Taxation 1 Primer

Guide to Tax 1 for Students

San Beda College – Alabang School of Law

October 24, 2015

Submitted by:
Section 3B and 3E
(12pm – 3pm Saturday Class)

Submitted to: 1
Atty. Efren Dizon Jr.

Section 3-B
ABASTA, Sancho III Gutierrez
ALARKON, Romulo Bernard Bustamante
ALIMAGNO, Maria Alexis Alconaba
ALMAZAN, Nathalie Torallo
ANGALA, Miguel Eugenio Derequito
ARANZANSO, Jeffrey Nombrado
BAVIERA, Denise Carla Villamoran
BOHOL, Vincent Joshua De Lima
BUENO, Christian Benedict Tanchico
DE LA CRUZ, Uri Ian Del Rosario
DE VEYRA, Ronald Redentor Gumayao
DELGADO, Lorenzo Enriquez
DIATO, Jea Mari Dolojan
DONATO, Edward Felix Madamba
DULCE, Michael Cedric Narciso
GABORNES, Maris Cay Elejido
GARCIA, Daryl Patrick Quinto
GOMEZ, Erwin Kristoffer Santos
GUSI, Francisco III Balmes
MANABAT, Leandro Mari Borabien
MENDOZA, Lauren Antonette Morales
MOYA, Maeryl Laiza Baguio
SUAN, Rose Anne Galino
TAMAYO, Jai Jagannath Sangco
YABUT, Lee Anne Therese Esureña
Section 3-E
CHUA, Angelo Anthony Chua
DESTAJO, Pierre Honcel Angela Tabares
DIAMITAS, Jan Erik Bonifacio
DUBLIN, Maria Rodielita Ante
ENCIO, Flores Becina
ESPALDON, Shelumiel Milagros Mendoza
GENERAL, Jose Luis Obias
GUERZON, Randolph Jon Pamaran
GUILLERMO, Evandell Sanguir
JIMENEZ, Joseph James Ilao
LAYUSA, Francis Paolo Bautista
LAZARO, Charissa Elaine Bubutan
MAAMBONG, Urane Leslie Fabrigaras
NERVEZA, Daniel Evan Lucillo
OLOSAN, Nova Grail Gonayon
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 PADRE, Ronald Moya expenses of the government.
PEREZ, Rachel Kay Agustin A way of apportioning the
SANTOS, Wilfredo Jr. Evangelista costs of government among
SBAÏZ, Dave James Patrick Guzman those who in some measure
are privileged to enjoy its
benefits and must bear its
burdens.
government. It may be predetermined criteria and
levied upon wealth or without reference to specific
income, or in the form of a benefit received.
surcharge on prices.
Destructive power which
interferes with the personal
and property rights of the
people and takes from them
a portion of their property
for the support of the
government.

Tax base Tax rate

Assessment or determination of tax Describes burden ration, usually expressed as a
liability is based or the wealth within a percentage, at which a person, property,
CHAPTER 1: TAXATION IN GENERAL jurisdiction that is liable to taxation. privileges or occupation is taxed.

