpayer fails to
redeem, a final deed shall
be
issued
to
the
purchaser.
Advertisement
Within 30 days after levy, the LGU treasurer shall advertise for at least 30 days the
sale or auction of the property levied.
Staying of Sale
At any time before the date
of the sale, the taxpayer may
stay the proceedings by
paying the taxes, fees
charges,
penalties
and
interests.
Sale
The sale shall proceed if the taxpayer
fails to stay the sale through payment
Post-Sale Incidentals
1.
Within 30 days after the sale, a
report shall be made and delivered to the
sanggunian.
2.
A certificate of sale shall be issued to
the purchaser
3.
Any excess of the proceeds shall be
turned over to the owner.
Just like distraint, levy may be repeated once or several times as long as the full amount due
has not been extinguished.
Although either may be exercised several times, the law provides certain exemptions from
distraint or levy. (Insight) Such exemptions are provided in order for the delinquent
taxpayers dignity be recognized and that he be afforded his human rights to a decent living,
to health, to exercise his profession, and to survival. Furthermore, it is intended by the law
that the delinquent taxpayer be left with sufficient properties so that he could recover from
his financial woes.
The following are the exempted properties:
(a)
Provisions, including crops, actually provided for individual or family
use sufficient for four (4) months;
(b)
Household furniture and utensils necessary for housekeeping and
used for that purpose by the delinquent taxpayer, such as he may
select, of a value not exceeding Ten thousand pesos (P10,000.00);
(c)
One fishing boat and net, not exceeding the total value of Ten
thousand pesos (P10,000.00), by the lawful use of which a fisherman
earns his livelihood;
(d)
Any material or article forming part of a house or improvement of
any real property.
(e)
His necessary clothing, and that of all his family;
(f)
The professional libraries of doctors, engineers, lawyers and judges;
59
(g)
(h)
One (1) horse, cow, carabao, or other beast of burden, such as the
delinquent taxpayer may select, and necessarily used by him in his
ordinary occupation;
Implements and tools necessarily used by the delinquent taxpayer in
his trade or employment;
[PUBIC AngHIT]
For the other major remedy of judicial action, the procedure is (Insight) the same as any
other ordinary civil action akin to a petition for a collection of debt. The real party-in-interest
is the local government unit concerned, through its treasurer. The cause of action, however,
prescribes within five years.
Prescription
The following is a table of the periods of prescription of certain tax collection-related
activities, and the corresponding suspensions of the periods:
Tax Collection Activity Period
Suspension of the Period
Period of assessment,
in general
5 years, from the

due date
Period of assessment
when fraud is involved
Period to collect
10 years, from
discovery of fraud
5 years, from the
date of assessment
1. The treasurer is legally prevented

from making the assessment of
collection.
2. The taxpayer requests for a
reinvestigation and executes a
waiver
3. The taxpayer is out of the country
Remedies of the Taxpayer

The taxpayer has two major remedies: (1) administrative and (2) judicial action. For
administrative remedies, the taxpayer has the following remedies:
1. Before assessment, an appeal to the Secretary of Justice;
2. After assessment, a protest of assessment, a claim for refund or tax
credit, and redemption
[JARRed]
The appeal to the Secretary of Justice should involve questions of law, or specifically,
questions on the constitutionality or legality of tax ordinances or revenue measures. Such
appeal shall be made within 30 days from the effectivity of such ordinance or measure. The
Secretary has 60 days to act upon the appeal. If he denies, the taxpayer may file a court
action within 30 days from receipt of notice of such denial. However, after the lapse of 60
days from the filing of appeal before the Secretary, and the latter has not acted upon it, a
party can seek judicial relief even without any prior decision from the Secretary.
A protest of assessment may be filed before the local treasurer within 60 days from the
notice of assessment. The local treasurer shall decide within 60 days and may accept or
reject wholly or partially the protest.
As for claim of refund or tax credit, this is required to be filed before the local treasurer
before a a taxpayer may proceed to judicial relief. If a tax credit is granted, this is not
refundable to cash but may be applied to future tax obligations.
As for redemption, the delinquent taxpayer may redeem real property sold within one year
from the date of sale.
For judicial remedies, the taxpayer has the following options:
1. Court action;
2. Declaratory relief; and
3. Injunction.
For a court action, the following table demonstrates the procedure:
Mode
Appeal to the Secretary of
Justice
Period
to
file
the
Administrative Action
30 days from effectivity of tax
ordinance or measure
Denial
of
Assessment
of
60 days from receipt of the

notice of assessment
Denial of Claim for Tax

Refund
Within two years from the

date of payment.
Protest
Period to file the Court

Action
30 days if the Secretary
decides the appeal;
After the lapse of 60 days
from filing with the
Secretary, if the Secretary
does not act upon the
appeal.
30 days from the receipt of
the denial or from the lapse
of the 60-day period to
appeal to the court.
In refund cases, when the
two-year period is about to
expire, a taxpayer may
proceed to court without
waiting for the decision of
the treasurer.
For declaratory relief, the same procedure as stated in the 1997 Rules of Court shall apply.
Finally, for injunction, this may be availed by a taxpayer when he wishes to enjoin the
collection of a local tax.The issuance of a writ of injunction is prohibited if the subject matter
is a national internal revenue tax. The requisites of the issuance of a writ of injunction are: (1)
the existence of a clear and unmistakable right that must be protected; and (2) an urgent and
paramount necessity for the writ to prevent serious damage. Although the two requisites
60
may be present, the judge has the ultimate discretion to issue such writ. It is not a matter of
right especially that writs of injunction against local taxes are frowned upon.
Sources:
The Local Government Code of the Philippines (Republic Act No. 7160)
Efren Vincent Dizon, Taxation Law Compendium, Volume 1 (2013).
Chapter 7 REAL PROPERTY TAX

A. Definitions and Taxing Authority
PROPERTY TAX are taxes assessed on all property or on all property of a certain class located
within a certain territory on a specified date in proportion to its value, or in accordance with
some other reasonable method of apportionment. It is ordinary measured by amount of
property on a given day and not on total amount owned by him during the year.
REAL PROPERTY TAX (RPT) is the most important and ideal source or of revenue for local
governments. It is the largest contributor to the total own-source revenues of LGUs, and
remains to be the most reliable income source where local governments can raise an
overwhelming share of their own-source tax revenues.
Basis of Real Property Tax: A Real estate tax is a direct tax on the ownership of lands and
buildings or other improvements thereon, not specially exempted, and is payable regardless
of whether the property is used or not, although the value may vary in accordance with such
factor.
Taxing real property on the basis of ACTUAL USE, even if user is not the owner; ACTUAL USE
refers to purpose for which the property is principally and predominantly utilized by the
person in possession. Same policy was adopted in the Local Government Code.
NATURE OF REAL PROPERTY TAX
1. Usually single or indivisible, although land and building or improvements erected
are assessed separately, except when land and building belong to separate owners
2. Fixed proportion of assessed value and requires intervention of assessors
3. Collected or payable at appointed times; constitutes as a lien on and is
enforceable against property subject to tax and not by imprisonment
4. Tax in rem against realty
Note: RPT being an ad valorem tax, cannot be treated as local tax
REAL ESTATE includes all land within the district by which the tax is levied and all rights and
interests in such land, and all buildings and other structures affixed to the land, are the
property of the tenant and may be removed by him at the termination of the lease. When
there are separate owners of land, separate assessments of property of each shall be made.
IMMOVABLE PROPERTY (ART 415)
ART 415: The following are immovable property
1. Lands, buildings, roads and constructions of all kinds adhered to soil
2. Trees, plants and growing fruits, while attached to land or form an integral part of
an immovable
3. Everything attached to an immovable in a fixed manner, such way it cannot be
separated without breaking the material or deterioration of object
61
4.
Statues, reliefs, paintings or other objects for use or ornamentation placed in

buildings or on lands by the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the tenements
5. Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a
piece of land and which tend directly to meet the needs of the said industry or
works
6. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar
nature, in case their owner has placed them or preserves them with the intention
to have them permanently attached to the land, and forming a permanent part of
it; the animals in these places are included
7. Fertilizer actually used on a piece of land
8. Mines, quarries and slag dumps, while matter forms part of the bed and waters
either running or stagnant
9. Docks and structures though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast
10. Contracts for public works and servitudes and other real rights over immovable
property
MACHINERY should be actually, directly and exclusively used to meet the needs of the
particular industry, business or activity and which by their very nature and purpose are
designed for, or necessary to its manufacturing, mining, logging, commercial, industrial, or
agricultural purposes.
IMPROVEMENT: valuable addition made to a property or an amelioration in its condition,
amounting to more than a mere repair or replacement of parts involving capital expenditures
and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or
further purposes.
It can also be artificial alterations of the physical condition of the ground that are reasonably
permanent in character.
PERMANENCE: permanence intended in its construction and use; expression permanent
as applied to an improvement does not imply that the improvement must be used
perpetually but only until the purpose to which the principal realty is devoted has been
accomplished. It is sufficient that the improvement remain as long as the land to which it is
annexed is still used for that purpose.
LGUS WITH POWER TO IMPOSE REAL PROPERTY TAXfollowing may levy an annual ad
valorem on real property not specifically exempted
1. Provinces
2. Cities
3. Municipalities within Metro Manila
B. Fundamental principles, exempt properties and classification of property
FUNDAMENTAL PRINCIPLES
1. Real property shall be appraised at its current and fair market value.
2. Real property shall be classified for assessment purposes on the basis of its actual
use.
3. Real property shall be assessed on the basis of a uniform classification within each
LGU.
4. Appraisal and assessment of real property shall be equitable.
EXEMPT PROPERTIES
1. All RP owned by Republic or any of its political subdivisions
a. EXCEPTION: when the beneficial use has been granted to a taxable
person
2. Charitable institutions, churches, parsonages or convents appurtenant to and all
lands, buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes
3. All machinery and equipment that are actually, directly and exclusively used by
local water districts and GOCCs engaged in the supply and distribution of water
and/or generation and transmission of electric power.
4. All real property owned by registered cooperatives in RA 6938
5. Machinery and equipment exclusively used for pollution control and environmental
protection
Ownership exemptions
On basis of ownership;
Owned by
1. Republic
2. Province
3. City
4. Municipality
5. Barangay
6. Registered
cooperatives
Character exemptions
On
basis
of
their
character
1. Charitable
institutions
2. Houses
and
temples
of
prayer
3. Non-profit or
religious
cemeteries
Usage exemptions
On basis of actual, direct and
exclusive use to which they are
devoted
1. All lands, buildings
and
improvements
actually, directly and
exclusively used for
religious, charitable or
educational purposes
2. All machinery and
equipment that are
actually, directly and
exclusively used by
local water districts and
GOCCs engaged in the
supply and distribution
of
water
and/or
generation
and
62
3.
transmission of electric
power
Machinery
and
equipment exclusively
used for pollution
control
and
environmental
protection
1. All RP owned by Republic or any of its political subdivisions

EXCEPTION: when the beneficial use has been granted to a taxable person
Note: LGU cannot tax the national government
Liberal construction of exemptionGeneral Rule: Tax exemption is strictly construed against
the taxpayer claiming the exemption.
EXCEPTION: When Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality
EXCEPTION TO EXCEPTION: When legislature clearly intended to tax government
instrumentalities for delivery of essential public services for sound and compelling policy
considerations.
There must be express language in the law empowering local governments to tax national
government instrumentalities.
SEC 133 LGC unless otherwise provided
DOCTRINE OF EXEMPTION OF NATIONAL GOVERNMENT FROM LOCAL TAX emanates from
SUPREMACY OF NATIONAL GOVERNMENT
SEC 234 LGC--- government property being used by a taxable person or entity is subject to
tax
Real property, although owned by the Republic, is not devoted to public use or public service
but to private gain of taxable person.
EXCEPTION: when national government are subject to any kind of tax by local governments.
Exception to the exemption applies only to real estate tax and not to any other tax.
Title of government property
1. In the name of Republic
2. In the name of agencies or instrumentalities
a.
Republic may grant beneficial use of its real property to any agency or
instrumentality when real property is transferred to it even as Republic
remains the owner.
Tax liability of beneficial usecorresponding liability for payment devolves on taxable

beneficial user and not the government.
Property over which government has right to useif the government has right to use the
property, the same may be exempted from realty tax
RECLAIMED AREASforeshore and submerged areas belong to the public domain and are
inalienable unless reclaimed, classified as alienable lands upon to disposition and further
declared no longer needed for public service.
Ownership remains with the State unless it is withdrawn by law or presidential proclamation
from public use.
Even if alienable lands of public domain were transferred to Philippine Reclamation Authority
and issued land patents or certificates of title, it did not automatically made such lands
private. Reclaimed lands being leased or sold by PRA are not private lands. Only when
qualified private parties acquire these lands will the lands become private lands.
EMBASSIESART 23 Vienna Convention of Diplomatic Relations: sending state and head of
mission shall be exempt from all national, regional or municipal dues and taxes in respect of
premises of mission, whether owned or leased.
2. Charitable institutions, churches, parsonages or convents appurtenant to and all
lands, buildings and improvements actually, directly and exclusively used for
religious, charitable or educational purposes
Partial exemption is possible if only a part of the property is used for exempted purpose.
Real properties, although owned by taxable persons, which are actually, directly and
exclusively being used by an exempt entity for religious, charitable or educational purposes,
are exempted from payment of real property tax
3. All machinery and equipment that are actually, directly and exclusively used by
local water districts and GOCCs engaged in the supply and distribution of water
and/or generation and transmission of electric power.
To qualify for exemption, use must be devoted to supply and distribution of water or
generation and transmission of electric power. Machinery must be actually, directly and
exclusively used for such purpose.
Contractual exemptioncontractual assumption of the obligation to pay real property tax is
not sufficient to make one compellable to pay taxes due. It must be supplemented by an
interest that the party assuming the liability has on the property tax.
63
Thus, where vendee assumed liability for taxes, vendee is liable because he acquired use and
possession of the property, even though title remained with the vendor pending full payment
of the purchase price in a contract of conditional sale.
Liability is prospective and does not cover delinquent taxes. This is because of the principle
that user of the property bears the tax. He cannot assume where he has no possession.
Assumption of tax by an exempt entitytax exempt entity may not validly assume the tax in
a contract with a taxable beneficial user with the intention of indirectly extending the
rd
formers exemption to the latter. Such does not bind the LGU, a 3 party not privy to the
agreement and the beneficial user remains to be liable. Realty tax is directly chargeable to
the beneficial user.
4.
All real property owned by registered cooperatives in RA 6938
COOPERATIVE: autonomous and duly registered association of persons, with a common bond
of interest, who have voluntarily joined together to achieve their social, economic and
cultural needs and aspirations by making equitable contributions to the capital required.
Purposes of cooperative
1. Encourage thrift and savings mobilization among members
2. Generate funds and extend credit to members for productive and provident
purposes
3. Encourage among members systematic production and marketing
4. Provide goods and services and other requirements to members
5. Develop expertise and skills among its members
6. Acquire lands and provide housing benefits for members
7. Insure against losses of members
8. Promote and advance the economic, social and educational status of members
9. Establish, own, lease or operate cooperative banks, cooperative wholesale and
retail complexes
10. Coordinate and facilitate activities of cooperatives
11. Advocate cause of cooperative movements
12. Ensure viability of cooperatives through utilization of new technologies
13. Encourage and promote self-help
14. Undertake any and all other activities for effective implementation of Cooperative
Code
Tax Treatment of cooperativeduly registered cooperatives which do not transact any
business with non-members or the general public shall not subject to any taxes and fees
imposed under internal revenue laws.
Cooperatives transacting business with both members and nonmembers shall not be
subjected to tax on their transaction with members. Transactions of members with the
cooperative shall not be subject to any taxes and fees, final taxes on members deposits and
documentary tax.
Tax exemptions of cooperatives dealing with nonmembers
1. Cooperatives with accumulated reserves an undivided net savings of not more than
10M shall be exempt from all national and local taxes.
a. Such cooperatives shall be exempt from customs duties, advance sales or
compensating taxes on their importation of machinery, equipment and
spare parts and which are not available locally
b. All tax free importations shall not be sold nor the beneficial ownership be
transfer to any person until after 5 years, otherwise cooperative and
transferee shall be solidarily liable to pay twice the amount of imposed
tax
2.
3.
Cooperatives with accumulated reserves an undivided net savings of not more than
10M shall pay the following taxes at full rate
a. Income taxamount allocated for interest on capitals
i. Same tax is not consequently imposed on interest received by
members
ii. Cooperatives are exempt from income tax from date of
registration with CDA
b.
VATon transactions with nonmembers

i. Exemption under NIRC shall include sales and operated by
members to undertake production and processing of raw
materials or of goods produced by its members into finished or
process products for sale
c.
d.
All other taxes unless otherwise provided

Donations to charitable, research and educational institutions and
reinvestment to socioeconomic projects within the area of operation may
be tax deductible
All cooperatives regardless of amount of accumulated reserves and undivided net

savings shall be exempt from payment of local taxes and taxes on transactions with
banks and insurance companies
a. Sales or services for non-members shall be subject to applicable
percentage taxes by producers, marketing or service cooperatives
b. Nothing in law shall preclude examination of books of accounts
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5.
Machinery and equipment exclusively used for pollution control and

environmental protection
RA 7942 (Philippine Mining Act)POLLUTION CONTROL AND INFRASTRUCTURE DEVICES:
infrastructure, machinery, equipment and improvements used for impounding, treating or
neutralizing and cleansing mine industrial waste.
a. Pollution control devises shall not be considered as improvements on
land or building they are attached and not subject to real property tax
i. However, payment of mine wastes and tailing fees is not
exempted
b. Claim of exemption must be supported by evidence that property is
actually, directly and exclusively used for pollution control and
environmental protection
on actual use irrespective of any previous assessment or taxpayers valuation which is based
on a taxpayers declaration.
Incidental and reasonably necessary use- classification of property as special is not limited to
property actually indispensable but to facilities that are incidental to and reasonable
necessary for the accomplishment of its purpose
Approaches in determining fair market valueassessor uses any or all in analyzing data
gathered to arrive at the estimate fair market value to be included in the ordinance
containing the schedule of fair market values.
1. Sales analysis or market

data approach
2. Income
approach
WITHDRAWAL OF EXEMPTIONexemption from payment of real property tax previously

granted or enjoyed by all persons was withdrawn by LGC
Price paid in actual market

transactions is considered by
taking into account valid
sales data accumulated from
among various sources
stated in LGC
Value
of
an
income
producing property is no
more than the return
derived from it. An analysis
of the income produced is
necessary in order to
estimate the sum which
might be invested in the
purchase of the property
Taxability of Squatted Property

Express grant of temporary exemptionLGU may, by ordinance, expressly exempt squatted
lands on a temporary basis. Exemption is automatically lifted when owner has full control of
property.
CLASSES OF REAL PROPERTY FOR ASSESSMENT PURPOSES
1. RESIDENTIAL: land principally devoted to habitation
2. AGRICULTURAL: land devoted to planting trees, raising of crops, livestock and
poultry, dairying, salt making, inland fishing
3. COMMERCIAL: land devoted for object of profit
4. INDUSTRIAL: land devoted to industrial activity as capital investment
5. MINERAL: land in which minerals exist in sufficient quantity to justify necessary
expenditures to extract and utilize such
6. TIMBERLAND: land covered with trees suitable for carpentry
7. SPECIAL: all lands, buildings and other improvements actually, directly and
exclusively used for hospitals, cultural or scientific purposes; and those owned and
used by local water districts and GOCCs for public services in supply of water and
generation and transmission of electric power
Real property shall be classified based on its actual use
1. Valued
2. Assessed
Zoningcity or municipality within Metropolitan Manila Area, through their sanggunian,
shall have the power to classify lands in accordance with their zoning ordinances
Tax declarations are not conclusive. It only enables the assessor to identify it for assessment
levels. It does not bind the provincial/city assessor, for appraisal and assessment are based
capitalization
3. Replacement
or
reproduction
cost
approach
Factual
approach
used
exclusively in appraising
man-made
improvements
such as buildings and other
structures, based on such
data as materials and labor
costs to reproduce a new
replica of the improvement
No rigid rule
C. Rates of Levy, Penalties and Condonation
UNIFORM RATE OF BASIC REAL PROPERTY TAX
1. Province: not exceeding 1% of the assessed value of real property
2. City or municipality within Metro Manila Area: not exceeding 2% of the assessed
value of real property
Local Government Unit authorized to collect real estate tax on properties:
1. Within its territorial jurisdiction; and
2. Unquestionably within its geographical boundaries.
In case of BOUNDARY DISPUTE between two local governments, while the case is pending:
1. if the taxpayer already paid real property tax in one unit, no liability to pay in the
other unit
2. if he has yet to pay, deposit due real property taxes in an escrow account with a
government bank.
No public hearing shall be required before the enactment of a local tax ordinance levying the
basic real property tax.
SPECIAL LEVIES ON REAL PROPERTY
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1.
2.
3.
4.
Additional levy for the Educational Fund

Additional Ad Valorem tax in idle lands
Special levy by local government units, through a tax ordinance describing with
reasonable accuracy the:
a. Nature
b. Extent
c. Location of the public works projects or improvements to be undertaken
d. State of the estimated cost thereof
e. Specify the metes and bounds by monuments and lines; and
f. The number of annual installments for the payment of the special levy
which in no case shall be less than 5 nor more than 10 years.
*The Sanggunian concerned shall conduct a public hearing before the enactment of
an ordinance imposing a special levy.
Socialized Housing Tax: additional 0.5% tax in the assessed value of all lands in
urban areas in excess of Php 50, 000.00
PENALTIES FOR VIOLATION OF TAX ORDINANCES

1. Sanggunian of local government unit:
a. Fine Php 1, 000.00 to Php 5, 000.00; and/or
b. Imprisonment 1 month to 6 months
2. Sangguniang barangay:
a. Fine Php 100.00 to Php1, 000.00
CONDONATION OR REDUCTION OF REAL PROPERTY TAX
By the sanggunian concerned, upon recommendation of the Local Disaster Coordinating
Council in cases of:
1. General failure of crops
2. Substantial decrease in the price of agricultural or agri-based products
3. Calamity
By the President of the Philippines in cases:
4. When public interest so requires
D. Declaration, Assessment, and Appraisal of Real Property
COMPUTATION OF REAL PROPERTY TAX
Steps:
i.
Determine the market value;
ii.
Ascertain the assessment level of property
iii.
Multiply the market value by the applicable assessment level of the property to
determine the assessed value; and
iv.
Find the tax rate which corresponds to the class of the property and multiply the
assessed value by the applicable tax rates.
Formula in computing real property tax:
1.
2.
Fair Market Value x Assessment Level = Assessed Value

Assessed Value x Tax Rate = Real Property Tax
DECLARATION OF REAL PROPERTY: the sworn declaration of real property shall be filed with
the assessor concerned
1. every 3 years during the period from January 1st to June 30th commencing with
the calendar year 1992; and
2. within 60 days after the acquisition of such property or upon completion or
occupancy of the improvement.
*30 days from filing of declaration property, claim for Tax Exemption for such property, if
any, shall be filed with the provincial, city or municipal assessor
LISTING IN THE ASSESSMENT ROLL: real property shall be listed, valued and assessed in the
name of the owner or administrator, or anyone having interest in the property
APPRAISAL OF REAL PROPERTY: at the current and fair market value prevailing in the locality
where the property is situated
Schedules of Fair Market Value:
1. Published in a newspaper of general circulation in the province, city or
municipality; or in the absence thereof
2. Posted in the provincial capitol, city or municipal hall and in 2 other conspicuous
public places therein
ASSESSMENT: the assessment levels to be applied to the fair market value of real property to
determine its assessed value shall be fixed by ordinances of the sangguniang panglalawigan,
sangguniang panglungsod or sangguniang bayan of a munipality at the rates not exceeding
those provided in Section 218 of the Local Government Code.
*General revision of real property assessments shall be undertaken by the assessor within 2
years after the effectivity of the Local Government Code and every 3 years thereafter.
E. Duties of Certain Local Officials, Private Individuals, and Entities
Registrar of Deeds
To ascertain whether or not any real property entered in the Register of

Property has escaped discovery and listing for the purpose of taxation.
To submit to the provincial, city, or municipal (PCM) assessor an abstract of his

registry which includes brief but sufficient description of real properties
entered therein, present owners, and the dates of their most recent transfer
or alienation.
To require every person who shall present for registration a document of

transfer, alienation, or encumbrance (TEA) of real property to accompany the
TEA with a certificate that the real property subject of the TEA has been fully
paid of all real property taxes due thereon.
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Failure to provide such certificate: ROD will refuse the registration of the
document.
Notice of appeal is the last action which gives the owner of the property the right
to appeal to the Local Board of Assessment Appeals (LBAA).
Whenever the local assessor sends a notice to the owner or lawful possessor of
the real property, the assessor shall no longer have jurisdiction to entertain any
request or readjustment.
Where should the taxpayer go? The aggrieved party may bring his appeal to the
LBAA as provided by law.
Officials Issuing Building Permits or Certificates of Registration of Machinery
To transmit a copy of such permit or certificate within 30 days of its issuance

to the assessor of the province, city, municipality (PCM) where the property is
situated.
Geodetic Engineers
To furnish free of charge the assessor of the province, city, municipality (PCM)
where the land is located with a white or blue print copy of each of all
approved original or subdivision plans or maps of surveys within 30 days from
receipt of such plans from Lands Management Bureau (LMB), Land
Registration Authority (LRA) or the Housing and Land Use Regulatory Board
(HLURB).
Registrar of Deeds and Notaries Public
To furnish the provincial, city, or municipal (PCM) assessors with copies of all
contracts selling, transferring, or otherwise conveying, leasing, or mortgaging
real property received by or acknowledged before them.
Insurance Companies to Furnish Information
To furnish the provincial, city, or municipal (PCM) assessor copies of any

contract or policy insurance on buildings, structures, and improvements
insured by them or other documents necessary for the proper assessment
thereof.
F. Assessment Appeals
Remedy of Dissatisfied Taxpayer Against Assessment
The Dissatisfied Taxpayer may appeal to the Board of Assessment Appeals of
the city or province, within 60 days from the date of receipt of the written
notice of assessment.
How?
By filing a petition under oath in the form prescribed for the purpose.
Together with the copies of the tax declarations and such affidavits or
documents submitted in support of the appeal
Motion for Reconsideration is not allowed
Motion for reconsideration is not allowed by the procedure to be filed by the
property owner to the local assessor.
Who is the Proper Party to File a Protest?

A person who is legally burdened with the obligation to pay for the tax imposed
on a property has a legal interest in the property and he has the personality to
protest a tax assessment on the property.
Liability for taxes generally rests on the owner of the real property at the time
the tax accrues.
However, a personal liability for realty taxes may also expressly rest on the entity
with the beneficial use of the real property.
In those cases, the unpaid realty tax attaches to the property but is directly
chargeable against the taxable person who has actual and beneficial use and
possession of the property even though he is not the owner.
Examples:
-Tax on property owned by the government but leased to private persons or
entities.
-When the tax assessment is made in the basis of the actual use of the property.
-
Legal interest should be an interest that is actual, material, direct and

immediate, not simply contingent or expectant.
Lessee may protest

When? if granted full power and authority to represent the lessor in any
proceeding regarding real property assessment.
Composition of the Board Assessment Appeals
- The Register of Deeds as Chairman
- The Provincial or City Prosecutor as member
- The Provincial or City Engineer as member
In case there is no Provincial or City Engineer, the district engineer shall serve as member
of the Board.
What will happen in the absence of Registrar of Deeds, or the provincial or city
prosecutor, or the provincial or city engineer or the district engineer? the persons
performing their duties, whether in an acting capacity or as a duly designated officer in
67
charge, shall automatically become the chairman or member, respectively of said Board, as
the case may be.
Oath or Affirmation of Office
- The Chairman and members of the Board of Assessment appeals shall
assume their respective positions without need of further appointment or
special designation immediately upon the effectivity of the LGC.
Board Meetings
- The Board of Assessment Appeals of the province or city shall meet once a
month and as often as may be necessary.
- No member of the Board shall be entitled to per diems or travelling
expenses for his attendance in Board Meetings.
Exception:
When conducting an ocular inspection regarding a case under appeal.
No Suspension of Collection despite Appeal
Appeal on assessments of real property made under the provisions of LGC does
not suspend the collection of the corresponding realty taxes on the property
involved.
Powers of the Board in the Exercise of its Appellate Jurisdiction
1. Summon witnesses
2. Administer Oaths
3. Conduct Ocular Inspection
4. Take Depositions
5. Issue Subpoena and Subpoena Duces Tecum
Decision and Degree of Evidence Required
The Board after hearing, shall render its decision based on substantial evidence
or such relevant evidence on record as a reasonable mind might accepts as
adequate to support the conclusion.
The Board shall decide the appeal within 120 days from the date of receipt of
such appeal.
Exception to Exhaustion of Administrative Remedies
Exhaustion of administrative remedies does not apply in cases where the
controversy does not involve questions of fact but only of law.
In this case, the jurisdiction is with the trial court.
Estoppel in Questioning Jurisdiction
A party cannot invoke a courts jurisdiction to secure affirmative relief and,
after failing to obtain the requested relief, question that same jurisdiction.
Appeal of Unfavorable Decision

The party who is not satisfied with the decision of the Board may, within 30
days after the receipt of the decision of said Board, may appeal to the Central
Board of Assessment Appeals.
The decision of the Central Board shall be final and executory.
Composition of the Central Board of Assessment Appeals
- Chairman
- 2 Members to be appointed by the President, who shall serve for a term of 7
years without reappointment
Hearing Officers
- shall be appointed by the Central Board of Assessment Appeals pursuant to the
civil service laws, rules, and regulations.
- shall serve for 6 years, without reappointment until their successors have been
appointed and qualified.
Fact-Finding Function
CBAAs authority is not limited to the exercise of its appellate jurisdiction.
Why? Because the Supreme Court, in the exercise of its extraordinary jurisdiction,
may also designate it as a court appointed fact-finding commission to assist the
court in factual decisions raised in certain actions such as prohibition.
G. Collection of Real Property Tax

Date or Accrual of Tax
The real property tax for any year shall accrue on January 1
From that date, it shall constitute a lien on the property.
Such lien shall be superior to any other lien, mortgage, or encumbrance of any
kind.
It will only be extinguished upon the payment of the delinquent tax.
Person Responsible for Collection of Tax
City or Municipal Treasurer

Collection of the real property tax with interest thereon and related
expenses, and the enforcement of the remedies.
Barangay Treasurer
May be deputized by the city of municipal treasurer to collect all taxes on
real property located in the barangay provided that the barangay
treasurer is properly bonded.
Collection by Municipalities
Real property tax is a provincial imposition
68
But the collection of which is delegated to the component municipalities through

their respective Municipal Treasurers who shall issue official receipts for payments
received and recorded in the reports of collections and deposits and in the cash
books.
There shall be annotated on the tax receipts the words paid under protest.
Protest Not Required in Refund
Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund.
Conversion of Municipality to City

1. The remittance of the share of the mother Province from the basic real property taxes
is a statutory obligation of the component municipalities which are only deputized to
collect real property tax.
2. A component municipality that has been converted into a city remains obligated to
remit the share of the mother province from any real property tax due before its
conversion, but were paid and collected thereafter.
3. A newly converted city that has not enacted its own real property tax ordinance, but
collects real property tax using the real property tax ordinance of the province is
obligated to remit the share therefrom of the latter.
4. Once the newly converted city enacts its own property tax due and collected pursuant
thereto shall accrue exclusively to the city.
Procedure
Should the taxpayer or real property owner question the excessiveness of
reasonableness of the assessment, the taxpayer should first pay the tax due before
his protest can be entertained.
There shall be annotated on the tax receipts the words paid under protest
The local treasurer would not entertain the protest unless the tax due has been
paid.
If the local treasurer denies the protest or fails to act upon it within the 60-day
period, the taxpayer or real property owner may then appeal or directly file a
verified petition with the LBAA within 60 days from denial of the protest or receipt
of the notice of assessment.
Payment of Real Property Taxes in Installments

The owner of the real property of the person having legal interest therein may pay
the basic real property tax and the additional tax for Special Education Fund due
thereon without interest in four equal instalments.
Pretemission of Holiday
What happens if the last day of the quarterly payment falls on a holiday or nonworking day? the next succeeding business day is considered the last day of
payment of the tax.
Tax Discount for Advanced Prompt Payment
If the basic real property tax and the additional tax accruing to the Special
Education Fund are paid in advance, the sanggunian shall grant a discound not
exceeding 20% of the annual tax due.
Repayment of Excessive Collections
Assessment of basic real property tax or any other tax is found to be illegal or
erroneous
Taxpayer may file a written claim or refund or credit for taxes and
interests within 2 years from the date that the taxpayer is entitled to
such reduction or adjustment.
The provincial or city treasurer shall decide the claim for tax refund or
credit within 60 days from receipt thereof.
Claim for tax is denied the taxpayer may avail of assessment appeals.
Payment under Protest
No protest shall be entertained unless the taxpayer first pays the tax.
H. Delinquency in Payment of Real Property Taxes

Notice of Delinquency
The provincial, city, or municipal treasurer shall immediately cause a notice of
delinquency when the real property tax or other tax becomes delinquent.
The notice must be posted at the main entrance of the provincial capitol, or city or
municipal hall and in a publicly accessible and conspicuous place in each barangay.
The notice shall also be published once a week for 2 consecutive weeks in a
newspaper of general circulation in the province, city, or municipality.
The notice shall specify:
i. Date upon which the tax became delinquent
ii. That personal property may be distrained to effect payment
iii. That at the time before the distraint of personal property, payment of
the tax with surcharges, interests and penalties may be made
iv. Unless the tax is paid before expiration of the year for which the tax is
due, the delinquent real property will be sold at public auction, and the
title to the property will be vested in the purchaser, subject to the
delinquent owners right to redemption within 1 year from date of sale
Interests on Unpaid Real Property Tax
Taxpayer shall pay interest at the rate of 2% per month on the unpaid amount of
basic real property tax or any other tax upon the expiration of the periods for
payment, or when due, until the delinquent tax shall have been fully paid.
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In no case shall the total interest on the unpaid tax or portion thereof exceed 36
months.
Remedies for the collection of Real Property Tax

LGU concerned may avail of:
1. Administrative action thru: (i) levy on real property, or (ii) judicial action
2. Civil action in any court of competent jurisdiction. The civil action shall be filed
by the local treasurer within the prescribed period.
Basic real property tax and any other tax constitutes a lien on property subject to
tax, superior to all liens, charges or encumbrances in favor of any person, and may
only be extinguished upon payment of the tax and the related interests and
expenses.
I. Levy on Real Property

After the expiration of the time required to pay the basic real property tax or any
other tax, the subject real property may be levied upon through the issuance of a
warrant on or before, or simultaneously with the institution of the civil action for
the collection of the delinquent tax.
Warrant of Levy
- Provincial or city treasurer or a treasurer of a municipality within Metro Manila
shall prepare a duly authenticated certificate showing the name of delinquent
owner of the property or person having legal interest therein, description of
the property, amount of tax due, and interest thereon.
- It shall operate with the force of legal execution throughout the province, city,
or a municipality within Metro Manila.
Service of Warrant
- It shall be mailed to or served upon delinquent owner or person having legal
interest therein
- In case the person is out of the country or cannot be located, to the
administrator or occupant of the property.
- Notice is mandatory
An essential and indispensable requirement; non-fulfillment of which

vitiates the sale
Holding of a tax sale despite the absence of requisite service is

tantamount to violation of delinquent taxpayers substantial right to due
process.
- No presumption of regularity
- Registered Owner Rule
For purposes of real property taxation, the registered owner of the

property is deemed the taxpayer.
Local treasurer cannot rely solely on the tax declaration but must verify
with the Register of Deeds
Annotation
- Written notice of the levy with the attached warrant shall be mailed to or
served upon the assessor and the Registrar of Deeds (RD) of the province, city,
or municipality within Metro Manila
- Assessor shall annotate the levy on the tax declaration while RD shall annotate
on the title of the property
Report
- Within 10 days after receipt of warrant by owner, levying officer shall submit a
report on the levy to the sanggunian concerned
Advertisement and Sale

Within 30 days after service of warrant of levy, local treasurer shall publicly
advertise for sale or auction the property or a usable portion thereof
Advertisement shall be effected by posting a notice at the main entrance of the
provincial, city or municipal building, and in a publicly accessible and conspicuous
place in the barangay where the real property is located, and by publication once a
week for 2 weeks in a newspaper of general circulation in the province, city or
municipality
Advertisement shall specify the amount of delinquent tax, interest due thereon
and expenses of sale, date and place of sale, the name of the owner of the real
property or person having legal interest therein, and a description of the property
to be sold.
Stay of Proceedings
- Owner or person having legal interest may stay the proceedings by paying the
delinquent tax, interest due and expenses of sale at any time before the date
fixed for the sale.
- Payment of delinquent tax even at the auction stage is allowed, provided the
entire amount with interest and expenses is paid. The public auction will be
stopped.
The sale shall be held at the main entrance of the provincial, city, or municipal
building, or on the property to be sold, or at any other place as specified in the
notice of the sale.
Local treasurer shall prepare and deliver to the purchaser a certificate of sale.
Proceeds of the sale in excess of the delinquent tax shall be remitted to the owner
or person having real interest therein.
Local treasure may, by ordinance duly approved, advance an amount to defray the
costs of collection.
Redemption of Property Sold
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Right to redeem exists within 1 year from the date of sale, upon payment to the
local treasurer of the amount of the delinquent tax including interests and
expenses of sale, plus interest of not more than 2% per month on the purchase
price from date of sale to the date of redemption
o Exception: If a local ordinance provides that the one-year redemption
period should be counted from the date of annotation of the sale of the
property at the proper registry
o In cases involving redemption, the law protects the original owner.
Payment will invalidate the certificate of sale issued to the purchaser; owner or
person with legal interest shall be entitled to a certificate of redemption, issued by
local treasurer or his deputy
From date of sale until expiration of the period of redemption, delinquent owner or
person with legal interest shall be entitled to the income and other fruits of the
subject property.
Local treasurer or his deputy, upon receipt of certificate of sale, shall return to the
purchaser the entire amount paid by him plus interest of not more than 2% per
month.
Final Deed of Purchase

Local treasurer shall execute a deed conveying the property to purchaser in case
owner or person with legal interest fails to redeem the property.
Purchase by LGU
- Local treasurer shall purchase the real property in behalf of LGU concerned if (i)
theres no bidder or (ii) the highest bid is for an amount insufficient to pay the
real property tax and the related interest and costs of sale
- RD shall transfer the title of the forfeited property to the LGU without necessity
of an order from a competent court
- Taxpayer or his representative may redeem the property within 1 year from
date of such forfeiture, by paying the full amount of the real property tax and
the related interest and costs of sale.
- If not redeemed, ownership shall be fully vested on the LGU.
Property under Litigation

- The court may motu proprio or upon representation of the provincial, city, or
municipal treasurer award ownership, possession, or succession to any party to
the action upon payment to the court of the taxes with interest and other
costs.
Resale of Real Estate Taken for Taxes, Fees, or Charges
The sanggunian may by ordinance duly approved and upon notice of not less than
20 days, sell and dispose of real property acquired by the LGU. The proceeds of the
sale shall accrue to the general fund of the LGU.
Action Assailing Validity of Tax Sale