TAXES: enforced proportional contributions from persons and property, levied by the State Ex. Taxable income is the tax base for Important distinction when considering tax rates
by virtue of its sovereignty, for the support of the government and for all public needs. income tax and assessed value is the is to distinguish between marginal rate and
tax base for property taxes. effective average rate.
TO TAX: to impose a financial charge or other levy upon a tax payer by a state or the
Marginal tax rate Average rate
functional equivalent of a state. Percent levied on Rate a taxpayer
each additional would be taxed at, if
Amount of tax collected by the taxing authority from the public is always greater than the peso of taxable taxing was done at a
amount to be expended for public purpose. income. constant rate, instead
COMPLIANCE COST: resulting difference; which includes labor cost and other expenses of progressively.
incurred in complying with tax laws and rules. Marginal tax rate
rises as income
HYPOTHECATION: levy of a tax for a specified end (e.g. imposing a tax on vehicles to be increases.
used on road construction rehabilitation and maintenance)
Impact of tax Incidence of tax
Person from whom government collects Person who finally bears the burden of a
TAXATION DEFINED money in first instance. Refers to liability for tax.
Governments perspective Taxpayer’s perspective Economist’s perspective the tax.
Power by which the Compulsory transfer of Non-penal, yet compulsory
sovereign, through its law- money (or goods) from transfer of resources from Ex. Amount of sales tax paid may be shifted or passed on by the seller to the buyer. What is
making body, raises revenue private individuals, the private to the public transferred is not the liability for the tax, but the tax burden. A seller who is directly and
to defray the necessary institutions or groups to the sector levied on a basis of
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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 Tax pyramiding
When traditional taxable components of the When sales taxes are applied to both inputs
tax based are no longer representative of and outputs, thus shifting the tax burden to
the economy at large, this results to the ultimate consumer. In this situation,
demographic changes, relative changes in some or all stages of production are taxed,
production, stagnation or inflationary effects. with the accumulation borne by the
consumer at the point of sale.
May also result from use of aggressive tax
strategies by taxpayers (eg. Less than Ex. When a product is taxed at the pre-retail
appropriate income is shown and more than stage and thus, tax is imposed on
deduction is claimed). 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 Revenue Neutral
Tax that does not cause individuals or firms Taxing procedure that allows the
to shift their economic choices, such as to government to still receive the same amount
choose among different goods, inputs, of money despite changes in tax laws.
locations etc. Government may lower taxes for one group
and raise for another. This allows revenue to
Tax structure that does not change the remain unchanged.
incentives in the market.
Ex. Poll tax (e.g. Community Tax
Certificate).
Statutory taxpayer Extraterritorial taxation Tax exporting
Person on whom the tax Tax is imposed on Shifting of a tax burden to
is imposed by law and property/subject outside the non-residents of a given
who paid the same even if State. jurisdiction. Exporting can be
he shifts the burden to achieved indirectly by taxing
another. 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. Should be collected without unnecessary hindrance.
b. 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.
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.
f. Granting exemptions are construed as strictissimi juris 1 against the
taxpayer and liberally in favor of taxing authority.
GR: Taxation
EXCEPTION: exemption from tax
1
The most strict right or law.
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 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.
2. Benefits-protection theory/theory of reciprocity/symbiotic relationship—
citizen 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 one’s 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 principle—taxation wrongfully presumes that
government has a higher claim on property than the owner. Taxation is theft and tax
resistance is therefore legitimate.
Social contract theory—in 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 REVENUES—Primary 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 INEQUALITY—there 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.
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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 External benefit
Negative externality/cost of an externality 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 cigarettes—vs. negative externality of second-hand smoke.
Pollution tax—factories 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 oils—for 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.
REPRESENTATION—“no 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.
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 5. Tax must not impinge on the inherent and constitutional limitation on power of
taxation. Inherent
GR: power to tax is an incident of
An enforced contribution—does not depend on the will or acquiescence of the taxpayer. sovereignty and is unlimited in its range,
Exacted pursuant to legislative authority—GR: power is exercised only by the legislative acknowledging in its very nature no limits,
department except in case of valid delegations of power or when there is constitutional so that security against its abuse is to be
grant. found only in the responsibility of this
legislature which imposes the tax on the
Contribution in the form of money—there is no law prohibiting payment in some other form constituency who are to pay it.
of property.
However, State could determine in what manner taxes should be discharged. Rule of taxation shall be uniform and
1. Notes of legal tender do not apply to involuntary contributions exacted by a State equitable and Congress shall evolve a
buy only to debts (obligations for payment of money founded on contracts, whether progressive system of taxation.
express or implied).
2. Statute requiring payment to be collected in gold and silver coins was sustained on The following are manifestation of this
2 grounds: inherent nature
a. Right of each state to collect its taxes in such material as it might deem 1. It can be imposed even in the
expedient. Mode in which it should be exercised, were all equally within absence of a constitutional grant
the discretion of its legislature, except as restrained by its own 2. Injunction is not generally
constitution; and available to enjoin collection of
b. Legal tender act had no reference to taxes imposed by State authority, taxes
but only to debts arising out of simple contracts or contracts of specialty, 3. Taxes cannot be set-off or
which include judgments or recognizances. compensated
4. It is an unlimited or plenary power
Imposed, levied and collected for purpose of raising revenue—taxes may have regulatory or 5. It is inherent in the power to tax
economic purpose other than to generate funds. that State be free to select the
subjects of taxation
To be used for public or governmental purpose—it cannot be used for private purposes.
Taxing power of LGUs is not inherent
Levied by authority which has jurisdiction over the person, property, transaction, rights and because they are not sovereign units. LGU
privileges—jurisdictional limitation has 2 questions: is merely an agency of the State for
1. Is there a sufficient relationship between the State exercising tax power and the carrying out the objects of the government.
object of the exercise of that power? Thus, constitutional or legislative grant is
2. Is the degree of contact sufficient to justify the state’s imposition of a particular necessary before it can exercise taxing
obligation? power.
Nature of taxing power 2. Power is not granted in the Constitution.
1. It is inherent and legislative. 3. It is not a contract between the State and its citizens.
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
occupation to be taxed
3. Amount or rate
4. Kind of tax
5. Apportionment of tax (whether tax
shall be of general application or
limited to a particular locality, partly
general and partly local)
6. Situs
7. 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.
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 4. It is not political in nature.
5. Taxes are personal.
6. It is unlimited in range.
7. It is imprescriptible.
Power is not granted in the Constitution—it 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 citizens—it 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 personal—liability 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.
Corporation’s 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 range—it 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 imprescriptible—without exception, taxes being the lifeblood of the government.
However, statutes may provide for prescriptive periods for the collection of particular kinds
of taxes when government has not by express statutory provision, provided a limitation upon
its right to assess unpaid taxes, such right is imprescriptible.
HELD: The government is not bound by any statute of limitations, unless Congress has
clearly manifested its intention that it should be so bound.
Aspects of taxation
1. Aspects (LAP)
a. Levy2
b. Assessment and Collection3
c. Payment and/or exercise of remedies4
2
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.
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 Administrative feasibility--- taxes should be capable of being effectively enforced; tax policy
2. Grant of exemption is an exercise of power of taxation—power to tax includes that costs government and taxpayers more to collect that taxes generated is inherently
power to exempt flawed. Violation of this principle will make the law unsound but still valid and not
unconstitutional.
Sound Tax System (ECCEPSD)
1. Canons of taxation. Theoretical justice—taxed must be based on the taxpayer’s ability to pay and proportional to
a. Equity. the relative value of the property; it must be uniform and equitable and that State must
b. Certainty. evolve a progressive system of taxation. It is progressive when its rate goes up depending
c. Convenience. on the resources of peron affected. Violation of this principle will make the law unsound,
d. Economy. invalid and unconstitutional.
e. Productivity.
f. Elasticity. Taxes are not subject to compensation—Taxes cannot be offset from government
g. Simplicity. obligations or liabilities due to the taxpayer
h. Diversity. 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,
Equity—every person should pay to the government depending upon his ability to pay. demand, contract or judgment that is allowed to be set-off.
Certainty—must not be arbitrary; taxpayer should know in advance how much tax he has to 2. Tax and debt
pay, at what time and in what form.
Convenience—mode and timing must be convenient to tax payers. Tax Debt
Economy—cost of tax collection should be lower than amount of tax collected. Due to government in its sovereign capacity Due to the government in its corporate
capacity
Productivity—tax when levied should produce sufficient revenue to the government. Imposts levied by the Government for its
Elasticity—tax system should be fairly elastic so that if at any time the government is in support or some special purpose, which the Sum of money due upon contract, express
need of more funds, it should increase its financial resources without incurring any government has recognized. or implied or one which is evidenced by
additional cost of collection. judgment
Simplicity—tax system should be fairly simple, plain, and intelligible to the taxpayer.
Diversity—system should include a large number of taxes which are economical; However, tax in a broad sense may be a debt, so that interest on estate and inheritance
government should collect revenue by levying direct and indirect taxes. may be deducted as interest on indebtedness:
a. Tax and debt
2. Basic principles of Sound Tax System(FAT). Tax Debt
a. Fiscal adequacy. Does not proceed from contract Generally the result of the contract
b. Administrative feasibility. Obligations created by law and Obligation created by a contract
c. Theoretical justice. governed by special laws and
falsification and non-payment of
Fiscal adequacy—sources of revenues must be adequate to meet government expenditures such taxes impose criminal
and their variations; violation of this principle will make the law unsound but still valid and liabilities May be off-set
not unconstitutional. May arise out of acts of private
May not be off-set individuals

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 Can only be imposed by public ART 1200. When all requisites mentioned in ART 1279 5 are present, compensation
authority Can be assigned takes effect by operation of law and extinguished both debts to the concurrent
May be paid in money, property or amount, even though the creditors and debtors are not aware of the compensation.
Cannot be assigned service
Generally payable in money Draw interest if stipulated or there Compensation may be applied if these circumstances are present:
Do not draw interest unless is default 1. Both the claim of the Government for inheritance tax and claim for estate for
delinquent 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
b. Rule on non-imprisonment for non-payment of debts is not applicable. Government by virtue of law.
Except for community taxes/poll taxes (cedula), fraudulent non-payment
of other taxes (like real estate) would be subject to imprisonment.  CIR vs. Esso Standard
Falsification of community tax is subject to criminal liability.
HELD: On the ground of solution indebiti 6, SC allowed compensation. Obligation to
c. There can be no off-setting; collection of tax cannot avail the results of a return money mistakenly paid arises from the moment that payment is made, and not
lawsuit against the government. 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
d. Compensation had been the practice in the past can set no valid whatever to the amount and indeed was bound to return it, it was neither legally nor
precedent. Such practice has no legal basis. 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.
EXCEPTION:  Domingo vs. Garlitos
 Republic vs. Ericta and Sampaguita Pictures
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 HELD: SC upheld the dismissal of complaint to pay the amount for alleged unpaid
appropriate for the purpose of a corresponding law. Both the claim of the taxes and counter claim representing the face value of negotiable certificates of
Government for inheritance taxes and the claim of the intestate for services indebtedness.
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: 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.
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Payment to one of what is not due to him.
10
 occupations in which of apportionment. not pertain to
DOCTRINE OF EQUITABLE RECOUPMENT: grants a right to a creditor to recover they may be Obligation to pay is performance of an
debt; debt diminishes to the extent s/he holds the debtor’s property in violation of engaged. absolute and involuntary. activity, at least not
the debtor’s legal rights. It is the legal principle that a creditor loses right to recover a to extent of equating
debt if the creditor illegally possess some of the debtor’s property. ( Doctrine does Taxes of a specified It is measured by amount excise with
not apply in the Philippines.) amount upon each of property owned by the business.taxes.
person performing a taxpayer on a given day,
Applied in taxation— certain act or and not on the total
1. It allows a taxpayer to set off previously overpaid taxes due, even though the engaging in a certain amount owned by him
taxpayer is time-bared from claiming refund on previous taxes. It applies only if the business or during the way.
Statute of Limitation has created an inequitable result. It is a defensive remedy profession is not poll
against mitigation of damages. tax. It is assessed at stated
period determined in
2. It is applicable in cases to a taxpayer who erroneously paid a tax and is later advance, collected at
properly assessed a tax arising from the same taxable event. It allows the taxpayer appointed times, enforced
to offset the tax properly assessed by the tax erroneously paid, even if the Statute by sale of property and by
of Limitations would otherwise prevent the taxpayer from recovering the earlier imprisonment of person
overpayment through a claim for refund. assessed.