Taxpayer shall deposit the amount for which the real property was sold, with
interest of 2% per month from the date of sale to the time of the institution of the
action before any court will entertain an action assailing the validity of any sale of
real property or rights at public auction.
The amount deposited shall be paid to the purchaser at the auction sale if the deed
is declared invalid. If the action fails, it shall be returned to the depositor.
No court shall declare a sale at public auction invalid by reason of irregularities or
informalities in the proceedings unless the substantive rights of the delinquent
owner or person with legal interest have been impaired.
The deposit is a jurisdictional requirement; non-payment of which warrants the
dismissal of the action.
- However, it is only applicable in voidable tax sale.
- Exception: When taxpayer is assailing the invalidity of the tax sale. It cannot be
invoked when the sale is void because the property subjected to real property
tax is not situated within the jurisdiction of the taxing authority.
Further Distraint or Levy
Levy may be repeated if necessary until the full amount due, including all expenses,
is collected.
J. Prescription
Prescriptive Period for Collection of Basic Real Property Tax
Real property tax and any other tax levied under LGC shall be collected within 5
years from the date they became due.
In case of fraud or intent to evade payment of the tax, within 10 years from
discovery of such fraud or intent to invade payment
Prescriptive periods were provided to enforce the collection of real property tax
within a specific time. Beyond the period, no action for collection shall be
instituted.
If local treasurer has been sending notices of delinquency and/or reminder letters
for payment, the tax may be collected even beyond the 5-year period.
Prescription may only be validly invoked by taxpayer if local treasure neglected or
deliberately failed to perform his mandated duties.
Interruption or Suspension of Prescriptive Period
The period to collection shall be interrupted or suspended in the following instances:
i. Local treasurer is legally prevented from collecting the tax
ii. Owner of the property or the person having legal interest therein requests
for reinvestigation and executes waiver in writing before the expiration of
the period within which to collect, and
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iii. Owner of the property or the person having legal interest therein is out of
the country or otherwise cannot be located
Prescriptive Period for Refund or Credit
Taxpayer may file a written claim for refund or credit for taxes and interests with
the provincial or city treasurer within 2 years from the date of entitlement to such
reduction or adjustment.
CHAPTER 8
PHILIPPINE TARIFF AND CUSTOMS
A.
POWERS AND LIMITATIONS
Tariff the system of imposing duties or taxes on the importation of foreign merchandise
Customs duties taxes on the importation or exportation of commodities; a tax levied on
imports by the customs authorities of a country to raise state revenue, and/or to protect
domestic industries from competitors abroad
GENERAL RULE: All articles imported from foreign country into the Philippines are subject to
duty. The same rule applies if the article has been previously exported from the Philippines
EXCEPTIONS: (EPIS-G)
1. Those expressly exempted under the Tariff and Customs Code
Example: conditionally free importations (Sec. 105)
2. Grant of exemption by the President of the Philippines
3. Those exempted pursuant to special laws
Example: RA 9290
4. Exemption granted to government agencies, instrumentalities, and GOCCs with
contracts and agreements with foreign countries or international organizations
5. Exemption of international organizations or institutions pursuant to agreements,
treaties or special laws
Fees Charged by the Bureau of Customs (WHAT-BS)
Wharfage
due
Harbor fee
Arrastre
charge
Tonnage
due
Berthing
charge
What
Amount assessed against the cargo of the
vessel engaged in foreign trade based on the
quantity, weight, or measure received or
discharged by such vessel
Payment for each entrance into or departure
from a port of entry in the PH
Payment for the handling, receiving, and
custody of the imported or exported article or
baggage of the passengers
Amount paid based on the net tonnage of the
vessel or weight of the articles discharged or
laden in PH
Amount assessed against a vessel for mooring
or berthing at a pier or wharf at any port in the
PH
Who Pays
Owner, consignee, or agent
of the owner or consignee
of the article
Owner, agent, operator or
master of a vessel
of the article or baggage
Owner, agent, operator, or
master of the vessel
Owner, agent, operator, or
master of the vessel
72

of the article
Fraudulent practice any article sold, bartered, hired or used for purposes other than that
they were intended without prior payment of duties, taxes or charges due and payable at the
time of entry
Articles Subject to Duty goods, ware, merchandise and anything that may be made the
subject of importation or exportation
1. Freely-importable articles articles that may be imported without regulation,
prohibition, or prior clearance from the government
2. Regulated articles articles which may be imported in the PH subject to clearances
or permits from appropriate regulatory government agencies or departments
3. Money, checks, and money orders
Temporary admission/temporary imports those conditionally-free importations that may

be imported without payment of duties upon posting of a bond equivalent to 150% of the
taxes due thereon conditioned on the re-exportation thereof within a specified period
Example:
a. Articles brought for repair to be re-exported upon completion of the repair
b. Articles used exclusively for public entertainment, public display or exhibition
c. Articles brought by foreign film producers directly and exclusively used for making
or recording motion picture films on location in the PH (THINK: Jason Bourne
movie)
d. Personal and household effects and vehicles of foreign consultants and experts
hired by the government
e. Imported material used in manufacturing, packaging, covering, branding and
labeling articles in a bonded manufacturing house
Storage
charge
Amount assessed on articles for storage in

customs premises, cargo shed and warehouses
of the government
Prohibited Articles
1. Absolutely prohibited articles
Example:
a. Written or printed articles advocating or inciting treason, rebellion, sedition,
insurrection or subversion against the government of PH
b. Written or printed articles, negatives, or cinematographic film, photograph
and similar articles representing obscene or immoral character
c. Articles, drugs, instruments for producing unlawful abortion
d. Opium pipes and parts thereof
2. Qualifiedly prohibited articles those that may be imported subject to certain
conditions or limitations
a. Dynamite, gunpowder, ammunition and other explosives, firearms and
weapons of war
b. Devices used for gambling (roulette wheels, gambling outfits, loaded dice,
marked cards)
c. Lottery and sweepstakes tickets except those authorized by the PH
government
d. Any article manufactured in whole or in part of gold, silver or other precious
metals or alloys thereof, the stamps, brands or marks of which do not indicate
the actual fineness of quality of said metals or alloys
e. Marijuana, opium poppies, coca leaves, heroin and other narcotics or
synthetic drugs which are declared habit-forming by the president of PH
Conditionally-free Importations articles that are exempt from payment of import duties
upon compliance with prescribed formalities or regulations
Drawbacks a refund of duties especially on imported products subsequently exported or

used to produce a product for export
Who pays: Bureau of Customs
When paid: 60 days after receipt of properly accomplished claims
B.
Basis of Dutiable Value and Weight
1. Valuation System/Hierarchical Order of Application

-stated sequentially.
-application is done in order.
-when the dutiable value cannot be determined under the particular method, the
next method in the sequence can be used.
Method One: Transaction Value the price actually paid or payable for the goods when sold
for export to the Philippines, adjusted by adding:
a. fees to the extent that they are incurred by the buyer but not included in the
price actually paid or payable for the imported goods;
b. the value of the proceeds of any subsequent resale, disposal or use of the
imported goods;
c. cost of transport;
d. loading/unloading and handling charges; and
e. cost of insurance
73
Method Two: Transaction Value of Identical Goods transaction value of identical goods
sold for export and exported at or about the same time as the goods being valued.
*Identical goods: same in all respects (physical characteristics, quality, reputation)
imported goods by filing sufficient guarantee in an amount equivalent to the

imposable duties and taxes on the imported goods. However, goods prohibited by
law to be imported shall not be released.
Method Three: Transaction Value of Similar Goods transaction value of similar goods for
export and exported at or about the same time as the goods being valued.
*Similar goods: although not alike in all respects, have like characteristics and like
component materials which enable them to perform the same functions and to be
commercially interchangeable.
*Right of Collector of Customs: When a declaration has been presented and when
the customs administration has reason to doubt the truth or accuracy of such
documents produced, he may ask the importer to provide further explanation that
the declared value was adjusted in accordance with the provisions of Method One.
If, after receiving further information, or in the absence of a response, he
still has reasonable doubt therein, it may be deemed that the customs value of the
imported goods cannot be determined under Method One, without prejudice to an
importers right to appeal.
Method Four: Deductive Value based on the unit price sold in the Philippines in the
greatest aggregate quantity to persons not related to the persons from whom they buy such
goods.
2. Bases of Dutiable Weight.

Method Five: Computed Value - computed value which shall be the sum of:
a. cost or value employed in producing the imported
goods;
b. amount for profit and general expenses reflected in
the sale of goods;
c. freight insurance fees and other transportation
expenses;
d. Any assist, if its value is not included under par. (a);
and
e. cost of containers and packing.
Method Six: Fallback Value using other reasonable means and on the basis of data
available in the Philippines.
a. dutiable by the gross weight weight of the same, together with the weight of
all containers, packages, holders, and packing of any kind at the time of
importation.
b. dutiable by the legal weight - weight of the same, together with the weight of
immediate containers, packages, holders, and packing in which such articles are
usually contained at the time of importation and/or, when imported in retail
packages, at the time of their sale to the public in usual retail quantities.
c. dutiable by the net weight only the actual weight of the articles at the time of
importation.
d. articles affixed to cardboard, wood, paper or similar common material dutiable
together with the weight of such holders.
e. single package contains imported articles dutiable according to different
weights common exterior receptacles shall be prorated.
*Limitations: No dutiable value shall be determined under this method on the basis
of:
1. selling price in the Philippines of goods produced in the Philippines;
2. system that provides for the acceptance for customs purposes of the
higher of 2 alternative values;
3. price of goods in the domestic market of the country of exportation;
4. cost of production, other than computed values, that have been
determined for identical or similar goods
5. price of goods for export to a country other than the Philippines;
6. minimum customs values; or
7. arbitrary or fictitious values.
3. Rate of Exchange value and prices quoted in foreign currency shall be converted into the
currency of the Philippines at the current rate of exchange by the BSP.
4. Effective Date of Rates of Import Duty
*Imported articles existing at the time of entry or withdrawal from a warehouse
in the Philippines for consumption.
*Articles Abandoned/Forfeited/Seized on the date of the public auction
*Dutiable Weight/Quantity/Volume of Articles at the time of their entry into the
warehouse or date of abandonment, forfeiture and/or seizure.
5. Entry or Withdrawal from Warehouse, for Consumption:
*Release of Goods in Case of Delay if it becomes necessary to delay the final

determination of such dutiable value, the importer shall secure the release of the
74
*deemed entered in the Phil. for consumption when specified entry form is
properly filed and accepted, together with any related documents required, at the port or
station, by any the customs official designated to receive such and the required fees have
been paid provided that the article has previously arrived within the limits of the port of
entry.
*deemed withdrawn from a warehouse in the Phil. For consumption when
the specified form is properly filed and accepted at the time of withdrawal by the customs
official designated to receive the withdrawal entry and any fees required to be paid at the
time of withdrawal have been deposited.
C.
REGULAR AND SPECIAL DUTIES
1. Regular Duties/Tariff Barriers Taxes that are imposed or assessed upon merchandise
from, or exported to a foreign country for the purpose of raising revenue. It may also limit
the amount of goods, which can be imported into a country.
Purpose of Tariff Barriers: Designed to protect the domestic manufacturers or producers
from foreign competition.
Kinds of Regular Duties/Tariff Barriers
when destined for domestic consumption in the exporting country. (Formula: Anti-Dumping
Duty =Normal Value Export Price)
Elements of Dumping:
a. Like Product
b. Price Difference
c. Injury
d. Causal Link
Effects of Dumped Products:
a. Price Depression
b. Price Suppression
c. Price Undercutting
Procedure:
a. Filing of Anti Dumping Protest
b. Filing a Bond
c. Prima Facie Determination
d. Preliminary Determination
e. Final Determination
f. Issuance of Department Order
g. Judicial Review
Four ways to assessed Custom Duties:

1.1
1.2
1.3
1.4
Ad valorem Duty Assessed as percentage of the import value of goods(e.g., 30% of

Free on Board price).
Specific Duty - Assessed on the basis of some units of measurement such as quantity
(e.g., Php500.00 per dozen) or weight, either net, legal or gross weight.
Alternating Duty Alternates ad valorem and specific duties.
Compound Duty Assessed as a combination of the specific duty and ad valorem duty
(e.g., Php 200.00 per kilogram net, plus 30% of FOB price).
2. Special Duties/Non-tariff Barriers Imposed and collected in addition to the ordinary

custom duties on specific kinds of imported articles under certain conditions usually for the
protection of consumers and manufacturers as well as Philippine products from undue
competition posed y foreign-made products.
Kinds of Special Duties/Non-Tariff Barriers
2.1. Anti Dumping Duty - It refers to a special duty imposed on the importation of a
product, commodity or article of commerce into the Philippines at less than its normal value
Dumped Import Product - Refers to any product commodity or article of commerce

introduced into the Philippines at an export price less than its normal value in the ordinary
course of trade which is causing material injury to the domestic industry.
Note: Dumping occurs when foreign producers sell their products to an importer in the
domestic market at prices lower than in their own national market. It is a form of price
discrimination between two national markets.
2.2. Countervailing Duty It is levied, in addition to the regular duty and other charges by an
importing country on its imports which have been found to be subsidized in the country of
origin or exportation. It is equal to the ascertained amount of subsidy calculated in terms of
subsidy per unit of the subsidized export product.
Elements:
a. Product Compatibility
b. Subsidy
c. Injury
d. Causal Link
e.
75
Procedure:
h. Filing a Petition
i.
Prima Facie Determination
j.
Preliminary Determination
k. Final Determination
l.
Issuance of Department Order
m. Judicial Review
Subsidy Any specific Assistance directly or indirectly provided by the government of the
country of export or origin in respect of the product imported into the Philippines.
a.
b.
c.
Yellow Subsidies or Actionable subsidies Neither non-actionable nor

prohibited subsidies
Green Subsidies or Non- Actionable Subsidies Permitted as they are of a
general nature
Red Subsidies or Prohibited Subsidies Include export subsidies that are
contingent on export performance and on the use of domestic over imported
goods.
(ii.)
Discriminates in fact against the commerce of the Philippines, directly or

indirectly, by law or administrative regulation or practice, by or in respect to
any customs, tonnage, or port duty, fee, charge, exaction, classification,
regulation, condition, restriction, or prohibition in such manner as to place the
commerce of the Philippines at a disadvantage compared with the commerce
of any foreign country.
Note:
If such foreign country increased its said discrimination against the commerce of the
Philippines, the president if he deems it consistent with the interest of the Philippines, issue
further proclamation that the said product and articles of the foreign country imported in its
vessel, shall be excluded from importation into the Philippines.
2.5. Safeguard Measure Duties - It is imposed to protect domestic industries and producers
from increased imports which cause or threaten to cause serious injury to those domestic
industries and producers.
Note:
Industries are deemed to have received subsidy as a result of : ( i) Direct or potential transfer
of government fund (ii) The government foregoing the revenue that should have otherwise
been collected ( iii) The government providing goods or services or purchasing goods
Note:
The Secretary shall apply a general safeguard measure upon a positive final determination of
the Commission that a product is being imported into the country in increased quantities as to
be a substantial cause of injury or threat to the domestic industry.
Subsidy in order to be countervailable must be ( i) Specific (ii) An industry sector or group of

industries (iii) A designated geographic region within the jurisdiction of the granting authority
General Safeguard Measure administered by:
2.3. Marking Duty It is imposed on every article of foreign origin imported into the
Philippines which is not marked in any official language of the Philippines in a conspicuous
place as legibly, indelibly and permanently as the nature of the article or its container will
permit (in such a manner as to indicate to an ultimate purchaser in the Philippines) the name
of the country of origin of the article.
Note:
The failure or refusal of the owner or importer to mark the articles within a period of thirty
days after due notice shall constitute as an act of abandonment of said articles.
2.4 Discriminatory Duty It is imposed on articles wholly or in part the growth or product of
or imported in a vessel of any foreign country whenever such country:
(i.)
Imposes directly or indirectly upon the disposition or transportation in transit

through or re-exportation from such country of any article wholly or in part
the growth.
a.
b.
c.
d.
Department of Trade and Industry/ Bureau of Import Services

Department of Agriculture
Tariff Commission
DTI or DA Secretary
Note:
The DA Secretary shall issue a DO requesting the DF Secretary to impose additional special
safeguard duty on agricultural product if: (i) Its cumulative import volume in a given year
exceeds its trigger volume and (ii) Its actual import price is less than its trigger price, both
subject to conditions of RA 8800.
D.
FLEXIBLE TARIFF CLAUSE
Basis: The Congress, may, by law authorize the President to fix within the specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts, within the
76
framework of the national development program of the government. (Section 28(2) of Article
VI of the 1987 Constitution)
*May be exercised even for revenue purposes only
Tariff Powers of the President:
1) Increase, reduce, or remove existing protective rates of import duties including the
necessary changes in the classification
Condition: increase in the rate cannot exceed 100% ad valorem
2) Establish import quota or ban import of any commodity whenever necessary
3) Impose additional duty on ALL imports, not exceeding 10% ad valorem whenever
necessary
4) Cause a gradual reduction of protection levels upon periodic investigations by the
Tariff Commission and recommendation of NEDA
Requisites for the Exercise of Power
1) In the interest of national economy, general welfare and/or national security
2) Recommendation of NEDA to the President
a) Tariff Commission must conduct an investigation
b) Public hearing shall be held
c) Report shall be submitted to NEDA within 30 days after termination of the
public hearing
Except: in the imposition of additional duty not exceeding 10% ad valorem
Power to modify the form of duty: the corresponding ad valorem or specific equivalents of
the duty with respect to imports from the principal competing foreign country for the most
recent representative period shall be used as bases
2)
E.
Modify import duties and other import restrictions
DUTY FREE SHOPPING, BALIKBAYAN BOXES AND IMPORTED VEHICLES
Duty Free Shopping

Duty Free Stores: retail establishments licensed by the government to sell duty and
tax-free merchandise for the convenience of travelers
Duty and tax-free flow of goods
allowed in Economic Zones provided such are consumed therein
subject to applicable duties and taxes when brought out of the
ecozones
Special Economic Zones: selected areas of the country with highly
developed infrastructure or which have potential to be developed
into agri-industrial tourist/recreational, commercial, banking,
investment, financial centers
All passengers arriving from abroad are entitled and can avail of the privilege upon
presentation of:
1) Valid passport
2) Flight ticket and
3) Boarding pass
Subject to the following limitations:
1) As to amount
18 years old and above
Minors
Balikbayans
Powers of the President Regarding Foreign Trade

For the purpose of:
1) Expanding foreign markets for Philippine products as a means of assistance in
the economic development of the country
2) Overcoming domestic unemployment
3) Increasing the purchasing power of the Philippine peso
4) Establishing and maintaining better relations between Philippines and other
countries
The President is authorized to:
1) Enter into trade agreements with foreign governments or instrumentalities
thereof
Tax Exempt Purchase:

US$ 1,500
US$ 250
Kabuhayan
Shopping
Privilege
(livelihood
tools): US$ 2,000
All other passengers
(Tourists and Filipinos
traveling to or returning
from abroad)
2)
US$ 1,000
US$ 250
As to Quantity
77
Cigarettes 2 reams
Tobacco 2 tins
Liquor and/or wine 2 bottles
Non-consumable items (value exceeds US$ 200) 1 only
3)
4)
5)
6)
7)
8)
Purchase shall only be made in US$ or other acceptable foreign currencies

Purchases shall be made within
48 hrs from date of arrival for regular passengers
15 days from date of arrival of balikbayan; extended to 30 days

during Christmas season (Nov 15 to Jan 15)
1 year from date of arrival of senior citizen/handicapped

balikbayan
Non-transferrable
Balikbayan privilege can only be availed once a year; if balikbayan arrives
again within the year considered a regular passenger for shopping purposes
Minors: consumable items only; cannot purchase liquors, wines, cigarettes,
electronics, home appliances
Tourist can purchase electronic and home appliance but subject to payment
of duties and taxes Balikbayan boxes
packages of personal effects; pasalubongs sent by Filipinos

working or residing abroad to their families or relatives in the
Philippines
only non-commercial goods/not in commercial quantity strictly

for personal use only
value must not exceed US$ 500
consignor/sender is allowed to send 1 box during a 6-month

period
opened by Philippine Customs
100% examination is required by law to:
Protect
the
legitimate
interests
of
consignors/senders and their consignees and the
transacting public
Protect the interest of the government
Prevent and suppress smuggling and other fraud

upon customs
Importation of a brand new motor vehicle no longer require prior authority

Criteria to be satisfied:
a)
b)
c)
d)
of current or advance year model

never been registered or used
covered by certificate of first ownership
of the year of the immediate preceding year in the country of origin
and/or manufacturer provided:
i)
mileage not more than 50 km
ii)
acquired by the importer from the dealer as first owner
Importation of used vehicles continue to be regulated, require prior authority from BIS, DTI
Individuals may be allowed to bring in used vehicles:
a) returning Filipino/former Filipino citizen (stayed abroad for more
than a year)
b) immigrant to the Philippines (at least a holder of a 13G Visa duly
issued by BID)
Provided:
i)
only 1 unit per family;
ii)
registered in his name for at least 6 months prior to
shipment; and
iii)
proof can be presented that it was acquired out of
the earnings abroad
Requirements and applicable duties
1. personal presence of the car-owner
2. vehicle must be left-hand drive
3. subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from
15% to 100% (depending on its piston displacement)
4. its book value serves as the tax base (not the purchase price nor the
acquisition cost)
5. spare parts are taxed separately
6. older model: depreciation schedule is 10% per year counted
downwards from current year (which has 0% depreciation rate)
7. with piston displacement of 2000 cc: max depreciation of 50%;
below 2000 cc: max of 70%
F.
EXPORT DUTIES
E.O. No. 26, July 1, 1986 abolished the export duties on all export products
except: logs as imposed under Section 154 of the TCC
78
i.
ii.
iii.
export duty imposed on logs: 20% of the gross FOB value at the time of shipment
based on the prevailing rate of exchange
only planted trees are subject to the export duty, since all naturally grown trees are
banned from being exported
CHAPTER 9
A.
B.
TARIFF COMMISSION
a. Chief Officials
i. Chairman
ii. 2 Member Commissioners to be appointed by the President
b. Investigative Functions
i. Administration and effects of tariff and custom laws
ii. Relation between duty rates between raw materials and
finished products
iii. Effects of Ad Valorem and Specific Duties
iv. Questions related to schedules and classification
v. Tariff relations
vi. Importations vs. domestic production
vii. Effects of competition with foreign industries
viii. Investigative Operations
ix. Nature and composition of articles
c. Duties of the Commission
i. Ascertain conversion and production costs in principal centers
and in foreign countries
ii. Select representative articles
iii. Ascertain import costs and selling prices
iv. Ascertain other facts which affect competition
v. Ascertain effects of tariff modifications and import restrictions
vi. Annual reports
d. Commission has access and compulsory process to any document,
summons, testimony, oaths, subpoenas
BUREAU OF CUSTOMS
a. Chief Officials
i. Chief
ii. Assistant Chief
b. Powers:
c.
d.
e.
f.
g.
C.
Assessment and collection of lawful revenues from import

Prevention and suppression of smuggling
Supervision and control over entrance and clearance of vessels
and aircraft
iv. General supervision of vessels carrying passengers or freight
v. Prohibition of unnecessary noise
vi. Exclusion of 150 ton vessels from Pasig River
vii. Registration and inspection of vessels
viii. Enforcement of quarantine regulations and of tariff and custom
laws
ix. Licensing of marine/pilots
x. Supervision and control over handling of foreign mail
Territorial Jurisdiction
i. Over all seas within Philippine jurisdiction
ii. Exclusive control in respective ports of entry
Hot Pursuit
i. May continue beyond maritime zone
Collection Districts
i. Collector of Customs at each port of entry
Visitorial Power
i. In any place where foreign articles are openly offered for sale
ii. Kept in storage
Search Warrant is needed in case of dwelling house
IMPORTATION IN GENERAL
a. Kinds
i. Freely Importable
ii. Regulated
iii. Prohibited
iv. Conditionally free
b. Importation begins upon entry into jurisdiction and terminated upon
payment of duty
c. Owner of Imported Articles
i. Person to whom the same are consigned
ii. Holder of bill of lading
iii. Consignee
d. Importer is personally liable
e. Government imports also subject to tax
f. Liability limited to the value
g. Transit cargo is an exemption to importation
79
D.
E.
JURISDICTION OVER IMPORTATION

a. Collector shall cause all articles to be entered into a customhouse,
appraised, classified, assess, collect, hold until payment of duties
b. Collector shall exercise this jurisdiction
c. Commissioner liable for lost shipment
ENTRY AT CUSTOMHOUSE
a. Persons authorized
i. Importer or holder of bill of lading
ii. Duly licensed customs broker
iii. Agent or attorney-in-fact
b. Import entry is a declaration to the BOC showing the particulars of the
imported article
c. Informal entry if article is commercial in nature or personal/household
effects
d. Formal entry if for immediate consumption or if there is a domestic letter
of credit
e. Declaration of import entry
i. Full account of the value
ii. Invoice and bill of lading are genuine and true
F.
EXAMINATION
a. Conditions for examination
i. If surveyor seal is tampered
ii. Container is damaged
iii. If shipment is covered by alert orders
iv. If the manifest differs from the actual number, weight, measure
b. Appraisers shall ascertain, estimate, determine the value and describe all
the articles
c. Readjustment of Appraisal, Classification, Return upon request in the
form of a timely protest
G.
DELIVERY OF ARTICLES
a. Collector not liable for any defect in the bill of lading
b. No delivery if no bill of lading
c. Cash deposit required for immediate delivery of packages
d. An importer of record may authorize delivery to another
e. Collector shall withhold delivery until the satisfaction of the lien
f. Customs expenses constitute a lien on the articles
g. No delivery until fines, surcharges are paid
H.
a.
b.
c.
Shall be made on the face of the entry

Tentative liquidation if an action is required to determine the exact
amount
Finality is 3 year from the date of payment of final duties
I.
ABATEMENTS AND REFUNDS

a. No abatement for damage incurred during voyage
b. Abatement for missing articles allowed upon proof and certification by
the importer
c. Abatement for deficiency in package contents also allowed
d. Abatement of duty on dead or injured animals allowed
e. Investigation is required
f. Claim for refund must be made in writing and forwarded to the collector
J.
ABANDONMENT
a. Kinds
i. Express
ii. Implied
b. Ipso facto deemed property of the government
K.
RECORDS
a. All importers required to keep records for a period of 3 years from the
date of importation
b. Compliance audit
i. Full and free access
ii. BOC has contempt powers
c. Scope
i. Firms selected by computer-aided risk management system
ii. Errors in import declaration detected
iii. Voluntary request to be audited
d. Record to be kept by Customs
i. Articles of Incorporation
ii. Company Structure
iii. Key importations
iv. Privileges
v. Penalties
L.
SEARCH, SEIZURE, ARREST

a. No obstruction of customs premises
b. Customs service shall exercise surveillance for protection of revenue and
prevention of smuggling
LIQUIDATION OF DUTIES
80
c.
d.
e.
f.
g.
To be exercised within the limits of the collection district, particular

vessel
Customs official or any authorized officer may exercise the power of
seizure and arrest
General warrant allowed if specific description is unavailable
Warrantless search not allowed in dwelling house
Right to search vessels, aircraft, persons, articles, vehicles, beasts,
persons
M. ADMINISTRATIVE PROCEEDINGS
a. Collector shall issue a warrant for the detention of the property
b. Seizure to be reported to the commissioner and auditor and the
corresponding notice to owner/importer
c. Legality of seizure can only be contested by those whose rights have been
impaired
d. Settlement involves the payment of fine or the appraised value
e. Redemption prohibited for prohibited articles
f. Scope shall be limited to subject matter
g. Reliquidation if protest is proper
h. 15 days review by the commissioner
i.
Automatic review if adverse to the government
j.
Confirmation of decision
k. Notice of decision
l.
Reliquidation
m. Government has the right to compulsory acquisition to protect revenues
against undervaluation
2.
3.
4.
5.
6.
7.
8.
9.
N. JUDICIAL PROCEEDINGS
1.
2.
3.
4.
Actions instituted under the authority of the Tariff and Customs Code shall be
brought in the name of the Philippine government and conducted by customs.
Approval of the Commissioner is required in an action for recovery of duties.
Aggrieved party may appeal to the CTA. If no appeal, ruling of the Commissioner is
final and conclusive.
BOC has exclusive jurisdiction over imported goods for enforcement of custom
laws. Seizure and forfeiture is for the Collector and then the Commissioner.
Exclusive original jurisdiction of the Collector pertains only to goods seized
pursuant to the authority under the Tariff and Customs Code.
P. DISPOSITION OF PROPERTY IN CUSTOMS CUSTODY

1.
2.
O. SURCHARGES, FINES AND FORFEITURES
3.
1.
Violations subject to surcharges, fines and forfeitures
Properties subject to forfeiture

a. Unmanifested cargo which is unloaded is subject to forfeiture
b. Possession of smuggled articles is sufficient to authorize conviction
c. Illegally withdrawn articles may be validly seized
Prima facie presumption shall exist:
a. If the conveyance has been used for smuggling at least twice before
b. If the owner is not in the business for which the conveyance is generally
used
c. If the owner is not financially in a position to own such conveyance
d. Common carriers if the owner has knowledge of its use in smuggling
Forfeiture shall be effected only when and while the article is in the custody or
within the jurisdiction of the customs authorities
Administrative fines and forfeitures shall be enforced by the seizure of the vehicle,
vessel, aircraft
Vessel or aircraft may be seized for delinquency of owner
Burden of proof shall lie upon the claimant
Commissioner may authorize seizure of other articles if no evidence of payment of
duties is shown
False or fraudulent practice to make an entry of article shall be punished
a. Undervaluation reduce duty, escape filing of formal entry, circumvent
quota restrictions
i. False invoice description
ii. False country of origin
b. Overvaluation
i. Avoid imposition of anti-dumping duties
ii. Reduce internal revenue tax base
c. Forfeiture in case of fraud requisites:
i. Wrongful making of any declaration or invoice
ii. Such declaration or invoice is false
Property under customs custody shall be subject to sale:

a. Abandoned articles
b. Articles entered under warehousing entry not withdrawn nor duties or
taxes paid
c. Seized property after liability to sale shall have been established
d. Any article subject to a valid lien for customs duties
Property shall be sold or disposed of upon the order of the Collector of the port
where the property in question is found.
Property shall be sold at public auction after 10 days notice. No customs official or
employee shall be allowed to bid.
81
4.
The following charges shall be paid from the proceeds of the sale in the order
named:
a. Expenses of appraisal, advertisement and sale
b. Duties except in the case of abandoned and forfeited articles
c. Taxes and other charges
d. Government storage charges
e. Arrastre and private storage charges
f. Freight, lighterage or general average, on the voyage of importation
5. Any surplus remaining after the satisfaction of all unlawful charges shall be
retained by the Collector for 10 days subject to the call of the owner.
6. Perishable articles may be sold at auction, after public notice, not exceeding 3
days.
7. Disposition of articles unfit for use or sale or injurious to public health shall be
ordered by the Collector in such a manner as the case may require.
8. Disposition of contraband:
a. Ammunition and weapons to the AFP
b. Highly dangerous shall be destroyed
c. Contraband coin and bullion to BSP
d. Other contraband of commercial value and capable of legitimate use may
be sold under such restrictions
9. Disposition of articles for want of bidders shall be used by BOC to promote
collection of taxes or channeled to official use of other offices.
10. Dangerous explosives shall be subject to disposition in the discretion of the
Commissioner.
11. Disposition of Smuggled Articles:
a. Written or printed articles inciting treason or rebellion
b. Written or printed articles or other representation of an obscene or
immoral character
c. Articles, instruments, drugs for unlawful abortion
d. Apparatus or devices used in gambling
e. Opium pipes
Q. OFFENSES
1.
2.
Failure to report fraud is punishable.

Statutory offenses of officials and employees:
a. Extortion or willful oppression
b. Those who knowingly demand other or greater sums than are authorized
by law
c. Those who willfully neglect to give receipts
d. Those who willfully make opportunity for any person to defraud the
customs revenue
3.
4.
e. Those who permit the violation of the law

f. Those who make or sign any false entry in any book
g. Those who fail to report any fraud
h. Those who without authority attempt to collect payment
i.
Those who disclose confidential information without authority
Offenses punishable under the Tariff and Customs Code:
a. Concealment or destruction of evidence of fraud
b. Breaking of seal on car
c. Alteration of marks on any package of warehoused articles
d. Fraudulent opening or entering of warehouse
e. Fraudulent removal or concealment of warehoused articles
f. Violation of custom laws and regulations in general
Liability for unlawful importation
a. Duty to declare
b. Administrative penalty is separate and distinct of criminal liability for
smuggling
c. A Penal provision:
i. Fraudulently imports
ii. Assists in so doing
iii. Transportation, concealment, sale
d. Kinds of smuggling
1. Outright secretly contrary to law without paying
duties imposed
2. Technical fraudulent or erroneous declaration to
avoid duties
ii. Contraband refers to articles of prohibited importations and
exportations.
iii. Elements
1. Fraudulently or knowingly imported contrary to law
2. The respondent if not the importer himself must have
in any manner facilitated the transportation,
concealment or sale of the merchandise
3. Knowledge or possession
4. Knowledge that the goods have been imported
contrary to law
iv. Mere possession is enough to convict and payment of tax due
after apprehension is not a defense
R. SUMMARY OF CARGO CLEARANCE AND REMEDIES

1.
Cargo clearance/Classification procedure
82
a.
2.
3.
Importer shall accomplish IED and pay

advance duty to AAB
b. IEIRD to be submitted to BOC along with
other forms
c. Computation of duties and taxes
d. BOC conducts review of submitted
documents
e. Importer given 10 days to justify accuracy of
declared value
f. VCRC will calendar the classification issue
for deliberation
g. Elevation to CVCRC
h. Resolution
i.
Endorsement and implementation
j.
Subject to only one MR
Remedies of the BOC
a. Tax lien
b. Administrative fines and forfeitures
c.
Reduction of customs duties/compromise
d. Search, Seizure, and Arrest
i. Collector of customs has
exclusive jurisdiction over seizure
and forfeiture
ii. In case of grave abuse of
discretion, an appeal lies to the
Commissioner then the CTA
iii. Not criminal in nature
1. Proof
beyond
reasonable doubt not
required
iv. Warrant is sine qua non condition
before any forfeiture proceeding
e. Judicial remedies
Remedies of the taxpayer
a. Protest
i. Writing
ii. Point out the particular decision
or ruling
iii. State the grounds
iv. Limited to the subject matter
v. Filed within 15 days after
payment
b.
c.
d.
e.
f.
vi. Furnish samples of goods

Refund
i. Missing packages
ii. Deficiencies in contents
iii. Lost articles
iv. Dead or injured animals
v. Manifest clerical errors
vi. Drawback
Settlement of any seizure by payment of
fine or redemption
i. Instance of fraud
1. Use
of
spurious
documents
2. Prima facie evidence of
fraud
3. False
machinations,
concealment of facts
4. Similar cases
Appeal to the Commissioner within 15 days
Abandonment
Appeal to the CTA within 30 days
i. BOC liable to pay the value if
shipment can no longer be
delivered without interest
83
CHAPTER 10
The Court Of Tax Appeals
1.
HIGHLY SPECIALIZED BODY

The CTA is a highly specialized body speicifically created for the purpose of reviewing tax
cases. The SC will not set aside the conclusion of the CTA which is dedicated exclusively
to the study and consideration of tax problems and has developed an expertise on the
subject unless there has been abuse or improvident exercise of authority.
1.1.
ACCORDED RESPECT
Its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if substantial
evidence or a showing of gross error or abuse on the part of the Tax Court does not
support them.
2.
LAW CREATING THE CTA AND ITS AMENDMENTS
3.
Originally created by R.A. 1125 (June 16, 1954)

Amended by R.A. 9282 (March 30, 2004)
Pursuant to the amendment:
o The CTA was elevated to the same level as the CA
o Consequently, appeals from its decision (en banc) shall be made before the SC
o Jurisdiction of the CTA was expanded to include:
EXCLUSIVE ORIGINAL JURISDICTION:
Over tax collection where the amount is less than PhP 1,000,000.00
all criminal offense under the NIRC, and Tariff Customs Code, BIR, and
BOC where the amount of taxes and fines is PhP 1,000,000.00
EXCLUSIVE APPELLATE JURISDICTION:
In criminal offense over appeals from the RTC
Over tax collection where the amount is less than PhP 1,000,000.00
APPELLATE JURISDICTION over the RTC decisions on local taxes
COMPOSITPOIN AND APPOINTMENT OF MEMBERS
Presiding Justice
Eight (8) Associate Justices appointed by the President
84
It may sit en banc or in three (3) Divisions, each Division of three (3) Justices each,
including the Presiding Justice, who shall be the Chairperson of the First Division
and the two (2) most Senior Associate Justices shall be served as Chairpersons of
the Second and Third Divisions.
3.1. QUORUM
The presence of five (5) members is necessary to constitute a quorum and the
same number of affirmative vote to render a valid decision.
In a division session, presence of two (2) members is necessary to constitute a

quorum and the same number of votes to render a valid decision.
4.
POWERS OF, AND PROCEEDINGS IN, THE CTA
To administer oaths
To receive evidence
To summon witnesses by subpoena
To require production of papers or documents by subpoena duces tecum
To punish contempt
To promulgate rules and regulations for the conduct of its business
To assess damages against appellant if appeal to it is found to be frivolous or
dilatory
To suspend the collection of the tax pending appeal
To render decisions on cases brought before it
To issue order authorizing distraint of personal property and/or levy of real
property
4.1. NATURE OF PROCEEDINGS