3. It can occur only when the untimely refund claim to be set off against the timely It is a tax in rem and
assessment occurs within the same transaction or tax year. Doctrine can only be judgments in proceedings
used as a defense to an assessment made during the same transaction or tax is one in rem.
period.
2. Purpose

Classification of taxes General, fiscal or revenue Special or regulatory

1. Subject matter Designed to raise revenue for the general or Achieve social or economic goals
ordinary purposes. irrespective of whether revenue is actually
Personal, capitation Property Excise or privilege Customs raised or not.
or poll duties
Taxes of a fixed Taxes assessed on all Charge imposed Charged upon Special tax is imposed for special public
amount upon all property or on all property upon performance commodities purpose. Money raised shall be spent only
persons or upon all of a certain class located of an act, enjoyment being for such purpose and if such purpose has
persons of a certain within a certain territory on of a privilege or imported or been fulfilled, remaining amount shall be
class, resident within a specified date in engaging in an exported. placed in general funds of the government to
a specified territory, proportion to its value, or in occupation. be spent for any general purpose.
without regard to accordance with some
their property or other reasonable method However, these do 3. Who bears the burden

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Direct Indirect Implies that tax rate Implies that tax rate regresses
Imposed and absorbed by same person. Tax paid by a person other than one whom progresses as affluence as affluence increases.
it is imposed. (income) increases.
Personal tax Direct tax Taxes wherein liability for payment of tax PROGRESSIVE TAXES: tax
Those of a fixed Both the incidence falls on one person to another. imposed whereby the rate or
amount upon all of or liability for the amount of tax increases.
persons of a payment of tax as Illustration
certain class within well as impact or 1. VAT is payable by any person, in REGRESSIVE TAXES: tax
jurisdiction of the burden of tax falls the course of trade and business. rate decreases as the amount
taxing power on same person It is applied to each stage of of income increases.
without regard to and cannot be production. Burden of paying the
the amount of their shifted. amount may be shifted on to the PROPORTIONATE TAXES:
property. buyer, transferee or lessee of based on a fixed portion of the
Ex. Franchise tax: a goods, properties or services. value of the subject being
percentage tax 2. Contractor’s tax—payable by taxed.
imposed on contractor but it is the owner of the
franchise holders is building that shoulders the burden.
a direct liability of 3. Excise tax—liability for payment 5. Taxing authority
the franchise may fall from a person other than
grantee. the one who actually bears the National Local/municipal
burden. Imposed by Congress imposed by local legislative bodies
Those that are exacted from the very person
ho, it is intended or desired, should pay 6. Scope
them; they are impositions for which a Those that are demanded, from or are paid
taxpayer is directly liable on the transaction by, one person in the expectation and General Specific
or business he is engaged in. intention that he can shift the burden to Imposed throughout the state or civil Levied for a special purpose for the benefit
someone else. division for raising revenue for general of a part of a body politic resting upon the
Ex. Income tax—taxes an individual’s ability purposes on the ground of general public supposition that a portion of the public is
to pay based on his income or net wealth. interests. specially benefited in the increase of the
Ex. VAT—substantial portion of consumer value of property.
expenditures.
7. Basis of amount
4. Rate or graduation
Specific Ad valorem (value)
Proportional Progressive or graduated Regressive Fixed amount by head or number or by some Fixed proportion of value of property
Fixed rate regardless of tax Tax rate and tax base are Tax rate and tax base are standard of weight or measurement. with respect to which taxes are
base. directly proportional. inversely proportional. assessed and require the intervention

12
 Specific Excise of assessors or appraisers to estimate regulation, inspection and licensing before any person may engage in
Imposes a specific Privilege tax laid the value of such property. such business or occupation.
sum by the head or upon the b. Amount of fee is considered in determining whether for revenue or as
number or by some manufacture, sale or regulation.
standard of weight or consumption of Exemption from tax does not carry exemption from license fee. However,
measurement and commodities within if license fee is substantially more than cost of regulation, it may be
which requires no the country . considered as tax and therefore covered by exemption. Authority to exact
assessment beyond a fee does not carry power to collect tax.
listing and
classification of the Tax License fee
subject to be taxed. Emerges from power of taxation of Emerges from police power of
State. State.
8. Others
PURPOSE: generate revenue; PURPOSE: regulatory to promote
Consumption Sumptuary Flat regulation is incidental. It is not tax public welfare.
Imposed on consumable Government levy on goods Charged no matter how even if revenue is incidentally
commodities and services. considered socially much value. It does not generated.
undesirable, most commonly change. Amount limited to regulation—cost
Most are flat rate taxes. alcohol and tobacco. Amount is not subject to limitations of permit (issuance of license and
Sales, excise and VAT are provided not oppressive. regulation) and supervision
different forms. (surveillance).
EXCEPTION: when imposed to
SALES TAX: indirect non-useful occupations.
consumption tax applied at Normally paid when business on
the retail level. These are operation. Before commencement of business.
calculated by multiplying the Tax cannot be bargained away May be bargained away with or
retain price of a good or except for lawful consideration. without consideration.
service by the tax rate.
Non-payment does not make
Other source of revenue/funds and impositions business illegal. However, it may Non-payment of license fee makes
1. License fees: paid for the right granted by some competent authority to do an act be ground for criminal prosecution, business illegal.
which, without such authority, would be illegal. It implies an imposition on the right distraint and levy of properties.
to use or dispose of a property, purpose a business, occupation or calling or
exercise a privilege. 2. Special assessment—exaction on property levied in accordance with
a. SEC 147, LGC: municipalities may impose and collect such reasonable benefits conferred upon that property.
fees on business and occupation, and (except professional tax) on
practice of any profession or calling commensurate with cost of Taxes Special assessments
Levied on land, persons, property, income, Levied on land.