They are judicial in nature but it is not bound by the technical rules of evidence. They are
governed by the Revised Rules of the CTA. The Rules of Court apply by analogy or in a
suppletory character and whenever practicable and convenient and shall be liberally
construed in order to promote their objective of securing a just, speedy and inexpensive
disposition of every action and proceeding.
EXCLUSIVE
ORIGINAL
JURISDICTION
OVER
CRIMINAL
OFFENSES
CRIMINAL CASES:
Criminal offenses from violation of the:

a. NIRC
b. Tariff and Customs Code
c. Other laws administered by the BIR or the BOC
Offenses or felonies where the principal amount of taxes and

fees, exclusive of charges and penalties, claimed is less than PhP
1,000,000.00 shall be tried by the regular courts and that the
jurisdiction of the CTA shall be appellate
TAX COLLECTION CASES:
EXCLUSIVE
APPELLATE
JURISDICTION
Decisions by the Commissioner of the BIR involving:

o Disputed assessments
o Refunds of Internal Revenue Taxes, fees or other charges
o Penalties in relation to the abovementioned
o Other matters arising under the National Internal
Revenue or other laws administered by the BIR
Inaction by the Commissioner of Internal Revenue in cases
invlolving:
o Disputed assessments
o Refunds of Internal Revenue Taxes, fees or other charges
o Penalties in relation to the abovementioned
o Other matters arising under the NIRC or other laws
administered by the BIR where the NIRC provides a
specific period of action in which case the inaction shall
be deemed a denial
Decisions or resolutions of the RTC in local tax cases originally
decided or resolved by them in the exercise of their original or
appellate jurisdiction
Decisions of the Commissioner of Customs in cases involving:
o Liability for custom duties, fees or other money charges
o Detention or release of property attached
o Fines, forfeitures, other penalties in relation to the
abovementioned
o Other matters arising under the customs law or other
laws administered by the BOC
Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving:
o Assessment and Taxation of real property originally
decided by the provincial or city board of assessment
appeals
Decisions of the Secretary of Finance on cases elevated to him for
automatic review from decisions of the Commissioner of Customs
which are adverse to the Government under the tariff and customs
code
Decisions of the DTI Secretary in the case of non-agricultural
product, commodity, or aritcles
Decisions of the Secretary of Agriculture in the case of agricultural
product, commodity, or aritcles involving dumping and counter
ailing duties under the Tariff and Customs Code.
TAX COLLECTION CASES:
Appeals from the judgments, resolutions or orders of the
85RTC in
tax collection cases
Petitions for review of the judgments, resolutions or orders of the
RTC in the exercise of their appellate jurisdiction over tax
collection cases originally decided by the RTCs.
o
C. JURISDICTION OF CTA En Banc
The CTA En Banc has exclusive appellate jurisdiction over the following cases:
1.
Decisions, resolutions or orders of the RTC in the exercise of its appellate jurisdiction
over local tax cases and tax collection cases
2.
Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property
3.
Decisions of CTA Divisions
1.
HOW APPEAL IS MADE
2.
The 30-day period runs from the date the taxpayer receives the appealable
decision and that failure to lodge his appeal:
i. Bars his appeal and renders the questioned decision final and executor
ii. The assessment is considered correct and all that is necessary is for the
Commissioner to enforce the collection of the tax by summary remedies
or judicial action
iii. The taxpayer may only raise defenses of absence of jurisdiction, collusion
between the parties, or fraud
The 30-day period, it is not extendible.
A motion for reconsideration does not toll the 30-day period to appeal to
the CTA.
The Tax Code does not require that the Collector of Internal Revenue to
rule first on a taxpayers request for reconsideration before he can go to
the court for the purpose of collecting the tax assessed.
The Commissioner of Internal Revenue must state that his decision is final
for the 30-day period to appeal to run.
3.
By filing a petition for review provided under Rule 42 of the Rules of CivPro with
the CTA within 30 days from receipt of the decision or ruling or in the case of
inaction, from the expiration of the period fixed by law to act thereon.
With respect to decisions or rulings od the Central Board of Assessment Appeals
and the RTC in the exercise of its appellate jurisdiction, it shall be made by filing a
petition for review provided under rule 42 of the Rules of CivPro with the CTA
which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA shall be
raffled to its Divisions.
One adversely affected by such decision of a Division of the CTA may file
a motion for reconsideration before the same Division within 15 days
from notice thereof.
One adversely affected by such decision of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
In criminal cases, the general applicable in regular Courts on matters of
prosecution and appeal shall likewise apply.
One adversely affected by a decision or ruling of a CTA en banc may file with the
SC a verified petition for review on certiorari pursuant to Rule 45 of the Rules of
CivPro.
PERIOD TO APPEAL
In case of assessment by the BIR, the taxpayer shall appeal within 30 days from
receipt of decision or ruling or upon the lapse of 180 days.
NEW ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL
4.
It is a well-settled underlying principle of prior exhaustion of administrative

remedies, on the judicial level, that issues not raised in the lower court cannot be
raised for the first time on appeal. However, the exception is that the issue of
prescription may be raised for the first time since this is a statutory right. An
exception to the exception would be that errors committed by administrative
officials may be raised even for the first time on appeal because the State can
never be in estoppel, however, the Government must follow the same rules of
procedure which bind the private parties.
WHO MAY APPEAL
Any taxpayer adversely affected by a decision or ruling or inaction of:

a. The Commission of Internal Revenue
b. The Commissioner of Custom
c. The Secretary of Finance
d. The Secretary of Trade and Industry
e. The Secretary of Agriculture
f. The Central Board of Assessment Appeal
g. The RTC may appeal to the CTA
Stockholders may file an appeal in cases of dissolved corporations because they
could be held liable for the unpaid deficiency assessments of the dissolved
corporation in proportion to their distributive shares.
86
It is incumbent of the taxpayer to prove there what is the correct and just liability
by a full and fair disclosure of all pertinent data in his possession in appealing the
Collectors assessment that he claims to be erroneous.
Tax assessments by tax examiners are presumed correct and made in good faith
and it is up to the taxpayer to prove otherwise or else, it will not be disturbed.
5.
THE CTA HAS NO JURISDICTION ON A FINAL AND EXECUTORY ASSESSMENT
Self explanatory
6.
THE NON-SUSPENSION RULE
An appeal does not automatically suspend the collection of taxes.
A motion to suspend collection of taxes may be filed together with a petition for
review or with the answer, or in a separate motion filed by the interested party at
any stage of the proceedings
7.
THE NO INJUNCTION RULE
The NIRC provides that no court has the authority to grant a writ of injunction to
restrain the collection of any internal revenue tax, fee, or charge imposed by the
code.
If in its opinion the collection of taxes may jeopardize the interest of the
government and/or the taxpayer, the CTA may enjoin the same provided that a
deposit is made in the amount of the disputed assessment or a surety bond is
placed for not more than double the amount at issue.
8.
The CTA shall decide the cases filed before it within 30 days after the same has
been submitted for decision.
Non-compliance with the period does not affect the validity of the decision.
The decision must be in writing stating the facts and the law on which they are
based and signed by the judges who concurred.
Decisions shall be published in the Official Gazette.
IF IT IS A DECISION OR A RULING OF THE CTA En Banc: He may file with the SC a

verified petition for review on certiorari pursuant to Rule 45 on the Rule on CivPro.
10. GROUNDS FOR NEW TRIAL

i. FAME = Fraud, Accident, Mistake, Excusable negligence
ii. Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial and which, if presented, would probably alter the
result.
If the motion for new trial is anchored on this, it must be established that:
a. The evidence was discovered after the trial
b. Such evidence could not have been discovered and produced at the trial with
reasonable diligence
c. It is material, not merely cumulative, corroborative or impeaching
d. It is of such weight that it will probably change the judgment
11. SECOND MOTION FOR RECONSIDERATION OF A DECISION, FINAL RESOLUTION OR
ORDER FOR NEW TRIAL IS PROHIBITED
Self explanatory (kahit book nagsabi)

12. WHEN APPEAL IS WITHDRAWN, THE ASSAILED DECISION BECOMES FINAL AND
EXECUTORY
DISPOSITION OF CASES
9.
Whenever one withdraws an appeal, he is deemed to accept the decision of the

CTA. So, for example, the CTA had already denied a request for the issuance of, lets
say, a tax credit certificate for insuffiency of evidence, it may no longer be included
in the taxpayers future claims. Kumbaga, barred na siya by gawing dahilan yon to
raise his contention in sa susunod na kabanata ng kaniyang life.
A taxpayer cannot be allowed to circumvent the denial of its request for a tax credit
by abandoning its appeal and filing a new claim.
An appellant who withdraws his appeal must face the consequences of his
withdrawal, such as the decision of the court a quo becoming final and executory.
RECOURSE OF THE PARTY ADVERSELY AFFECTED BY THE DECISION
IF IT IS AN ORDER OR DECISION OF A DIVISION OF THE CTA: He may file a motion

for reconsideration or new trial before the same Division within 15 days from
notice.
IF IT IS A RESOLUTION OF A DIVISION OF THE CTA ON A MOTION FOR
RECONSIDERATION OR NEW TRIAL: He may file a petition for review with the CTa
en banc.
87
NIRC SECTIONS 1 TO 21
6.
Shall employ, assign, or reassign internal revenue officers involved in excise tax
AND
functions, as often as the exigencies of the revenue service may require, to
NIRC REMEDIES
establishments or places where articles subject to excise tax are produced or kept:
TITLE I
Provided, That an internal revenue officer assigned to any such establishment shall
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE
in no case stay in his assignment for more than two (2) years, subject to rules and
POWERS AND DUTIES OF THE BIR:
regulations to be prescribed by the Secretary of Finance, upon recommendation of
1.
Assessment and collection of all national internal revenue taxes, fees, and charges.
2.
Enforcement of all forfeitures, penalties, and fines connected therewith, including
3.
the Commissioner.
7.
the execution of judgments in all cases decided in its favour by the Court of Tax
Internal Revenue, without change in their official rank and salary, to other or
Appeals and the ordinary courts.
special duties connected with the enforcement or administration of the revenue
Shall give effect to and administer the supervisory and police powers conferred to
laws as the exigencies of the service may require: Provided, That internal revenue
it by this Code or other laws.
officers assigned to perform assessment or collection function shall not remain in

the same assignment for more than three (3) years; Provided, further, That
COMPOSITION OF THE BIR:
assignment of internal revenue officers and employees of the Bureau to special
Chief Commissioner and four assistant chiefs to be known as Deputy
duties shall not exceed one (1) year.
Commissioners.
POWERS OF THE CHIEF COMMISSIONER:
1.
The exclusive original jurisdiction to interpret the provisions of the NIRC and other
POWERS OF THE COMMISIONER THAT CANNOT BE DELEGATED:

1.
tax laws subject to review by the Secretary of Finance.

2.
To decide disputed assessments, refunds of internal revenue taxes, fees or other
NIRC or other laws or portions thereof administered by the Bureau of Internal
2.
To obtain information and to summon, examine and take testimony of persons.
4.
To make assessments and prescribe additional requirements for Tax administration

and Enforcement.
To delegate powers vested in him to any subordinate officials with a rank
equivalent to a division chief or higher subject to the provisions of the code and the
rules promulgated by the Secretary of Finance.
The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
3.
Revenue subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
3.
The power to recommend the promulgation of rules and regulations by the

Secretary of Finance;
charges, penalties imposed in relation thereto, or other matters arising under the
5.
Assign or reassign internal revenue officers and employees of the Bureau of
The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any
tax liability; and
4.
The power to assign or reassign internal revenue officers to establishments where

articles subject to excise tax are produced or kept.
DUTIES OF THE COMMISIONER:

1.
To prescribe, provide, and distribute to the proper officials the requisite licenses
internal revenue stamps, labels all other forms, certificates, bonds, records,
88
invoices, books, receipts, instruments, appliances and apparatus used in
2.
4.
revenue are faithfully executed and complied with, and to aid in the prevention,
To acknowledge the payment of tax if payment was made, expressing the amount
detection and punishment of frauds of delinquencies in connection therewith.

2.
Revenue under his supervision, and to report in writing to the Commissioner,
Furnish its appropriate Committee pertinent information including but not limited
through the Regional Director, any neglect of duty, incompetency, delinquency, or
to: industry audits, collection performance data, status reports in criminal actions
malfeasance in office of any internal revenue officer of which he may obtain
initiated against persons and taxpayer's returns.
knowledge, with a statement of all the facts and any evidence sustaining each case.
Submit to the Oversight Committee referred to in Section 290 hereof, through the
Representatives, a report on the exercise of his powers pursuant to the said

section, every six (6) months of each calendar year.
Agents of the Commissioner:

1.
Implement laws, policies, plans, programs, rules and regulations of the department
2.
the assessment and collection of all internal revenue taxes, charges and fees.
3.
Issue Letters of authority for the examination of taxpayers within the region;
4.
Provide economical, efficient and effective service to the people in the area;
5.
Coordinate with regional offices or other departments, bureaus and agencies in the
3.
Coordinate with local government units in the area;
7.
Exercise control and supervision over the officers and employees within the region;
and
8.
Perform such other functions as may be provided by law and as may be delegated
by the Commissioner.
Duties of Revenue District Officers and Other Internal Revenue Officers:
Banks duly accredited by the Commissioner with respect to receipt of payments

internal revenue taxes authorized to be made thru bank.
AUTHORITY OF REVENUE OFFICERS:

1.
Examine taxpayers within the jurisdiction of the district pursuant to a letter of

authority issued by the Revenue Regional Director in order to collect the correct
amount of tax, or to recommend the assessment of any deficiency tax due in the
same manner that the said acts could have been performed by the Revenue
area;
6.
The head of the appropriate government office and his subordinates with respect
to the collection of energy tax; and
or agencies in the regional area;

Administer and enforce internal revenue laws, and rules and regulations, including
The Commissioner of Customs and his subordinates with respect to the collection
of national internal revenue taxes on imported goods;
JURISDICTION OF THE REVENUE REGIONAL DIRECTOR:
2.
To examine the efficiency of all officers and employees of the Bureau of Internal
manner prescribed therefor by the Commissioner.
Chairmen of the Committee on Ways and Means of the Senate and House of
1.
To ensure that all laws, and rules and regulations affecting national internal
administering the laws falling within the jurisdiction of the Bureau.
paid and the particular account for which such payment was made in a form and
3.
1.
Regional Director himself.

2.
To administer oaths and to take testimony in any official matter or investigation

conducted by them regarding matters within the jurisdiction of the Bureau.
3.
To make arrests and seizures for the violation of any penal law, rule or regulation
administered by the Bureau of Internal Revenue.
SOURCES OF REVENUE:
89
1.
Income tax;
d.
2.
Estate and donor's taxes;
3.
Value-added tax;
4.
Other percentage taxes;
5.
Excise taxes;
6.
Documentary stamp taxes; and
7.
Such other taxes as are or hereafter may be imposed and collected by the Bureau
Compromise and abatement (Discussed under Remedies of the

Taxpayer)
e.
Penalties and fines (Discussed under Tax Administration and

Enforcement)
f.
3.
Non-availability of injunction to restrain collection of taxes
Other remedies
a.
Forfeiture
of Internal Revenue.
b. Suspension of business operations (Discussed under Tax Administration
and Enforcement)
B.
Judicial Remedies
NIRC REMEDIES
1.
Civil
OUTLINE OF REMEDIES
2.
Criminal
REMEDIES OF THE GOVERNMENT

REMEDIES OF THE TAXPAYER
Basic Remedies:
1.
Assessment
2.
Collection
I.
Before payment
A.
OTHER CLASSIFICATIONS
I.
As to procedure
A.
Assessment and Collection
B.
Collection without assessment
II.
A.
II.
Administrative Remedies
1.
Protest
2.
Compromise
3.
Abatement
After payment
A.
Administrative Remedy
As to the nature of proceeding
1.
Tax refund
2.
Tax credit
1.
Exercise of power to make assessments
2.
Remedies in collection stage
B.
Judicial Remedies
a.
Tax lien
REMEDIES OF THE GOVERNMENT
b.
Distraint of personal property or garnishment of bank deposits
Assessment
c.
Levy of real property
It is an official action of an administrative officer in:

1.
Determining the computation of the sum due.
90
2.
Giving notice to that effect to the taxpayer.
foundation and hence, arbitrary and capricious) (CIR v. Hantex Trading, G.R. No. L-
3.
Making, simultaneously with or sometimes after the giving of notice, of demand
13975, March 31, 2005).
upon him for the payment of the tax deficiency stated within a specified period
(CIR v. PASCOR Realty Development Corp., G.R. No. 128315, June 29, 1999).
2.
Assessments should not be based on presumptions no matter how logical the

presumption might be. In order to stand the test of judicial scrutiny, the
* A notice of assessment without a due date cannot be considered as a demand but mere
assessment must be based on actual facts (Collector v. Benippayo, G.R. No. L-
requests for payment (First Gas Power Corp. v. CIR, CTA Case No. 7281, September 24, 2012).
Reason for Assessment: There is a tax due to the government which has not been paid by
13656, January 31, 1962).

3.
the taxpayer either as a delinquency or a deficiency tax. If the tax was properly paid,
General Rule: Assessment is discretionary on the part of the CIR. Mandamus will
not lie for it will constitute judicial encroachment on executive functions.
assessment is not necessary.

General Rule: Taxes are self-assessing and thus do not require the issuance of an assessment
Exception: If in the exercise of his discretion, there is evidence of arbitrariness and
notice in order to establish the tax liability of the taxpayer.
grave abuse of discretion as to go beyond statutory authority (Maceda v. Macaraig,
Exceptions
Jr., G.R. No. 88291, June 8, 1993).
Instances where taxes require assessment to establish additional tax liability:

1.
Tax period of a taxpayer is terminated ( TAX CODE, Sec. 6[D])
2.
Deficiency tax liability arising from a tax audit by the BIR (TAX CODE, Sec. 56 [B])
3.
Tax lien (TAX CODE, Sec. 219)
4.
Dissolving corporation (TAX CODE, Sec. 52[C])
4.
assessments have the same force and effect as that issued by the CIR (Oceanic
Wireless Network v. CIR, G.R. No. 148380, December 9, 2005).
5.
General Rule: All presumptions are in the favour of tax assessments. When an
assessment is made, the same is presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise, and in the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a BIR
examiner and approved by his superior officers will not be disturbed ( CIR v. Wyeth
Suaco Laboratories, Inc., G.R. No. 76281, September 30, 2005).
Exception: The prima facie correctness of a tax assessment does not apply when
Assessments must be directed to the right party (Republic v. De la Rama, G.R. No.
L-21108, November 29, 1966).
Principle Governing Tax Assessments

1.
The authority to assess taxes may be delegated to subordinate officers. Said
Kinds of Assessment:
1.
Self-assessment the tax is assessed by the taxpayer himself (TAX CODE, Sec.
56[A])
Examples:
a.
Income tax
b.
Estate tax
c.
Donors tax
d.
VAT
the CIR comes out with a naked assessment (an assessment that is without
91
2.
Deficiency assessment made by the tax assessor himself where the correct
amount of tax is determined after an examination or investigation is conducted
* This does not alter the confidentiality rule of bank deposits.
(TAX CODE, Sec. 56[B]).

3.
Disputed assessment takes place when a taxpayer questions an assessment and
Cash Expenditure Method assumes that the excess of a taxpayers expenditures
asks the collector to reconsider or cancel the same because he believes he is not
during a tax period over his reported income for that period is taxable to the extent
liable therefore (St. Stephens Association v. CIR, G.R. No. L-11238, August 21,
not approved otherwise.
1958).
4.
4.
5.
Unit and Value Method the determination or verification of gross receipts may
Jeopardy assessment a tax assessment made by an authorized Revenue Officer,
be computed by applying price and profit figures to the known ascertainable
without the benefit of a complete or partial audit, in light of the officers belief that
quantity of business done by the taxpayer.
the assessment and collection of a deficiency tax will be jeopardized by delay
6.
caused by the taxpayers failure to:

a.
Comply with audit and investigation requirements to present his books of
Third Party Information or Access to Records Method third party contacts are
the sources of information.
7.
Surveillance and Assessment Method (RAMO No. 01-2000, XIII)
accounts and/or pertinent records.

b.
Substantiate all or any kind of the deductions, exemptions, or credits claimed

in his return (RR No. 30-2002, Sec 3[1][a]).
Assessment Process
Summary:
1.
Issuance of Letter of Authority
Means Employed by the Commissioner in the Assessment of Taxes
2.
Audit or Tax investigation
The following are the general (constructive) methods developed by the BIR for reconstructing
3.
Issuance of Preliminary Notice of Assessment (PAN)
a taxpayers income where the taxpayer keeps no or inadequate records or where there is a
4.
Reply to PAN
strong suspicion that it has received income from undisclosed sources:
5.
Issuance of Formal Letter of Demand and Final Assessment Notice (FAN)
1.
Percentage Method - equivalent of a ratio analysis of percentages considered

typical of the business under investigation to indicate potential areas of revenue
adjustment in examination where revenue records do not exist.
2.
Net Worth Method method of reconstructing income based on the theory that if
the taxpayers net worth has increased in a given year in an amount larger than his
reported income, he had understated his income for that year.
3.
Bank Deposit Method the bank records of the taxpayer are analyzed and the
Revenue Officer estimates income on the basis of the total bank deposits after
eliminating non-income items.
1. Issuance of Letter of Authority (LA)

An LA is a request to the taxpayer to permit the bearer thereof, a particular enforcement
officer, to conduct the necessary tax examination and verification of books and records (DE
LEON, NIRC, p. 584).
2. Audit and Tax Investigation
The Revenue Officer shall, within 120 days from the date of issuance and service of the LA,
conduct his audit and submit his report of investigation (ABAN, p. 196; RMO No. 38-88).
Effect of Failure to Complete the 120-day Period
92
Audit will continue without the need to revalidate the LA, but the officer concerned shall be
* The issuance of a Notice of Informal Conference under RR No. 12-99 before issuing a PAN
subjected to administrative sanctions (RMO No, 23, 2009; RMO No. 44-2010).
is already dispensed with pursuant to RR No, 18-2013 issued on November 28, 2013.
3.
Issuance of Preliminary Assessment Notice (PAN)

4. Reply to PAN
PAN is issued to the taxpayer informing him of the findings of the Revenue Officer if after
review and evaluation of the taxpayers records, there is sufficient basis to assess the
taxpayer for any deficiency taxes (RR No. 18-2013, Sec 3.1.1).
* Prior to the issuance of PAN, the taxpayer may be allowed to make voluntary payments
The taxpayer has fifteen (15) days from the date of receipt of PAN to reply (RR No. 18-2013,
Sec. 3.1.1).
Requisites of a Valid Reply
1.
Must be made within the 15-day period (RR No. 18-2013, Sec. 3.1.1).
2.
Must be filed by the taxpayer or his duly authorized representative, in person or
of probable deficiency taxes and penalties (RMC No. 11-2014).
through registered mail with return card, with the office of the duly authorized
representatives of the CIR who signed the PAN (RMC No, 11-2014; RMC No. 39-
Requisites of a Valid PAN

1.
service or by mail (RR No. 18-2013, Sec. 3.1.6).

2.
2013).
Must be served to the taxpayer personally, and if not practicable, by substituted
The assessment was conducted within the scope of authority given by a valid LA
Effects of Failure to Submit a Valid Reply to PAN

1.
(CIR v. Sony Phils., Inc., G.R. No. 178697, November17, 2015).

3.
Must be in writing and contain the facts and the law on which the proposed
The taxpayer shall be considered in default and a FLD/FAN will be issued (TAX
CODE, Sec. 228. par. 3).
2.
Taxpayer can still file a protest to the FLD/FAN (TAX CODE, Sec. 228, par. 4).
assessment is based (TAX CODE, Sec. 228, par. 2; RR. No. 18-2013, Sec. 3.1.1).
4.
Must be issued by the CIR or his duly authorized representative. They are:
a.
Revenue Regional Directors
b.
ACIR-LTS
c.
ACIR-Enforcement and Advocacy Service (RR. No, 18-2013, Sec. 3.1.1; RMC No.
11-2014)
5. Issuance of Formal Letter of Demand and Final Assessment Notice

FLD/FAN
A notice of assessment constituting a computation of deficiency taxes and a demand issued
to the taxpayer. This is the notice of assessment and not the PAN:
1.
That must be issued within the prescriptive period to make the assessment.
2.
That must be protested by the taxpayer otherwise the assessment shall become
Reason: To give the taxpayer the opportunity to refute the findings of the examiner and give
a more accurate and detailed explanation regarding the assessment (Sony Philippines v. CIR,
final, executory, and demandable.

3.
From which the prescriptive period to collect commences to run.
CTA Case No. 6185, October 26, 2004).

Requisites of a Valid FAN:
1.
Must be issued after issuance of a valid Pan, except for those instances where a
Pan is not required (TAX CODE, Sec. 228, par. 1 & 2; RR No. 18-2013, Sec. 3.1.2).
93
2.
3.
Must be issued by the CIR or his duly Authorized representative (RR No. 18-2013,
Reason: A PAN preparatory to the issuance of the FAN is not legally speaking an assessment
Sec. 3.1.3; RMC No. 11-2014).
even if it contains the computation of the taxpayers liabilities (Oakwood Management
Must be served to the taxpayer personally, and if not practicable, by substituted
Services v. CIR, CTA Case No. 7989, August 8, 2013).
service or by mail (RR No. 18-2013, Sec. 3.1.6).

4.
Must be served to the taxpayer before the lapse of the prescriptive period for
making assessment (TAX CODE, Sec. 203).
5.
3.
Within the 15 days after the filing of the response to the PAN (RR No. 18-2013, Sec.
3.1.1).
4.
Must be in writing and contain the facts and the law on which the assessment is
After/Beyond the 15-day period after the filing of the response to PAN (RMC No.
11-2014).
based (RR No. 18-2013, Sec. 3.1.1).

6.
The assessment was conducted within the scope of authority given by a valid LA
(CIR v. Sony Phils., Inc., G.R. No. 178697, November 17, 2010).
* Issuance of the FLD/FAN beyond 15 days from the filing of the response to the PAN shall
not render it invalid. The non-observance of the 15-day period, however, shall constitute
Period to issue FLD/FAN
an administrative infraction and the revenue officers who caused the delay shall be
General Rule: Fan can be issued only after a PAN was issued. This is part of the requirements
subjected to administrative sanctions (RMC No. 11-2014).
of due process and failure to comply therewith would render the assessment void (CIR v.
Metro Superama, Inc., G.R. No. 185371, December 8, 2010; SVI Information v. CIR, CTA Case
Exceptions: In the following instances where PAN is not required, A FLD/FAN shall be issued
no. 8496, February 10, 2014).
outright:
After the issuance of the PAN, the FAN may be issued in any of the following circumstances:
1.
2.
1.
After the lapse of the 15-day period to respond to the PAN without the taxpayer
When the finding for any deficiency tax is the result of mathematical error in the
computation of tax as appearing on the face of the return.
submitting a reply (RR No. 18-2013, Sec. 3.1.1).
2.
When the excise tax due on excisable items has not been paid.
Before the lapse of the 15-day period to respond to the PAN and the taxpayer has
3.
When a discrepancy has been determined between the tax withheld and the
not yet submitted a reply to PAN (Oakwood Management Services v. CIR, CTA Case
No. 7989, August 8, 2013).
amount actually remitted by the withholding agent.

4.
When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to a non-exempt person.
* The issuance of the FAN before the lapse of the 15-day period for the taxpayer to file a
reply to the PAN inflicts no prejudice on the taxpayer as long as the taxpayer is properly
served the FAN and is able to intelligently contest the FAN by filing a protest within the
period allowed by law.
5.
When the taxpayer has opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year (RR No. 18-2013,
Sec. 3.1.2).
94
Service of FLD/FAN
A.
shall bring a barangay official and 2 disinterested witnesses so that
Modes of Service (RR. No. 18-2013, Sec. 3.1.6; RMC No. 11-2014)
1.
they may personally observe and attest to such fact of refusal. The
Personal Service - the notice shall be served by delivering personally a
notice shall be left to the barangay official. Such facts shall be
copy thereof to the party at his registered or known address or wherever
contained in the bottom portion of the notice, as well as the names,
he may be found.
official position and signature of the witnesses.
Known address a place other than the registered address where

business activities of the party are conducted or his place of residence.
In case personal service is not practicable, the notice shall be served by
Disinterested witness persons of legal age other than employees of the BIR.
3.
or known address of the party by:
substituted service or by mail.

2.
Service by Mail done by sending a copy of the notice to the registered
a.
Substituted Service resorted to when the party is not present at the
to the sender after ten days if undelivered, or by reputable
registered address or known address under the following circumstances:

a.
professional courier service.
Notice may be left at the partys registered address with his clerk or
b.
with a person having charge thereof.

b.
c.
Registered mail with instruction to the postmaster to return the mail
Ordinary mail if no registry or reputable professional courier service

is available in the locality of the addressee.
If the known address is a place where business activities of the party

are conducted, the notice may be left with his clerk or with a person
The server shall accomplish the bottom portion of the notice and make a written report
having charge thereof.
under oath setting forth the manner, place, and date of service, the name of the
If the known address is the place of residence, substituted service
person/barangay official/professional courier service who received the same and other
can be made by leaving a copy with a person of legal age residing
relevant information.
therein
d.
If no person is found at the registered/known address, the revenue
* Service to the tax agent/practitioner, who is appointed by the taxpayer under the
officer shall bring a barangay official and two disinterested
circumstances prescribed in the pertinent regulations on accreditation of tax agents, shall
witnesses to the address so that they may personally observe and
be deemed service to the taxpayer.
attest to such absence. The notice shall be given to the barangay
e.
official. Such facts shall be contained in the bottom portion of the
The aforementioned modes of service are also applicable to the service of the PAN and
notice, as well as the names, official position and signature of the
the FDDA.
witnesses.
The notice shall first be served to the taxpayers registered address before the same
Should the party be found at his registered or known address or any
may be served to the taxpayers known address or in the alternative, may be served to
other place but refuses to receive the notice, the revenue officer
the taxpayers registered and know address simultaneously (RMC No. 11-2014).
95
B.
When FAN deemed made
The defence may be raised even for the first time on appeal when it is apparent on
the record that the assessment has already prescribed (CIR v. First Sumiden Realty,
The assessment is deemed to have been made on the date when the demand letter or
notice of assessment is released, mailed, or sent, even though the same is actually
received by the taxpayer after the expiration of the prescriptive period. (Basilan Estates
v. CIR, G.R. No. L-22492, September 5, 1967).
General Rule: When a mail matter is sent by registered mail, there exists a presumption
that it was received in the regular course of mail (Republic v. CA, G.R. No. L-38540, April
30, 1987).
For the presumption to apply, the following facts must be proven:
1.
Letter was properly addressed with postage prepaid.
2.
Letter was mailed (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
August 7, 2006).
Proof of Mailing
Inc., CTA EB No. 975 re: CTA Case No. 8151, January 7, 2014).
2.
Establishing Legal and Factual Bases of Tax Assessment

The details in the assessment notices issue to the taxpayer must be sufficient to
allow the taxpayer to intelligently answer the assessment as well as prepare the
documentary evidence for protest. If the BIR merely stated that per computerized
matching, the taxpayer has undeclared importations, the assessment is invalid (CIR
v. BASF Philippines, Inc., CTA EB Case No, 872 re CTA Case No. 7415, September 12,
2013).
An assessment based on a Summary List of Purchases (SLP) cannot be used as the
sole basis. The SLP is doubtful, inconclusive and unreliable. The CIR must prove the
source of the information, otherwise the assessment is invalid (CIR v. Fax N Parcel,
Inc., CTA EB Case No. 883 re CTA Case No, 7415, February 14, 2013).
The registry receipt issued by the post office or the official receipt issued by the
professional courier service containing sufficiently identifiable details of the transaction
Authority of the CIR to make subsequent assessment or modify or revise assessment
shall constitute sufficient proof of mailing and shall be attached to the case docket (RMC
The CIR has the authority to make subsequent assessments or modify or revise the original
No. 18-2013, Sec. 3.1.6).
assessment to collect additional sums covered by the original assessment as long as the
BIR record book is not sufficient (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
modification or revision is done within the prescriptive period for making assessments, and
August 7, 2006).
even while the appeal of the taxpayer from the original assessment is still pending in the CTA,
Exception: When there is a direct denial of the receipt. The burden is shifted to the BIR
so as to avoid multiplicity of suits (CIR v. Batangas Transportation Co., G.R. No. L-9692,
to prove the letter mailed was received by the addressee. (Republic v. CA, G.R. No. L-
January 6, 1958).
38540, April 30, 1987; Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064, August 7,
Collection
2006).
It is the actual effort exerted by the government to effect the exaction of what is due from
C.
Questioning the Validity of FLD/FAN
the taxpayer. It is the final stage and goal of tax administration.
1.
Prescription as a Defence
Is assessment necessary before collection?
An FLD/FAN must be served to the taxpayer within the prescriptive period to make
General Rule: Yes, No proceeding in court without assessment for the collection of such
a valid assessment (TAX CODE, Sec. 203).
taxes shall be commenced (TAX CODE, Sec. 203).
96
A warrant of distraint and/or levy without issuance of a FAN is void (Gold Harvest Global
1.
Corp. v. CIR, CTA Case No. 7503, September 18, 2009).
payable.
Exception: A proceeding in court for the collection of tax may be filed without prior
2.
assessment in the following cases:

1.
False or fraudulent return with intent to evade tax.
2.
Failure to file a return (TAX CODE, Sec. 222[1]).
With respect to personal property from the time the tax became due and
With respect to real property from the time of registration with the Registry
of Deeds.
* It is settled that the claim of the government predicated on a tax lien is superior to the
When does tax become collectible:
claim of a private litigant predicated on a judgement. The tax lien attaches not only from
The government can collect when the assessment becomes final and executor for:
the service of the warrant of distraint but from the time the tax became due and payable
1.
Failure to protest an FLD/FAN within the prescribed period.
2.
Failure to appeal an FDDA within the prescribed period.
3.
Failure to appeal an adverse decision of the court within the prescribed period.
(CIR v. NLRC, G.R. No. 74965, November 9, 1994).
Validity of Tax Lien

The lien shall be valid against any mortgagee purchaser or judgement creditor only when
ADMINISTRATIVE REMEDIES
notice of such lien shall be filed by the CIR in the office of the Register of Deeds of the
Enforcement of Tax Lien
province or city where the property of the taxpayer is situated (TAX CODE, Sec. 219).
Tax Lien
Distraint of Personal Property
A legal claim or charge on property, real or personal, established by law as security
Kinds of Distraint:
in default of the payment of taxes (HSBC v. Rafferty, G.R. No. L-13188, November
15, 1918).
1.
Actual Distraint
Resorted to when at the time required for payment, a person fails to pay his
delinquent tax obligation (NIRC, Sec. 207[A]).
It is the actual seizure and taking possession of personal property of the taxpayer.
Delinquent Taxpayer
Nature of Tax Lien
A taxpayer is considered delinquent in the payment of his tax when the:
When a taxpayer neglects or refuses to pay his internal revenue tax liability after
a.
demand, the amount so demanded shall be a lien in favour of the government from
the time the assessment was made by the Commissioner until paid with interest,
Self-assessed tax per return filed on the prescribed date was not paid at all or
partially paid.
b.
Deficiency tax assessed by the BIR became final and executor.
penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer (TAX CODE, Sec. 219).
When does the lien in favour of the Government arise:
Procedure for Actual Distraint

a.
Commencement of distraint proceedings by:
97
1.
CIR or his duly authorized representative where amount involved is
4.
greater than 1M.

2.
b.
c.
Revenue District Officer where amount involved is 1M or less (TAX
5.
In the case of stocks and other securities, the officer making the sale shall
execute a bill of sale, which shall be delivered to the buyer and to the
Service of warrant of distraint
corporation, company or association (CCA) which issued the stocks or
The personal property of the taxpayer is physically taken by the distraining
other securities. Upon receipt of the copy of the bill of sale, an entry of
officer (TAX CODE, Sec. 208).
transfer should be made in the CCAs book and a corresponding
Report on the distraint
certificate of stock shall be issued if required (TAX CODE, Sec. 209).
2.
It shall be submitted by the distraining officer to the Revenue District
6.
Any residue over and above what is required to pay the entire claim
Officer and to the Revenue Regional Director within 10 days from receipt
including expenses shall be returned to the owner of the property sold.
of warrant.
Expenses chargeable upon seizure shall include only those actual
The CIR or his duly authorized representative has the power to lift the
expenses of seizure and preservation of the property pending the sale
order of distraint (TAX CODE, Sec. 207[A]).
and does not include services of the Revenue Officer (TAX CODE, Sec.
Notice of sale of distrained properties
210)
1.
Notice shall specify the time and place of sale and the articles distrained.
Right of Pre-emption: If at any time prior to the consummation of the sale all
2.
The time of sale shall not be less than 20 days after the notice to the
proper charges are paid to the officer conducting the sale, all the distrained
owner or possessor of the property and posting of such notice.
properties shall be restored to the owner (TAX CODE, Sec. 211).
The posting shall be made in not less than two public places in the city or
There is no right of Redemption
municipality where the distraint is made. One place for the posting of
Purchase by the Government at Sale upon Distraint (TAX CODE, Sec. 212)
such notice is at the Office of the Mayor of such city or municipality in
When the amount bid for the distrained property is:
which the property is distrained (TAX CODE, Sec. 209).
a.
Not equal to the amount of tax.
b.
Very much less than the actual market value of the property offered for sale.
3.
e.
with the approval of the CIR.
CODE, Sec. 207[A]).
1.
d.
If the sale is through a licensed commodity or stock exchange, it must be
Sale at public auction

1.
Sale must be held at the time and place stated at the notice.
2.
It may be conducted by the Revenue Officer or through a licensed

commodity or stock exchange.
3.
If the sale is conducted by the officer, rather than the officer serving the
warrant, it must be held at a public auction and the property shall be sold
to the highest bidder for cash.
The CIR or his deputies may purchase on behalf of the National Government for the
amount of the taxes, penalties, and cost due thereon.
Property so purchased may be resold by the CIR or his deputy; the net proceeds
shall be remitted to the National Treasury and accounted as internal revenue.
Distraint of Intangible Properties
Intangible properties which can be the subject of distraint are:
98
a.
Stocks and other securities by serving a copy of the warrant of distraint
b.
Intending to leave the Philippines.
upon the taxpayer and upon the president, manager, treasurer, or other
c.
Intending to remove his properties therefrom or to hide or conceal his property.
responsible officer of the corporation, company, or association, which issued
d.
Intending to perform any act tending to obstruct the proceedings for collecting the
the same.
b.
Debts and credits by leaving with the person owning the debts or having in
his possession or under his control such credits, or his agent, a copy of the
warrant of distraint.
c.
tax due or which may be due from him (TAX CODE, Sec. 206)
Constructive distraint is effected:
a.
property to sign a receipt covering the property distrained and obligate himself to
Bank accounts by serving a warrant of garnishment upon the taxpayer and
preserve the same intact and unaltered and not to dispose of the same in any
upon the president, manager, treasurer, or other responsible officer of the
manner whatever without the express authority of the CIR.
bank ((TAX CODE, Sec. 208)

Garnishment
The taking of personal properties, usually cash or sums of money, owned by the
delinquent taxpayer which is in the possession of a third party.
Bank accounts may be distrained notwithstanding the Bank Secrecy Act (R.A. 1405)
which prohibits inquiry into bank accounts, since in the case of distraints, no
inquiry is made. The BIR merely seizes so much of the deposits as is sufficient to
discharge the obligation without having to know how much the deposits are, or
where the money or part of it came from (Opinion of the Secretary of Justice, No.
By requiring the taxpayer or any person having possession or control of such
Punishment in case of violation: Upon the conviction, a fine of not less than twice the
value of the property so sold, encumbered, or disposed of but not less than P 5,000, or
suffer imprisonment of not less than two years and one day but not more than four
years, or both (TAX CODE, Sec. 276)
b.
In case the person refuse or fails to sign the receipt, the Revenue Officer effecting
the constructive distraint shall prepare a list of the property and in the presence of
two witnesses, leave a copy thereof in the premises of the property where the
property distrained is located (TAX CODE, Sec. 206).
54 s. 1956)
2. Constructive Distraint
Issued where no actual tax delinquency of the taxpayer is necessary before the same is
resorted to by the government (ABAN, p. 238)
It is a preventive remedy to forestall possible dissipation of the taxpayers assets when
delinquency takes place.
It is issued in the following cases when the taxpayer is:
a.
Levy of Real Property