13
business etc.
Personal liability of taxpayer.
Based on necessity and partially on benefits
derived.
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.
raising public revenue. another’s property.
Not and cannot be made a personal liability.
Amount is determined by State. Amount based on cost of property or of
Based solely on benefits derived. improvement being used.
Of special application only as to particular Imposed by State. May be imposed by either government or a
time and place. private individual or entity.
6. Tariff/customs duty—impost upon goods transported from one political
Special assessment jurisdiction to another.
Finance the improvement of particular
properties, with benefits of the improvement 7. Subsidy—grant of money in aid of a private enterprise deemed to promote
accruing or inuring to the owners who pay the public welfare.
the assessment.
Refusal to pay may hold sanctions. 8. Compromise penalty—amount imposed in case of a compromise involving
violations of tax laws.

3. Fines—paid in case of violation of law. 9. Revenue—money which comes to a person or entity from an source or
sources which includes money which comes to a government from taxes.
4. Penalty—punitive sanction for compelling timely action.

Taxation distinguished from police power and eminent domain

Tax Penalty
Enforced proportional contributes from Punishment for violation of law or acts 1. Distinctions
persons and property. deemed injurious. Thus, violation of tax may
give rise to imposition of penalty. Taxation Police power Eminent domain
For revenue. For promotion of general For public purpose.
Imposed to raise revenue. Imposed to regulate and rectify a conduct. welfare.
Amount has no limit so long Amount depends on the
Only government may impose. Government and individuals may impose. as it is not confiscatory. Should only cover the cost value of property needed.
of regulation (e.g. issuance
General benefit to all of license or surveillance). There is just compensation.
5. Toll—payment or fee exacted by the authorities for some right or privilege inhabitants (e.g. protection).
(e.g. passage along a road or over a bridge). Intangible altruistic feeling of
No special or direct benefit having done something Direct benefit results in the
Taxes Toll is received by the taxpayer, good. form of just compensation to
Demand of sovereignty for purpose of Compensation for the use by one of merely general benefit of the property owner.

14
protection except in special Healthy economic standard a. There must be actual controversy falling for exercise of judicial review;
instances. of society is attained. b. Question before Court must be ripe for adjudication;
Contracts may be impaired. c. Locus standi7of a private citizen questioning the act;
Contracts may not be d. Question of constitutionality must be raised at the earlier opportunity; and
impaired unless the Contracts may be impaired. e. Issue of constitutionality must be the lis mota of the case.
taxpayers gave no
consideration or in case of a Property other than money A private person is allowed to raise constitutional questions only if he can show that he has
government franchise. and choses in action. personally suffered some actual or threatened injury as a result of the allegedly illegal
Any property, including conduct of the government, injury is fairly traceable to the challenged action and injury is
Money is taken. money, which is the source, likely to be redressed by a favorable action.
implements or proceeds of Interferes only with property
the danger to health, safety rights although violation of Party must show not only that law or act is invalid butalso that he has imminent danger of
or morals. tax laws may result to sustaining some direct injury as a result of its enforcement and not merely that he suffers in
Interferes only with property imprisonment. some indefinite way.
rights although violation of Regulates both liberty and
tax laws may result to property. 3. Moot and academic case
imprisonment. GR: Courts decline jurisdiction on the ground of mootness
EXCEPTION: Not moot and academic if:
a. There is a grave violation of the Constitution;
2. Taxation may be enhanced through the exercise of police power b. Exceptional character of the situation and the paramount public interest is
Illustration. If under police power, local government can classify lands as involved;
residential and commercial, then, since conversion of industrial land is usually c. When constitutional issue raised requires formulation of controlling
assessed on higher assessment level, tax collections are increased. principles to guide the bench, the bar and the public; and
d. Case is capable of repetition yet evading review.
3. Taxation may be used as an implement of the police power and eminent
domain 4. Judicial proceedings not required
Power to destroy may be included if tax is used validly as an implement of police Collection of taxes levied should be summary and interfered with as little as
power. possible. However, taxpayers and State are not prohibited from seeking remedies
from courts.

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
7
Party’s 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.
15
 5. Quantum of evidence: preponderance of evidence Requirement of locus standi may be waived in the exercise of court discretion, where
PREPONDERANCE OF EVIDENCE: weight, credit and value of the aggregate on transcendental importance prompted the Court to act liberally.
either side; testimony adduced by one side is more credible and conclusive than
that of the other. Requirements
1. Cases involve constitutional issues;
6. No estoppel against the government 2. For taxpayers, there must be a claim of illegal disbursement of public funds or that
Government is not estopped by mistakes or errors of its agents. tax measure is unconstitutional;
Erroneous application of the law by public officers do not bar the subsequent 3. For voters, there must be a showing of obvious interest in the validity of election
correct application of statutes. Principle of Estoppel does not apply when State law in question;
acts to rectify mistakes, errors, irregularities or illegal acts of its officials and 4. For concerned citizens, there must be a showing that issues raised are for
agents. Rule holds true even if rectification prejudices parties who had meanwhile transcendental importance which must be settled early; and
received benefits. This is particularly true in collection of legitimate taxes due 5. For legislators, there must be a claim that official action complained of infringes
where collection has to be made whether or not there is error, complicity or plain upon their prerogatives as legislators.
neglect on part of collecting agents.
Decision to entertain a taxpayer’s suit is discretionary upon court.
However, this rule may be relaxed in the interest of justice and fair play, as where
injustice will result to the taxpayer.
Questioning the validity and constitutionality of statutes by a taxpayer
Taxpayer’s suit GR: Locus standi must be present
EXCEPTION: Misapplication of funds
Citizen and taxpayer suits
Plaintiff in a taxpayer’s suit Plaintiff in citizen’s suit GR: Not only persons individually affected, taxpayers must have sufficient interest in
Plaintiff is affected by the expenditure of He is but the mere instrument of public preventing the illegal expenditure of moneys raised by taxation and they may, therefore,
public funds. concern. question the constitutionality of statutes requiring expenditure of public moneys.
To justify the suit, it is necessary that public funds should be involved.
Right a citizen and a taxpayer to maintain an In a matter of mere public right, people are
action in courts to restrain the unlawful use real parties. It is the right, if not the duty, of Requisites of taxpayer’s suit
of public funds to his injury cannot be denied every citizen to interfere and see that public 1. Tax money is being extracted and spent in violation of specific Constitutional
offense be properly pursued and punished protections against abuses of legislative power;
and that public grievance be remedied 2. Public money is being deflected to any improper purpose; and
3. Petitioner seeks to restrain respondents from wasting public funds through
DIRECT INJURY TEST: for a private individual to invoke judicial power in determining the enforcement of an invalid or unconstitutional law.
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. Expenditure of public funds by an officer of the State for the purpose of executing an
unconstitutional act constitutes a misapplication of such funds.

Brushing aside technicalities 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.

16
  Violation of any or all of the above is
Transcendental importance a. equal to taking without due process
Determinants b. infringement of the general principles of int’l law which form part of the law
1. Character of funds or other assets involved in the case; of the land
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 C. LEVIED FOR A PUBLIC PURPOSE
3. Lack of any other party with a more direct and specific interest in raising the  Amount raised must
questions being raised. o Inure to the benefit of the public
o Used for
 Support of the state
It is not proper to implead the President as respondent  Some recognized object of the Government
GR: The President, during his actual incumbency, may not be sued in any civil or criminal  Public service
case.
EXCEPTION: He remains accountable to the people but he may be removed from office  You cannot use public funds to promote an individual’s interest, even if it may
only by impeachment. 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
CHAPTER 2: INHERENT LIMITATIONS ON THE POWER OF TAXATION
 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.
A. THE POWER TO TAX HAS LIMITS
 “public purpose” includes “indirect public advantage”
 The power to tax is an inherent power but such power must still be exercised in
o if an individual directly enjoys the tax, it is still valid as long as there is a
accordance with the inherent and constitutional limitations
link to public purpose
 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
 Test to determine existence of Public Purpose
common good.
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
 2 Kinds of Limitations:
the public’s welfare
o Constitutional Limitation – those provided for in the Constitution
o Inherent Limitations – restrictions to the power to tax attached to its
 Purposes of levying tax:
nature
o regulatory purpose
o raise government revenue
B. THE INHERENT LIMITATIONS (Le-N-T-Ex-Ice)
1. (Le) Levied for a public purpose o support government existence
2. (N) Non-delegability of the taxing power o rehabilitate/stablize a threatened industry, which is affected with public
3. (T) Territoriality or situs of taxation interest
4. (Ex) Tax exemptions of the Government
5. (Ice) International Comity
17
  If purpose of the tax is not stated, it is presumed that it is created for a public c. (Trea) Treaty and Executive Agreement Powers-Power of President to enter in
purpose to executive agreements, and to ratify treaties. (Sec21, ArtVII, 1987
 Examples (presumption of public purpose) Constitution)
o Pensions of war veterans  assurance that a person’s patriotism will be d. (L) Local taxing power- Theory of non-delegation of legislative power does not
acknowledged and rewarded apply in local units. Reason- LGU not sovereign entities.
o Unemployment relief e. (I) Initiative and Referendum-
o Support for the handicapped o Initiative- power of the people to propose and enact legislation
o Care for the aged without action by the legislature.
o Scholarships for poor but deserving citizens o Referendum- power of the people to approve or reject any act of the
o Tax on sugar legislature, and also to approve or reject legislation that the
legislature has referred to them.
o Oil Price Stabilization Fund  oil industry is imbued with public interest,
f. (A) Administrative Matters:
and a dramatic increase in oil prices will result to economic crisis
o Valid as regards:
i. Valuation of property pursuant to fixed rules
 The public purpose must exist at the time the law was enacted.
ii. Equalization of assessments by a central body
o Government may only use public funds for a public purpose
iii. Collection of taxes
o The existence of public purpose determines its validity, not the incidental
benefit to the public
 Test to determine permissible delegation:
a. Completeness test- The law must be complete in itself, setting forth therein
D. NON DELEGABILITY OF TAXING POWER
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
 Source of Power  People sufficiently determinate and determinable to which the delegate must conform
 Delegation  Transferred from the people to Congress in the performance of his functions.
 Basis: delegata potestas non potest delegari.
 Non-Delegable Powers:
 Theories that justify the delegation: a. Selection of property or transaction to be taxed
o Power to fill up the details- subjects of less interest in which general b. Determination of purposes
provision may be made, thus those who are to act under such general c. Rate of taxation
provision, has the power to fill up the details. d. Rules of taxation
o Power of Contingent Legislation- what is delegated is the task of
ascertaining the facts that bring its declared policy into operation.  Prohibition on Executive Legislation and Judicial Legislation
o Based on separation of powers of state.
 Delegable Powers: (Ta-Em-Trea-LIA) o Law-making power-legislative branch
a. (Ta) Tariff Powers-reason for its delegation is necessity. o Law-executing power- executive branch
b. (Em) Emergency Power- President can exercise this power in times of war or o Law-interpreting power- judicial branch
other national emergency, as authorized by Congress through law. (Sec23(2)
ArtVI, 1987 Constitution)
E. TERRITORIALITY OR SITUS OF TAXATION