Levy
Refers to the seizure of real properties and interest in or rights to such properties
for the satisfaction of taxes due from the delinquent taxpayer (DIMAAMPAO, p.
158).
When may levy be effected
Retiring from any business subject to tax.
99
Real property may be levied upon before, simultaneously, or after the distraint of
The Advertisement shall contain:
personal property belonging to the delinquent taxpayer (TAX CODE, Sec. 207[B]);
a. Amount of tax and penalties due.
and the remedy of distraint and levy may be repeated if necessary if the full
b. Name of the taxpayer against whom the taxes are levied.
amount, including expenses, is collected (TAX CODE, Sec. 217).
c. Time and place of sale.
In case the warrant of levy is not issued before, or simultaneously with the warrant
d. Short description of the property to be sold.
of distraint and the personal property of the taxpayer is not sufficient to satisfy his
The advertisement shall be made within 20 days after the levy, and the same
delinquency, the CIR or his authorized representative shall, within 30 days after the
shall be for a period of at least 30 days (TAX CODE, Sec. 213).
execution of the distraint, proceed with the levy on the taxpayers real property
Advertisement shall be effectuated by:
(TAX CODE, Sec. 207[B]).
a. Posting a notice at the main entrance of the municipal building or city hall
Procedure for levy

1.
and in a public and conspicuous place in the barrio or district in which
Issuance of Warrant of Levy
the real property lies.
Preparation of a duly authenticated certificate containing:

a.
Description of property levied
b.
Name of the taxpayer
c.
Amount of tax and penalty due from him
b. Publication once a week for three weeks in a newspaper of general

circulation in the municipality or city where the property is located.
4.
Public Sale of Property under Levy

Taxpayer is given the right of pre-emption before the sale.
This certificate shall operate with the force and effect of a legal execution
If he does not exercise it, the sale shall proceed and shall be held either at the
throughout the Philippines (TAX CODE, Sec. 207[B]).
main entrance of the municipal building or city hall, or on the premises to be
2.
Service of the Warrant
sold, as the officer conducting the proceedings shall determine and as the
How is levy effected
notice of the sale shall specify (TAX CODE, Sec. 213).
Written notice of the levy shall be mailed or served upon:
Right of Pre-emption: The taxpayer may discontinue all proceedings by paying
a.
The Register of Deeds of the city or province where the property is
the taxes, penalties, and interest at any time before the day fixed for the sale.
located.
A Certificate of Sale shall be delivered to the purchaser.
Upon the delinquent taxpayer, or if he is absent from the Philippines, to
If the proceeds of the sale exceed the claim and cost of sale, the excess shall
his agent or the manager of the business in respect to which the liability
be turned over to the owner of the property.
b.
arose, or if there be none, the occupant of the property in question (TAX

CODE, Sec. 207[B])
3.
Advertisement of Sale
5.
Redemption of Property (TAX CODE, Sec. 214)

Period: Within one year from the date of the sale.
100
The one year period for redemption begins from the registration of the deed
Within one year from forfeiture, the taxpayer may redeem his property.
of sale (Santos v. RFC, G.R. No. L-9796, July 31, 1967).
Resale of Real Estate Taken for Taxes
Who may redeem: The delinquent taxpayer or anyone for him.
The CIR shall have charge of any real estate obtained by the Government in
To whom made: To the Revenue District Officer.
payment of taxes, penalties or costs arising under the Tax Code or in
How made: Upon payment of the taxes, penalties, and interest thereon from
compromise or adjustment of any claim.
the date of the delinquency to the date of sale, together with interest on
The CIR may:
purchase price at 15% per annum from the date of sale to the date of
a.
redemption.
Sell and dispose of the same at a public auction upon giving of not less
than 20 days notice.
The owner shall not be deprived of the possession of the property and shall be
b.
entitled to the rents and other income thereof until the expiration of the time
Dispose of the same at a private sale with the approval of the Secretary
of Finance (TAX CODE, Sec. 216)
allowed for redemption.
c.
Effects of Redemption of Property Sold:

a.
Such payment shall entitle the taxpayer to the delivery of the certificate
issued to the purchaser and a certificate from the RDO that he has
redeemed the property.
b.
* The remedies of distraint and levy as well as collection by civil and criminal action may, in
the discretion of the CIR, be pursued singly or independently of each other, or all of them
simultaneously.
The RDO shall pay the purchaser the amount by which such property has
Both distraint and levy are summary remedies and cannot be availed of
been redeemed and said property shall be free from lien of such taxes
where the amount of tax involved is than P 100.
and penalties.
6.
Real property placed under levy may be sold at public auction for less than its
Further Distraint and Levy
market value (NIRC, Sec. 215) since the taxpayer is given the right to redeem
The remedy of distraint and levy may be repeated if necessary until the full
(NIRC, Sec. 214). With respect to distrained personal property the rule is
amount of the tax delinquency including all expenses is collected from the
different (NIRC, Sec. 212).
taxpayer (TAX CODE, Sec. 217)

Grounds for Forfeiture to the Government:
a.
No bidder for the real property.
b.
The highest bid is for an amount insufficient to pay the taxes, penalties,
Penalties and Fines

Increments to the basic tax incident to the taxpayers non-compliance with certain legal
requirements.
and costs (TAX CODE, Sec. 215)

The Register of Deeds shall transfer title to the Government upon
registration with his office of the declaration of forfeiture.
No Injunction to Restrain Collection of Tax
101
No court shall have the authority to grant an injunction to restrain the collection of any
Forfeited Goods or Articles (TAX CODE, Sec. 225)
national internal revenue tax, fee or charge imposed (TAX CODE, Sec. 218), except when in
1.
the opinion of the CTA:

1.
Collection of the tax would jeopardize the government and/or taxpayer.
2.
Shall thereafter require the taxpayer to deposit the amount claimed or to file a
Sold in case of forfeited chattels and removable fixtures, so far as practicable,

under the same conditions as the public notice and the time and manner of sale as
are prescribed for sales of personal property distrained for non-payment of taxes.
2.
surety bond for not more than double the amount with the court (R.A. 922, Sec. 9).
Destroyed in case of distilled spirits, liquors, cigarettes, other manufactured

products of tobacco and all apparatuses used in or about the illicit production of
such articles, by the CIR when the sale of the same for consumption or use would
Forfeiture (of Confiscated Articles)

Forfeiture
be injurious to public health or prejudicial to the enforcement of law.

3.
The divestiture of property without compensation, in consequence of a default or offense
Sold or destroyed in cases of all other articles subject to excise tax, which have
been manufactured or removed in violation of NIRC, dies for printing or making of
(Balllantines Law Dictionary, p. 519).
internal revenue stamps and labels which are in imitation of or purport to be lawful
Seizure v. Forfeiture
stamps, or labels, in the discretion of the Commissioner.
In seizure for the enforcement of tax lien, the residue, after deducting the tax liability and
expenses, are returned to the taxpayer. (BPI v. Trinidad, G.R. No. 16014, October 4, 1941)
In forfeiture, all the proceeds of the sale will go to the coffers of the government (U.S. v.
* Forfeited property shall not be destroyed until at least 20 days after seizure.
Surla, G.R. No. 6536, September 2, 1911).

A taxpayer in forfeiture or seizure cases to enforce tax lien may still be subject to criminal
action even if his property has been forfeited (Garcia v. Collector, G.R. No. 44372, November
Instances when Forfeiture is Appropriate

1.
3, 1938).
of articles (TAX CODE, Sec. 268 [B])
Enforcement of the Remedy of Forfeiture

1.
2.
All chattels and removable fixtures of any sort, used in the unlicensed production
2.
Dies used for printing or making of any imitation revenue stamp, label or tag which
In case of personal property by seizure and sale or destruction of specific
is an imitation of or purports to be a lawful stamp, label or tag (TAX CODE, Sec.
forfeited property.
268[B])
In case of real property by judgement of condemnation and sale in a legal action
3.
Liquor or tobacco shipped under a false name or brand (TAX CODE, Sec. 262)
or proceeding, civil or criminal, as the case may require (TAX CODE, Sec. 224)
JUDICIAL REMEDIES
This remedy is different from the provision directing forfeiture of real property in
Civil Action
certain cases in the remedy of levy under Sec. 215. Judicial intervention, which is
For tax remedy purposes, these are actions instituted by the government to collect internal
required for forfeiture of real property under Sec. 224, is not required under Sec. 215
revenue taxes including the filing by the government of claims against the deceased taxpayer
since the taxpayer has the right of redemption (DE LEON, NIRC 2, pp. 515-516).
102
with the probate court. The government can collect when the assessment has become final
1.
Attempt to evade or defeat tax (TAX CODE, SEC. 254).
and executor.
2.
Failure to file a return, supply correct and accurate information, pay tax, withhold
Two Ways to Enforce Civil Liability through Civil Action

1.
and remit tax and refund excess taxes withheld on compensation (TAX CODE, Sec.
By filing a civil case for collection of a sum of money with the proper regular court
255).
(TAX CODE, Sec. 203 and 222).

2.
By filing an answer to the petition for review filed by the taxpayer with the CTA (
Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969).
Criminal action in violation of the NIRC also constitutes a collection method because the
judgement in the criminal case not only imposes the penalty but shall also order the payment
of the taxes subject of the criminal case as finally decide by the CIR (TAX CODE, Sec. 205).
Can the BIR file a civil action for the collection pending the decision of the administrative
Any person convicted of a crime penalized by the NIRC shall, in addition to being liable for
protest?
the payment of the tax, be subject to the penalties imposed herein (TAX CODE, Sec. 253[a]).
Yes. The request for reinvestigation and reconsideration was in effect considered denied by
Form and Mode of Proceeding
the CIR when the latter filed a civil suit for collection of deficiency income (CIR v. Union
Same with civil actions (TAX CODE, Sec. 220).
Shipping, G.R. No. L-66160, May 21, 1990).
Letters of referral/complaints filed by the CIR that states, I hereby recommend the
Forms and Mode of Proceeding:
prosecution of the following for violation of the National Internal Revenue Code, as
1.
Civil actions shall be brought in the name of the Government of the Philippines.
amended constitute approval of filing of cases in court (People v. Tan, G.R. No. 144707, July
2.
It shall be conducted by legal officers of the BIR.
13, 2004).
3.
No civil or criminal action for the recovery of taxes shall be filed in court without
Importance Principles on Criminal Actions
the approval of the CIR (TAX CODE, Sec. 220).
1.
Assessment is not necessary before filing a criminal action and criminal action
may be filed during the pendency of an administrative protest in the BIR. It is not
a requirement for the filing thereof that there be a precise computation and
* The CIR may delegate such power (NIRC, Sec. 7)
assessment of the tax, since what is involved in the criminal action is not the
collection of the tax but a criminal prosecution for the violation of the NIRC,
Participation of the Solicitor General

In view of the amendment of Sec. 220 of the NIRC, the written conformity of the CIR and no
longer of the Solicitor General or the Government Corporate Counsel, should be secured (DE
LEON, NIRC 2, p. 497).
Criminal Action
A criminal complaint is instituted to penalize the taxpayer for the violation of the TAX Code.
Two Common Crimes Punishable:
provided however, that there is prima facie showing of a wilful attempt to evade
taxes or failure to file the required return (Ungab v. Cusi. G.R. Nos. L-41919, May
30, 1980 in relation to CIR v. CA, G.R. No. 119322, June 4, 1996; CIR v. Pascor Realty
Development Corp., G.R. No. 128315, June 29, 1999).
Exception: Before the tax liabilities of Fortune are first finally determined, it
cannot be correctly asserted that private respondents have wilfully attempted to
evade or defeat taxes sought to be collected from Fortune. In plain words, before
103
2.
one is prosecuted for wilful attempt to evade or defeat any tax under Sec's. 253
The recommendation by the CIR to the DOJ for the filing of a criminal complaint
and 255 of the NIRC, the fact that a tax is due must first be proved (CIR v. CA and
against the taxpayer cannot be considered a formal assessment. Even a cursory
Fortune Tobacco, G.R. No. 119322, June 4, 1996).
perusal of the letter would reveal three key points:
Effect of acquittal of the taxpayer in the criminal action
a.
It was not addressed to the taxpayer.
It does not necessarily result in the exoneration of said taxpayer from his civil
b.
There was no demand made to the taxpayer to pay the tax liability, nor a
liability to pay taxes.
period for payment set therein.
Reason: The duty to pay is imposed by statute prior to and independent of any
c.
The letter was never mailed or sent to the taxpayer by the CIR.
attempt on the part of the taxpayer to evade payment. It is neither a mere

In fine, the said recommendation letter served merely as the prima facie basis for
consequence of the felonious acts charged nor is it a mere civil liability derived
the filing of the criminal information that the taxpayer had violated the penal
from a crime (Republic v. Patanao, G.R. No. L-14142, May 30, 1961).
3.
It does not extinguish the taxpayers criminal liability (People v. Tierra, G.R. Nos. L17177-80, December 28, 1964).
4.
provisions of the tax code (Adamson v. CA, G.R. No. 1290935, May 21, 2009).
Effect of subsequent satisfaction of civil liability
No subsidiary imprisonment
In case of insolvency on the part of the taxpayer, subsidiary imprisonment cannot
7.
No reservation to file civil action

Under R.A. 9282, the filing of the criminal case implies also the filing of the civil
case. In fact, no reservation for the filing of the civil case may be made under this
law, unlike that of a felony under the RPC (MAMALATEO, pp. 445-446).
be imposed as regards the tax which he is sentenced to pay.

However, it may be imposed in cases of failure to pay the fines imposed (TAX
CODE, Sec. 280).
5.
Criminal action may be filed despite the lapse of the period to file a civil action
for collection of taxes
When the civil action arising from tax delinquency has prescribed, the BIR has only
STATUTE OF LIMITATIONS
Assessment
General Rule: Within three years after the last day prescribed by the law for the filing of the
return or from the date of actual filing the return, whichever comes later (ordinary or normal
assessment) (TAX CODE, Sec. 203).
five years from assessment within which to collect the tax through criminal action
in which case it would prescribe after the lapse of five years from discovery of
crime and institution of proceedings (TAX CODE, Sec. 281).
6.
Exceptions:
1.
return within 10 years after the discovery of falsity, fraud or omission
Filing of a criminal action is not an implied assessment by the CIR
(extraordinary or abnormal assessment) (TAX CODE, Sec.222[a]).
An affidavit, which was executed by revenue officers stating the tax liabilities of a
taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed
as assessment (CIR v. Pascor Realty. G.R. No. 1218315, June 29, 1999).
In case of false or fraudulent return with intent to evade tax or failure to file a
2.
In case there is valid waiver of the statute of limitations up to the extended

period agreed upon (TAX CODE, Sec. 222[b]).
104
* The prescriptive period for making assessment shall also apply when the Government
Requisites in order that a return may be considered filed for purposes of starting the
makes an erroneous refund of internal revenue taxes. The prescriptive period is not the six-
running of the prescriptive period:
year period of limitation under Art. 1145 of the Civil Code on quasi-contracts (ABAN, p. 296)
1.
because the demand of the Government on the taxpayer to pay the erroneously refunded
tax is in effect an assessment of deficiency tax (Guaga Electric v. CIR, G.R. No. L-23611, April
The return must be valid it must comply substantially with the requirements of
the law.
2.
The return must be appropriate it is a return for the particular tax required by
24, 1967).
law. Thus, an income tax return cannot be considered as the equivalent of the Vat
Construction of Statutory Provision on Prescription
or percentage return (Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601, February 28,
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation
1966).
or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus,
the law on prescription, being a remedial measure, should be liberally construed in order to
afford such protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed (CIR v. B.F. Goodrich Phils., Inc. G.R. No. 104171, February 24,
Amendment of Tax Return

General Rule: The following shall govern in case there is an amendment of the return:
1.
reckoned on the date the substantial amendment was made.
1999).
The law of prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the
If the amendment is substantial, the counting of the prescriptive period shall be
2.
If the amendment was superficial, the counting of the prescriptive period is still the
original period (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
Commission which recommended the approval of the law (Republic v. Ablaza, G.R. No. L-
Example of Substantial amendment: An amendment of an original income tax return
14519, July 26, 1990).
showing a net loss to show more losses (CIR v. Phoenix Assurance, G.R. No. L-19727,
Computing for the Prescriptive Period
May 20, 1965).
Both Art. 13 of the Civil Code and the Administrative Code deal the computation of legal
Reason: To prevent taxpayers from evading the payment of taxes by simply reporting in
periods. The Administrative Code being the more recent law, it shall govern the computation
their original return heavy losses and amending the same more years later when the CIR
of legal periods under the principle Lex posterior derogate priori (CIR v. Primetown Property
has lost his authority to assess the proper tax thereunder. The object of the NIRC is to
Group, Inc, G.R. No. 162155, August 28, 2007).
impose taxes for the needs of the Government and not to enhance tax avoidance to its
Burden of proof that a return was filed to apply the three year prescriptive period
prejudice (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
It is incumbent on the taxpayer to prove that a return had been filed by him in order that the
Exception: If the return is sufficiently complete to enable the CIR to intelligently
three-year prescriptive period may apply (Republic v. Marsman Dev't., G.R. No. L-18956, April
determine the proper amount of tax to be assessed, then the prescriptive period for the
27, 1972) because the prescription of the Governments right to assess taxes is an affirmative
assessment starts from the filing of the original return (A.L. Ammen Transportation v.
defence (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
Collector, CTA Case No. 540, November 10, 1965).

False Return
105
That which contains wrong information due to mistake, carelessness or ignorance
6.
(Aznar v. CIR, G.R. No. L-20569, August 23, 1974).

A substantial under-remittance of withholding tax on compensation constitutes falsity
The CIR merely relied upon an alleged substantial under declaration of income tax
resulting from his own computation.
7.
to warrant the 10-year prescriptive period (Samar-I Electric Cooperative, Inc. v CIR, CTA
Mere understatement of gross earnings does not by itself prove fraud (Yutivo Sons
v. CTA, G.R. No. L-13203, January 28, 1961).
EB Case No. 462, March 11 2010).

Fraudulent Return
For the 10-year prescriptive period to apply based on fraud, such fact must first be
proved as a fact by the BIR.
Failure to File a Return

The following constitutes failure to file to warrant the 10-year prescriptive period:
1.
return is the same as if no return was filed (CIR v. Gonzales, G.R. No, L-19495,
Such fact in a fraud assessment which has already become final and executor shall be
November 24, 1964).
judicially taken cognizance of in a civil or criminal action for the collection thereof (TAX
CODE, Sec. 222[a]).
A deficient return prevented the CIR from computing taxes due. Such defective
2.
Failure to report income in returns which were clearly not exempted from tax. The
court did not treat this as a simple omission as the same involved substantial sums
(Standard Chartered Bank v. CIR, CTA EB Case No. 731, September 13, 2012).
The following instances negate the existence of fraud and preclude the application of
the 10-year prescriptive period:
1.
The CIR failed to impute fraud in the assessment notice or demand for payment.
Waiver of Statute of Limitations
2.
The CIR failed to allege fraud in his answer to the taxpayers petition for review
Requisites:
3.
when the case is appealed to CTA (ABAN, pp. 274-275).
1.
In must be in the proper form prescribe under RDAO No. 05-01.
The fact that the CTA raised the question of fraud only for the first time in his
2.
It must specify a definite agreed date between the BIR and the taxpayer within
memorandum which was filed with the CTA after he had rested his case (Taligaman
Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
4.
which the former may assess and collect taxes.