18

 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 state’s
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.
 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.
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)
o The Philippines adopts the generally accepted principles on international
law as part of the law of the land.
o The Philippines adheres to the policy of peace, equality, justice, freedom,
19
 cooperation, and amity with all nations. 10. Veto power of the President;
11. Tax exemption of properties actually, directly, and exclusively used for
religious, charitable, and educational purposes;
12. Voting requirement in connection with the legislative grant of tax exemption
CHAPTER III: CONSTITUTIONAL LIMITATIONS 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
The power to tax involves the power to destroy.8 These were the famous words
penned by the great Chief Justice Marshall in 1819. As discussed in the preceding chapters,
the power to tax is the strongest of all the inherent powers of the State. As being unlimited DUE PROCESS
in its range, the 1987 Constitution has vested this power to the people who pay it, through
their representatives, the Legislature.9 Though the taxing power is characterized as such an
awesome power, it is not unconfined.10 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 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 In order that a tax statute may be validly imposed on the people, it must be lawful.
discuss the second type of limitations of the taxing power of the State – The Constitutional In other words, a tax law passed by the Congress of the Philippines must first be
Limitations on Taxation. The 1987 Philippine Constitution provides the following limitations: 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 individual’s
property (though minimal) being deprived from him. The due process clause is a
1. Due process; constitutional safeguard of the people from the government, which is the taxing authority. If
2. Equal protection; so proved that the tax law is violative of this constitutionally protected right, under the
3. Freedom of speech and of the press; principle of ubi jus ibi remedium, it shall be struck down. As in the words of Justice Bradley,
4. Non – infringement of religious freedom and worship; “In judging what is ‘due process of law’, respect must be had to the cause and object of the
5. Non – impairment of contracts; taking, whether under the taxing power, the power of eminent domain, or the power of the
6. Non – imprisonment for dent or non – payment of poll tax; assessment fir local improvements, or some of these; and, if found to be suitable or
7. Appropriations, revenue, and tariff b ills shall originate exclusively originate admissible in the special case, it will be adjudged to be ‘due process of law’, but if found
from the house of representatives; arbitrary, oppressive, and unjust, it may be declared to be not ‘due process of law’.” 11
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.; ASPECTS OF DUE PROCESS
8
McCulloch v. Maryland, 17 U.S. 4 Wheat. 316 316 (1819). There are two aspects under the due process clause – substantive and procedural.
9 Substantive Due Process is the aspect which prohibits the State from encroaching on the
MCIAA v. Marcos, 330 Phil. 392, 404 (1996).
10
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
11
Law Compendium (2013 ed., Vol. 1). Rex Book Store. Davidson v. New Orleans, 96 US 97 (1878).
20
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
unconstitutional.12
Procedural due process, on the other hand refers to the procedural limitations
placed on the manner in which a law is administered, applied or enforced. 13 It is but
elementary in democratic forms of government that laws, especially those which impose a
tax obligation on its citizenry, be exercised in accordance with the prescribed procedure.
This is mandatory. To do otherwise shall give rise to a right which the taxpayer may use to
ask the Courts its succor. The tax collector may be stopped if the taxpayer can demonstrate
that the law has not been observed. 14 In a case decided by the Supreme Court, it held that
due process was not observed when the trial court classified certain properties of the
Roman Catholic Church were tax – exempt under the 1973 constitution where no court
hearing was conducted thereon.15
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.) It must be for a public purpose;
b.) Operates uniformly to all who are under its purview;
c.) Exercised only within the jurisdiction of the duly authorized taxing authority
d.) 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;
12
Reyes, et al. v. Almanzor, et al., G.R. Nos. 49839 – 46, 26 APR 1991.
13
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
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.
f.) There must be a right to appeal given to the taxpayer in cases where it is
proper, being a statutory, and not a natural right.16
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 person’s right to due process is therefore not invaded. However, if such tax
would be in the nature of an ad valorem tax which utilizes the use of assessors to ascertain
the proper value of a taxable item or property, such act is considered as judicial in nature.
Thus, due process is satisfied by giving the opportunity to the taxpayer to be heard
respecting such assessment.17
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 as little as possible.18 As government projects are mainly fueled by the revenue
generated by taxes paid by individual taxpayers, the delay which is normally present in
judicial proceedings are not required in the enforcement of taxes and assessments and are
frowned upon.19 No government could exist if all litigants were permitted to delay the
collection of its taxes.20
PRESUMPTION OF VALIDITY OF TAX LAWS; RETROACTIVITY
16
Bello v. Francisco, 4 SCRA 134; Rodriguez v. Director of Prisons, 47 SCRA 153.
17
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
18
Churchill and Tait v. Rafferty, 32 Phil. 580, 585, 21 DEC 1915.
19
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
20
Lorenzo v. Posadas, 64 Phil. 353, 368 18 JUN 1937.
21
 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
on mere allegations by the taxpayer.21 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)
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
should be treated alike, both as to rights conferred and responsibilities imposed. 22 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
the privileges acquired and liabilities imposed.23
The power of the State to classify, in relation to taxation, property and persons to
be taxed, the rates of such taxes, as well as the methods of assessment, valuation, and
collection is unquestioned, but is not absolute.24 Such classification must be based upon
real and substantial differences between the persons, property or privileges, and those not
21
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
22
Ichong v. Hernandez, 101 Phil. 1155.
23
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.
taxed must bear some reasonable relation to the object or purpose of legislation or to some
permissible governmental policy or legitimate end of governmental action. 25Thus, the
equality of taxation rule is not violated if classifications or distinctions made are based on
substantial and reasonable differences.26
GOALS IN DISTRIBUTION
Two different goals in distribution arise when “fairness” or “equality” are looked at,
vertical and horizontal. The latter refers to the fair treatment of tax payers with the like ability
to pay. It prohibits the discrimination on the grounds such as race, gender, occupation, etc. 27
Stated differently, those similarly situated shall be similarly taxed. 28 Meanwhile, the former
refers to the relative tax burden of tax paying units with different abilities to pay. Vertical
equity seeks to tax in a proportional or progressive way.29
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.) Exchange Equity and Fairness – Taxpayers must, over the long run, receive
the appropriate value for the taxes they pay;
b.) 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;
c.) Time – Related Equity and Fairness – Taxes are not unduly distorted when
income or wealth levels fluctuate over time;
d.) Inter – Group Equity and Fairness – No group of taxpayers is favored to the
detriment of another without good cause; and,
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
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
28
See AICPA Guiding Principles for Tax Equity and Fairness (2007), p. 3.
29
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law
Compendium (2013 ed., Vol. 1). Rex Book Store.
22
 e.) Compliance Equity and Fairness – All tax payers pay what they owe on a
timely basis.30
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.
Such an effect might in fact sometimes result in unequal protection.” 31 Thus, in order that a
classification to be a valid one, it must conform to the following:
a.) That it must be based on substantial distinctions;
b.) It must be germane it the purpose of the law;
c.) It must not be limited to the preexisting conditions; and,
d.) It must apply equally to all members of the class.32
FREEDOM OF SPEECH AND OF THE PRESS
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
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
test’s one’s 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
30
Ibid.
31
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.
system of the public, developing a system of “checks and balances” against the possible
corrupt practices of the State.33
The provision of the constitution necessarily includes the liberty of the press which
is principally, although not exclusively, immunity from prior restraint and/or subsequent
censorship.34 To discuss further, it is not the censorship of the press per se which is the evil
sought to be prevented. It refers to any action of the government by means of which it might
prevent such free and general discussion of public matters as seems absolutely essential to
prepare the people for an intelligent exercise of their rights as citizens.35
CURTAILMENT OF FREEDOM
Briefly put, immunity is granted to the press so as to help promote and develop an
informed citizenry. They exist as a vital source of public information. It sheds more light on
the public and business affairs of the nation than any other instrumentality of publicity.
Public opinion, as the most potent of all restraints against the corrupt actions and practices
of the government, is afforded protection by nothing less than the constitution itself. A free
press stands as one of the great interpreters between the government and the people. To
treat it otherwise, as to subject it to taxes, would amount to suppression and abridgement of
publicity results to the curtailment of press freedom and freedom of speech and of
expression.36
It has been held though that although granted immunity from certain taxes, they
can still be subject to general taxes. However, taxes that may still be validly imposed upon
them must be fair, reasonable, and just, and in accordance with the person’s 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
33
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
34
Near v. Minnesota, 283 U.S. 697, 283 U.S. 707.
35
Cooley’s Constitutional Limitations, 8th ed. P. 866
36
Ibid.
23
few press members. In such case, the Supreme Court has acknowledged the potential for c.) It cannot, openly or secretively, participate in the affairs of any religion or
abuse is present in differential taxation of the press.37 church; and,
d.) 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
RELIGIOUS FREEDOM may adopt to teach or practice religion.39

No law shall be made respecting an establishment of religion or prohibiting the free REQUISITES FOR CONSTITUTIONALITY
exercise thereof. The free exercise and enjoyment of religious profession and
The wall of separation that must be maintained between church and state “is a
worship without discrimination or preference shall forever be allowed. No religious
blurred, distinct, and variable barrier depending upon the circumstances of a particular
test shall be required for the free exercise of civil or political rights (Sec 5, Art. III,
relationship.”40 The case of Lemon v. Kurtzman41 enunciated in a three – part test to assess
1987 Philippine Constitution)
whether a law violates the Establishment clause:
1.) Does the law have a secular purpose?
In accordance with the above stated provision, our Constitution and laws provide 2.) Is the Primary effect either to advance religion or to inhibit religion?
an exemption from taxation properties which are devoted exclusively for religious purposes. 3.) Does the law foster an excessive governmental entanglement with religion?
This grant of immunity of the fundamental law of the land and other tax laws were made to
If any of these questions are answered in the negative, then the law becomes
further realize the declared principle of the State which is The Separation of the Church and
unconstitutional as it violates the Establishment Clause
the State.38

FREE EXERCISE CLAUSE

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. 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
NON – ESTABLISHMENT CLAUSE governmental programs “to impede the observance of one or all religions even though the
burden may be characterized as being only indirect.42
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:
RELIGIOUS GROUPS ARE EXEMPT TO PAY TAXES
a.) The State cannot pass a law which aid nor discriminate a religion;
b.) It cannot force a person, nor influence him, to join, remain, or to leave a
39
church or religious sect; see Everson v. Board of Education
40
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
37
Robert M. Howie, Leathers v. Medlock: The Supreme Court Changes Course on Taxing Law Compendium (2013 ed., Vol. 1). Rex Book Store.
41
the Press, 49 Wash. & Lee L. Rev. 1053 (1992), citing Minneapolis Tribune Co. v. 403 U.S. 602 (1970)
Minnesota Commissioner of Revenue, 460 U.S. 575 (1983) 42
See Dizon, citing Sherbert v. Verner 374 U.S. 398, 402 (1963), Braunfeld v. Brown, 366
38
Sec. 6, Art II, 1987 Philippine Constitution U.S. 599, 607 (1961)
24
 Generally, religious groups, sects, and like organizations are exempt from paying B. When it is unilaterally granted by law, and the same is withdrawn by virtue of another
taxes like Income tax, license fees, and similar taxes as it imposes a burden on the free law – no violation.
exercise of religion. Albeit, like the press, religious groups may still be subject to general C. When the exemption is granted under a franchise – it may be withdrawn at any time
taxes depending upon the circumstances. thus, not a violation of the non-impairment of contracts

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
Properties Actua PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF repeal. [Sec. 11 Art. XII]
CONTRACTS
Case Reference
No law impairing the obligation of contracts shall be passed. [Section 10, Article III,
Constitution] OPOSA vs. FACTORAN

 Police power prevails over the non-impairment clause

The power of taxation cannot be exercised in a manner that would impair the obligation of
LA INSULAR vs. MANCHUCA
contracts. What is prohibited is that a taxing statute be passed that would alter the relative
 A lawful tax on a new subject or an increased tax on an old one, does not interfere
rights of the parties with each other.
with a contract or impairs its obligation.
 The constitutional guarantee of the non-impairment clause can only invoked in the
The mere fact that a tax makes the conduct of a business more expensive or makes an
grant of tax exemption.
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 RULES:
statute.
1. If the exemption was granted for valuable consideration and it is granted on the
 The obligation of a contract is impaired when its terms or conditions are changed basis of a contract.
 cannot be revoked
by law or by a party without the consent of the other, thereby weakening the
2. If the exemption is granted by virtue of a contract, wherein the government enters
position or rights of the latter.
into a contract with a private corporation
 An example of impairment by law is when a later taxing statute revokes a tax  cannot be revoked unilaterally by the government
exemption based on a contract. But this only applies when the tax exemption has 3. If the basis of the tax exemption is a franchise granted by Congress and under the
been granted for a valid consideration. franchise or the tax exemption is given to a particular holder or person
can be unilaterally revoked by the government (Congress)
 A later statute may revoke exemption from taxation provided for in a franchise
 The non-impairment clause applies only to contracts and not to a
because the Constitution provides that a franchise is subject to amendment,
franchise.
alteration or repeal.
 The non-impairment clause applies to taxation but not to police power and
RULES: eminent domain.
A. When the exemption is bilaterally agreed upon between the government and the  Furthermore, it applies only where one party is the government and the
taxpayer – it cannot be withdrawn without violating the non-impairment clause. other, a private individual.