3.
The fact that the CIR did not include fraud penalty in his deficiency assessment
It must be signed by the taxpayer himself or his duly authorized representative.

a.
which was issued after the filing of the return as an indication that he himself did
officials.
not believe that there was fraud (Gomez v. Domingo, CTA Case no, 1168, February
b.
15, 1964).
5.
In an assessment, where the BIR appeared not so sure as to the real amount of
In case of a corporation, the waiver must be signed by any of its responsible
In case the authority is delegated by the taxpayer to a representative, such

authority must be in writing and notarized.
4.
The CIR or the revenue official authorized by him must sign the waiver indicating
the taxpayers net income, as where the BIR arrived at three highly different
that the BIR has accepted and agreed to the waiver.
computations (Republic v. Lim de Yu, G.R. No. L-17438, April 30, 1964).
a.
The date of such acceptance by the BIR must be indicated.
106
b.
5.
Before signing the waiver, the CIR or the revenue official authorized must
have paid the reduced amount of taxes in the revised assessments (RCBC v. CIR, G.R. No.
make sure that the waiver is in the prescribed form, duly notarized, and
1702567, September 7, 2011).
executed by the taxpayer or his duly authorized representative.
Collection
Both the date of execution by the taxpayer and the date of acceptance by the BIR
should be made before the expiration of the period of prescription or before the
6.
7.
The following rules shall govern the prescriptive period of collection of taxes:
1.
For both normal or ordinary assessment (one with the three-year period to
lapse of the period agreed upon in case a subsequent agreement is executed.
assess) and Abnormal or extraordinary assessment (one with the 10-year period
The waiver must be executed in three copies.
to assess) Five years from the time the assessment was made.
a.
Original copy - attached to the docket of the case.
2.
b.
Second Copy taxpayers copy.
discovery of the falsity, fraud or omission to file a return.
c.
Third Copy copy of the Office accepting the waiver.
The Government may collect without prior assessment in the same instances under
The fact of receipt by the taxpayer of his/her copy must be indicated in the original
Collection without assessment through judicial action 10 years after the
abnormal or extraordinary assessment.
copy to show that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.
8.
It must be duly notarized.
Grounds for Suspension of the Running of the Statute of Limitations to Assess and Collect:
9.
It must not reduce but extend the period allowed for the government to assess and
(TAX CODE, Sec. 223)
collect taxes (RMO No, 20-90; RDAO No. 05-01; RMC No. 06-05; Republic v. Lopez,
1.
G.R. No. :-18007, March 30, 1963).
When the CIR is prohibited from making the assessment or beginning the distraint
or levy or a proceeding in court, and for sixty days thereafter.
2.
When the taxpayer requests for reinvestigation and is granted by the CIR.
Requisites:
* The waiver of the statute of limitations does not mean that the taxpayer relinquishes its
a.
right to invoked prescription (Philippine Journalists, Inc. v. CIR, G.R. No. 162852, December
reconsideration (CIR v. Philippine Global Communications, G.R. No. 167146,
16, 2004).
Failure to comply with all the requirements stated above renders the waiver invalid. As
such, the prescriptive period shall not be extended.
There must be a request for reinvestigation and not a request for
October 31, 2006).

b.
The request for reinvestigation must be granted or acted upon by the CIR (BPI
v. CIR, G.R. No. 174942, March 7, 2008).
The taxpayer may, however, be stopped to question the validity of the waiver as when he
made partial payment of the revised assessments issued within the extended period as
provided in the questioned waivers. The Court held that had he believed the waivers were
* The burden of proof that the request for reinvestigation had been actually granted shall
invalid and the assessments were issued beyond the prescriptive period, then it should not
be on the CIR. Such grant may be expressed in its communication with the taxpayer or
107
implied from the action of the CIR or his authorized representative in response to the
Interruption of the Prescriptive Period
request for reinvestigation (BPI v. CIR, G.R. No. 174942, March 7, 2008).
The period shall be interrupted:
3.
When the taxpayer cannot be located in the address given by him in the return,
1.
When the proceedings are instituted against the guilty persons.
2.
When the offender is absent from the Philippines (TAX CODE, Sec. 281).
unless he informs the CIR of any change in his address.

4.
When the warrant of distraint or levy is duly served, and no property is located.
5.
When the taxpayer is out of the Philippines.
* In No. 1, the period shall run again if the proceedings are dismissed for reasons not
constituting jeopardy (TAX CODE, Sec. 281).
Criminal Cases
All violations of any provision of this Code shall prescribe after five years (NIRC, Sec. 281).
When does the prescriptive period of prescription begin to run:

1.
From the day of the commission of the violation of the law (TAX CODE, Sec. 281).
The five-year prescriptive period for the violation of any provision of the Tax Code
should be reckoned from the date of the final notice and demand for payment of
the deficiency taxes that the cause of action on the part of the BIR accrued. This is
because prior to the receipt of the letter-assessment, no violation has yet been
committed (DIZON, citing Lim, Sr. V. CA, G.R. Nos. 48134-37. October 18, 1990).
2.
REMEDIES OF THE TAXPAYER UNDER NIRC
QUESTION: Can the taxpayer institute a direct action before a court of justice to protest the
assessment?
ANSWER: No. The assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of assessment (Sec. 228 (4)
NIRC).
QUESTION: What about the claim for refund?
ANSWER: No. No suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax UNTIL a claim for refund or credit has been filed with the
Commissioner(Sec. 229 NIRC).
I.
Before Payment
If the same be not known at the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment (TAX CODE,
Sec. 281).
Necessity of Judicial Proceeding

The Supreme Court held that in case of falsity or fraud with intent to evade the tax, the right
of the government to collect through criminal action is imprescriptible because the remedy
of collection through criminal action is only deemed instituted from its discovery and the
institution of the judicial proceedings for its investigation and punishment (Lim, Sr. V. CA,
G.R. Nos. 48134-37, October 18, 1990).
A.
1.
Protest against Assessment

Protest, as used in internal revenue taxation, it is an act by the
taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as
shown in the notice of assessment and letter of demand. The
protest may be a Request for reconsideration which involves reevaluation of assessment based on existing records and does not toll
the Statute of Limitations or Request for reinvestigation which
involves presentation of newly-discovered or additional evidence
and tolls the Statute of Limitations.
108
A valid protest must have the following requisites: (a) in

writing; (b) addressed to the CIR; (c) it must be accompanied by a
waiver of the Statute of Limitations in favour of the government.
Such waiver is a bilateral agreement between taxpayer and BIR. It is
not a unilateral act by the taxpayer or the BIR. The waiver of Statute
of Limitations does not mean that taxpayer relinquishes its right to
invoke prescription; (d) it must state the facts, applicable law, rules
and regulations or jurisprudence on which his protest is based,
otherwise, his protest shall be considered void and without force
and effect on the event the letter of protest submitted by the
taxpayer is accepted; and (e) it must contain: (1) name of the
taxpayer and address; (2) nature of the request; (3) taxable periods
covered by the assessment; (4) amount and kind of tax involved; (5)
date of receipt of assessment notice or letter of demand; (6)
itemized statement of the finding to which the taxpayer agrees as
basis for the computation of the tax due; (7) itemized schedule of
the adjustments to which the taxpayer does not agree; (8)
supporting facts or law; (9) documentary evidence.
As a general rule, no prior payment of assessed internal
revenue tax is required when protested or disputed. Exception: if
there are several issues involved in the Final Assessment Notice
(FAN) but the taxpayer only disputes or protests against the validity
of some of the issues raised, the taxpayer shall be required to pay
the deficiency tax or taxes attributable to the undisputed issues. If
the taxpayer does not pay, the disputed issues shall be considered
as undisputed. (Payment in Protest)
Procedure in Protesting an Assessment: (1) the taxpayer shall
file his Protest within 30 days from receipt of the Final Assessment
(FAN). After receipt of FAN, the taxpayer cannot immediately appeal
to the CTA. The taxpayer must pay the deficiency tax if the taxpayer
protests only to some of the issues raised. (2) The taxpayer shall
submit all relevant supporting documents within 60 days from the
filing of the protest. Non-submission renders the assessment final,
executory and demandable. (3) If the protest is denied by the
Commissioners authorized representative, the taxpayer may
elevate the protest to the Commissioner within 30 days from receipt
of the decision for a request for reconsideration and to be referred
to the Bureaus Appellate Division. (4) If the protest is denied in
whole or in part by the Commissioner, the taxpayer may appeal to
the CTA within 30 days from receipt of decision, otherwise, the

assessment shall become final, executory and demandable except
when it is appealed to the CIR. Instead of appealing to the CTA at
once, the taxpayer may first opt to file a Motion for Reconsideration
of the denial of the administrative protest with the Commissioner.
The MR does not toll the 30-day period to appeal to the CTA. If the
MR is denied, the taxpayer may then appeal to the CTA, but only
within the remaining period of the original 30-day period to appeal,
if any. The forms of denial may be direct or indirect denial of
protest.(5) lastly, the taxpayer may appeal to the Supreme Court
from the adverse decision of the CTA within 15 days.
2.
Entering into a Compromise

SECTION 204. Authority of the Commissioner to Compromise,
Abate and Refund or Credit Taxes. - The Commissioner may Compromise the payment of any internal revenue tax, when: (a) A
reasonable doubt as to the validity of the claim against the taxpayer
exists; or (b) The financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject
to the following minimum amounts: (a) For cases of financial
incapacity, a minimum compromise rate equivalent to ten percent
(10%) of the basic assessed tax; and (b) For other cases, a minimum
compromise rate equivalent to forty percent (40%) of the basic
assessed tax.
Where the basic tax involved exceeds One million pesos
(P1,000,000) or where the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners.
Instances of Compromise:
Revenue Regulations No. 30-2002, as amended, provided for
specific instances where tax liability in the Philippines could be
compromised based on certain conditions and requirements, to wit:
(1) Delinquent accounts;
(2) Cases under administrative protest after issuance of the FAN to
the taxpayer which are still pending in the Regional Offices,
Revenue District Offices, Legal Service, Large Taxpayer Service
109
(LTS), Collection Service, Enforcement Service and other offices

in the National Office;
(3) Civil tax cases being disputed before the courts;
(4) Collection cases filed in courts;
(5) Criminal violations, other than those already filed in court or
those involving criminal tax fraud.
B.
Judicial Remedies
(1) Appeal to the Court of Tax Appeals (Division), within 30 days from
receipt of decision on the protest or from the lapse of 180 days due
to inaction of the Commissioner otherwise it will be final and
executory;
(2) Appeal the CTA en banc, the party adversely affected by the CTA
Divisions decision may file one (1) motion for reconsideration/new
trial within 15 days from receipt of the decision with the CTA
division. If the MR is denied, file a petition for review with the CTA
en banc;
(3) Appeal to the Supreme Court, within 16 days from the receipt of the
decision of the CTA;
(4) By way of special civil action, petition for certiorari, prohibition and
mandamus to the Supreme Court in case of grave abuse of
discretion, lack of jurisdiction or excess of jurisdiction;
(5) Action to contest forfeiture of chattel, at any time before the sale or
destruction thereof, to recover the same, and upon giving proper
bond, enjoin the sale; or after the sale and within 6 months, an
action to recover the net proceeds realized at the sale (Sec. 231
NIRC);
(6) Action for damages against a revenue officer by reason of any act
done in the performance of official duty (Sec. 227 NIRC);
(7) Injunction, to be issued by the CTA if collection may jeopardize the
interest of the government and/or the taxpayer (R.A. 1125 as
amended by R.A. 9282).
II.
After Payment
A.
Tax Credit is a remedy in which the government issues a tax credit

certificate or tax credit memo covering the amount determined to be
reimbursable can be applied after proper verification against any sum
that may be due and collectible from the taxpayer. The taxpayer asks that
the money so paid be applied to his existing tax liability. The prescriptive
period is 2 years from the date such credit was allowed (in case credit is
wrongfully made).
Claim for Tax Refund or Tax Credit

A Tax Refund is a written claim for the payment of cash for
taxes erroneously or illegally paid by the taxpayer to the government.
The taxpayer asks for restitution of the money paid as tax. The
prescriptive period is 2 years after the payment of the tax or penalty. A
Grounds for filing a claim for tax refund or tax credit are the
following: (1) tax is collected ERRONEOUSLY or ILLEGALLY; (2) penalty is
collected WITHOUT AUTHORITY; (3) sum collected is EXCESSIVE or in any
manner WRONGFULLY COLLECTED.
Requisites of tax refund or tax credit are the following: (1) the
claim must be in WRITING (mandatory); (2) it must be filed with the
Commissioner within 2 years after the payment of tax or penalty; (3) the
taxpayer must show PROOF OF PAYMENT.
Recovery of tax erroneously or illegally collected (Sec. 229
NIRC): No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax UNTIL a claim for refund or
credit has been filed with the Commissioner; but the suit or proceeding
may be maintained whether or not such tax, penalty or sum has been
paid under protest or duress. Even without a written claim, the CIR may
refund or credit tax where on the face of the return upon which payment
was made, such payment appears to have been erroneously paid.
Rule on Commencement of Two (2) Year Period:
(1) Commissioner vs. Victorias Milling, G.R. No. L-24108, January 31,
1968;tax sought to be refunded is illegally or erroneously collected
from the date the tax was paid.
Sec. 306 and 309 of NIRC were intended to govern all
kinds of refunds of internal revenue taxes those
taxes imposed and collected pursuant to the NIRC.
Thus, this Court stated that "this provision" referring
to Sec. 306, "which is mandatory, is not subject to
qualification, and hence, it applies regardless of the
conditions under which payment has been made."
And to hold that the instant claim for refund of a
specific tax, an internal revenue tax imposed in Sec.
110
142 of NIRC, is beyond the scope of Sec. 306 and309

as to thwart the aforesaid intention and spirit
underlying said provisions.
x x xx x xx x x
. . . The intention is clear that refunds of internal
revenue taxes are generally governed by Sec.306 and
309 of the Tax Code. Since in those cases the tax
sought to be refunded was collected legally, the
running of the 2-year prescriptive period provided for
in Sec. 306 should commence, not from the date the
tax was paid, but from the happening of the
supervening cause which entitled the taxpayer to a
tax refund. And the claim for refund should be filed
with the CIR, and the subsequent appeal to the CTA
must be instituted, within the said 2-year period.
x x xx x xx x x
In fine, when the tax sought to be refunded is
illegally or erroneously collected, the period of
prescription starts from the date the tax was paid;
but when the tax is legally collected, the prescriptive
period commences to run from the date of
occurrence of the supervening cause which gave rise
to the right of refund. The ruling in Muller & Phipps
is accordingly modified.
It is not disputed that the oils and fuels involved in
this case were used during the period from June
1952 to December1955; that the claim for refund
was filed on December 1957; and that the appeal to
the Court CTA was instituted only on February 1962.
The taxpayer's claim for refund with the BIR of
December 1957 is within 2 years from
December1955 the last month of the period
during which the fuels and oils were used. The
appeal to the CTA however, was instituted more
than 6 years. The SC has repeatedly held that the
claim for refund with the BIR and the subsequent
appeal to the CTA must be filed within the 2-year
period. "If, however, the Collector takes time in
deciding the claim, and the period of 2 years is about
to end, the suit or proceeding must be started in the
CTA before the end of the 2-year period without
awaiting the decision of the Collector." In the light of
the above quoted ruling, the SC finds that the right

of Victorias Milling to claim refund of P2,817.08 has
prescribed.CIR v. VICTORIAS MILLING CO., & CTA
JAN. 03, 1968 GR. L-24108
(2) Collector vs. Prieto, G.R. No. L-11976, August 29, 1961;tax is paid
only in installments or only in part from the date the last or final
installment or payment.
(3) Union Garment vs. Collector, CTA Case No. 416, November 17,
1958; taxpayer merely made a deposit counted from the
conversion of the deposit to payment.
(4) Gibbs vs. Commissioner, G.R. No. L-17406, November 29, 1965; tax
has been withheld from source counted from the date it falls due
at the end of the taxable year.
(5) ACCRA Investments vs. CA, G.R. No. 96322, December 20, 1991;
end of taxably year vs. date of the filing of the final adjusted return
from the date when the final adjusted return was filed.
(6) Commissioner vs. TMX Sales, G.R. No. 83736, January 15, 1992;
date when quarterly income tax was paid vs. date when final
adjusted return was filed from the date when final adjusted return
was filed.
(7) Commissioner vs. CA, G.R. No. 117254, January 21, 1999; date
when the final adjustment return was actually filed vs. last day when
the adjustment return could still be filed from the date the final
adjustment return was actually filed.
(8) Commissioner vs. Don Pedro Central Azucarera, G.R. No. L-28467,
February 28, 1973;tax was not erroneously or illegally paid but the
taxpayer became entitled to refund because of supervening
circumstances from the date the taxpayer becomes entitled to
refund and not from the date of payment.
QUESTION: Does the filing of the claim for refund or credit suspend the
running of the 2-year prescriptive period?
111
ANSWER: No, hence, the taxpayer should not wait for the decision of the
CIR. Both the claim for refund and subsequent appeal must be filed
within the 2-year period.
QUESTION: When is there waiver of the prescription in an action for
refund?
ANSWER: If the government failed to plead prescription in a motion to
dismiss or as a defence in its answer to the petition for review. Exception:
taxpayer amends his petition for review alleging therein a new cause of
action and the government pleads prescription in his answer to the
amended petition for review.
112

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CHAPTER 1: TAXATION IN GENERAL

Destructive power which

Some Taxation related terms

Ex. Taxable income is the tax base for

Important distinction when considering tax rates

RELEVANT THEORIES/BASES OF TAXATION (NL-BS-NS)

Primary purpose for legislature in adopting measures is to generate funds

Should be collected without unnecessary hindrance.

Benefits-protection theory/theory of reciprocity/symbiotic relationshipcitizen

Taxation as government violation of the non-aggression principle and the social

Government violation of non-aggression principletaxation wrongfully presumes that

The most strict right or law.

Purposes and effect of taxation(Six [6] Rs)

Ex: Imposition of Pigovian Tax

RESUSCITATE ECONOMY tax may be imposed as a first aid measure to resuscitate an

REPRESENTATIONno taxation without representation; no taxes should be imposed on

progressive system of taxation.

Power to tax is primarily vested in Congress;

Power is not granted in the Constitution.

Grant of exemption is an exercise of power of taxationpower to tax includes

Sound Tax System (ECCEPSD)

Basic principles of Sound Tax System(FAT).

Fiscal adequacysources of revenues must be adequate to meet government expenditures

Determination of persons, property or exercises to be taxed, amount to be raised, rate to

Imposts levied by the Government for its

HELD: On the ground of solution indebiti , SC allowed compensation. Obligation to

Rule on non-imprisonment for non-payment of debts is not applicable.

There can be no off-setting; collection of tax cannot avail the results of a

EXCEPTION: Domingo vs. Garlitos

Republic vs. Ericta and Sampaguita Pictures

DOCTRINE OF EQUITABLE RECOUPMENT: grants a right to a creditor to recover debt; debt

ART 1279. In order that compensation may be proper, it is necessary:

It is applicable in cases to a taxpayer who erroneously paid a tax and is later

amount owned by him

General, fiscal or revenue

Taxes assessed on all

Who bears the burden

buyer, transferee or lessee of

Those that are demanded, from or are paid

Ex. VATsubstantial portion of consumer

value of the subject being

Implies that tax rate

Implies that tax rate regresses

Most are flat rate taxes.

PURPOSE: generate revenue;

PURPOSE: regulatory to promote

Amount limited to regulationcost

Normally paid when business on

Before commencement of business.

Non-payment does not make

Non-payment of license fee makes

Special assessmentexaction on property levied in accordance with benefits

Personal liability of taxpayer.

Of special application only as to particular

Refusal of citizen to pay may not be

Finespaid in case of violation of law.

Penaltypunitive sanction for compelling timely action.

Imposed to raise revenue.

Taxation distinguished from police power and eminent domain

Amount has no limit so long

Government and individuals may impose.

Amount is determined by State.

Amount based on cost of property or of