25
  As a rule, the obligation to pay tax is based on law. But when, for the House may undergo such extensive changes in the Senate that the result may
instance, a taxpayer enters into a compromise with the BIR, the obligation be a rewriting of the whole, and a distinct bill may be produced.
of the taxpayer becomes one based on contract.
 The Constitution does not also prohibit the filing in the Senate of a substitute bill in
Tolentino v. Sec. of Finance, supra: 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]
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.
Presidential power to grant reprieves, commutations and pardons and remit fines and
HELD: forfeitures after conviction (ART. VII, SEC. 19, 1987 CONSTITUTION)
 It is enough to say that parties to a contract cannot, through the exercise of Due Process Equal Protection Uniformity
prophetic discernment, fetter the exercise of the taxing power of the state. Taxpayer may not be Taxpayers shall be treated Taxable articles, or kinds
 For not only are existing laws read into contracts in order to fix obligations as deprived of life, alike under like circumstances of property of the same
between parties, but the reservation of essential attributes of sovereign power is liberty or property and conditions both in the class, shall be taxed at
also read into contracts as a basic postulate of the legal order. without due process privileges conferred and the same rate. There
 The policy of protecting contracts against impairment presupposes the of law. Notice must, liabilities imposed. should therefore, be no
maintenance of a government which retains adequate authority to secure the therefore, be given in direct double taxation
peace & good order of society. case of failure to pay
taxes
Revenue bills shall originate exclusively from the House of Representatives
PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX
Section 24, Article VI, Constitution - All appropriation, revenue or tariff bills, bills authorizing
an increase of the public debt, bills of local application, and private bills shall originate Section 20, Article III, Constitution. No person shall be imprisoned for debt or non-payment
exclusively in the House of Representatives, but the Senate may propose or concur with of poll tax.
amendments. 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 non-
Case References payment of other taxes.
Community Tax v. Poll Tax
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
 Poll tax is a tax of fixed amount imposed on residents within a specific territory
regardless of citizenship, business or profession. Example is community tax.
 Community tax – Cities or municipalities may levy a community tax in accordance
with the provisions of this article. 156 RA 7160.
Section 157. Individuals Liable to Community Tax. - (18) or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive working days, or who
is engaged in business or occupation, or who owns real property with an aggregate
26
assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to
file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an
annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of
income regardless of whether from business, exercise of profession or from property which
in no case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the
total property owned by them and the total gross receipts or earnings derived by them.
Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how
created or organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in
accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines
owned by it during the preceding year based on the valuation used for the payment of real
property tax under existing laws, found in the assessment rolls of the city or municipality
where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it
from its business in the Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the
purpose of the additional tax, be considered as part of the gross receipts or earnings of said
corporation.
Section 159. Exemptions. - The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
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
(2) (50%) shall accrue to the barangay where the tax is collected.
UNIFORMITY AND EQUITY IN TAXATION
- same class, same rate
- classification of taxpayers, subject or items to be taxed
 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 taxpayer’s ability to shoulder the
tax burden and if warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayer’s ability to pay.
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 the subject of
the tax is found. It does not, however, require absolute identity or equality under all
circumstances, but subject to reasonable classification.
27
The concept of equity in taxation requires that the apportionment of the tax burden be, more
or less, just in the light of the taxpayer’s ability to shoulder the tax burden and, if
warranted, on the basis of the benefits received from the government.  Its
cornerstone is the taxpayer’s ability to pay.
Case References
Tolentino v. Sec. of Finance, supra, -
 Equity and uniformity in taxation means that all the taxable articles or kinds of
properties of the same class be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation.
To satisfy this requirement, it is enough that the statute or ordinance applies
equally to all persons, firms, and corporations placed in a similar situation.
 It is inherent in the power to tax that the state be free to select the subjects of
taxation & it has been repeatedly held that the inequalities which result from a
singling out of 1 particular class for taxation or exception infringe no constitutional
limitation.
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.
Eastern Theatrical Co. Inc., vs. Alfonso
 there is equality and uniformity in taxation if all articles or kinds of property of the
same class are taxed at the same rate. Thus, it was held in that case, that "the fact
that some places of amusement are not taxed while others, such cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other
kinds of amusements or places of amusement are taxed, is not argument at all
against the equality and uniformity of tax imposition."
 The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation.
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN
FACTS:  The ordinance imposes taxes for every case of soft drinks, liquors and other
carbonated beverages, regardless of the volume of sales, shipped to the agents and/or
consignees  by outside dealers or any person or company having its actual business
outside the City.
ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?
HELD: Yes. The tax levied is discriminatory.
 Even if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by
"agents or consignees" of outside dealers would be subject to the tax. Sales by
local dealers, not acting for or on behalf of other merchants, regardless of the
volume of their sales, and even if the same exceeded those made by said agents
or consignees of producers or merchants established outside the City of Butuan,
would be exempt from the disputed tax.
 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;
o (2) these are germane to the purpose of the legislation or ordinance;
28
 o (3) the classification applies, not only to present conditions, but, also, to
future conditions substantially identical to those of the present; and
o (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)
Uniformity – all taxable articles or kinds of property of the same class are taxed at the
same rate.
Equitability – the burden falls to those who are more capable to pay.
Progressivity – rate increases as the tax base increases.
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.
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
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.
NOTE: The prevailing rule now is that the term “exclusively” does not cover incidental use.
What is meant by actual, direct and exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized.
c.) Exemption from other taxes
29
 1997 NIRC states that the organizations below shall not be taxed with respect to
income received by them:
Nonstock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong to or inures to the benefit
of any member, organizer, officer or any specific person.
NOTE: The income of whatever kind and nature from any of their properties, real or
personal or from any of their activities for profit regardless of the disposition made of such
income shall be subject to tax.
Thus, being a non-stock and non-profit corporation does not by itself completely
exempt an institution from tax. An institution cannot use its corporate form to prevent its
profitable activities from being taxed.
In cases of gifts or donations:
Donations in favor of religious and charitable institutions are generally not
subject to tax provided, however, that not more than 30% of the said bequest, devise, or
legacy or transfer shall be used for administration purposes.
d.) Non-Violation of the Establishment Clause
Walz vs Tax Commission of City of New York
The grant of tax exemption is not sponsorship of the organizations because the
government does not transfer part of its revenue to churches but simply abstains from
demanding that the churches support the State. Instead, the tax exemption creates a more
minimal and remote involvement between church and state, far less than taxation of
churches would entail, and it restricts the fiscal relationship between them, thus tending to
complement and reinforce the desired separation insulating each from the other.
Revenue and Assets of Educational Institutions
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.
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
30
LIKEWISE EXEMPT from customs duties, provided guidelines under DO 137-87 are
observed.
Doctrinal Pronouncement on CIR vs St. Lukes Medical Center
Interest income from Philippine currency bank deposits and yield from deposit
substitute instruments used actually, directly exclusively are likewise exempt from 20% final To be a charitable institution, however, an organization must meet the substantive
withholding tax subject to certain requirements. 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
c.) Taxability of Proprietary Educational Institutions 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
A Proprietary educational institution is any private school maintained and
services to the public which would otherwise fall on the shoulders of government.
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
As a general principle, a charitable institution does not lose its character as such
Education (CHED), or the Technical Education and Skills Development Authority (TESDA),
and its exemption from taxes simply because it derives income from paying patients,
as the case may be, in accordance with existing laws and regulations. 
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
Proprietary educational institutions, including those cooperatively owned, may
which it is intended to achieve; and no money inures to the private benefit of the
likewise be entitled to such exemptions, subject to the limitations provided by law, including
persons managing or operating the institution.
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
In order to be exempted from income tax, Sec. 30 (B) of the NIRC requires that
exemptions. These institutions, at present, are not exempt from income tax but only
both the organization and operations of the charitable institution must be devoted
subject to a special lower rate.
"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
Preferential Tax on Income and Predominance Test
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
  Proprietary educational institutions and hospitals which are non-profit shall pay a
nevertheless allowed to engage in "activities conducted for profit" without losing its
tax of ten percent (10%) on their taxable income. If the gross income from unrelated trade,
tax exempt status for its not-for-profit activities.
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
  St. Luke's had total revenues of P1,730,367,965 from services to paying patients.
tax shall be imposed on the entire taxable income. The term 'unrelated trade, business or
It cannot be disputed that a hospital which receives approximately P1.73 billion from paying
other activity' means any trade, business or other activity, the conduct of which is not
patients is not an institution "operated exclusively" for charitable purposes. Clearly,
substantially related to the exercise or performance by such educational institution or
revenues from paying patients are income received from "activities conducted for
hospital of its primary purpose or function.
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
Illustration:
income is reinvested in property, equipment or facilities used for services to paying and non-
X Educational Institution earned a net income of 300 million pesos, 150 million of
paying patients, then it cannot be said that the income is "devoted or used altogether to the
which came from unrelated activities. On that note, 10% tax shall be imposed on the 300
charitable object which it is intended to achieve." The income is plowed back to the
million. But, if 151 million came from unrelated activities, 30% tax shall be imposed on the
corporation not entirely for charitable purposes, but for profit as well. 
300 million.

31
 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
Sec. 87 of the NIRC is explicit:
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.

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
 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.
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
rewriting of the whole. The Senate may not only concur with amendments but also propose
amendments.

Non-Impairment of the Jurisdiction of the Supreme Court

The Supreme Court can review judgments or orders of lower CHAPTER 4: TAX EXEMPTIONS, ESCAPE FROM TAXATION & DOUBLE TAXATION
courts in all cases involving:
Tax Exemption
 The legality of any tax, impost, assessment, or toll; o Definition :
 The legality of any penalty imposed in relation thereto (Sec. 5[2][b],  it is a grant of immunity,
Art. VIII, 1987 Constitution)  express or implied,
 to particular persons or corporations
NOTE: These jurisdictions are concurrent with the Regional Trial Courts; thus, the petition  from the obligation to pay taxes
should generally be filed with the RTC following the hierarchy of courts. However, questions  in whole or in part
on tax laws are usually filed direct with the Supreme Court as these are imporessed with

32
 o Kinds of Tax Exemption: Exclusions and Deductions:
 As to Source: o Exemption vs. Exclusion
1. Constitutional  Tax Exemption
2. Statutory  Refers to a statutory exception from the payment of
3. Treaty/Executive Agreements taxes; whereas
4. Contractual (for a consideration)  Exclusion
 As to Manner of Grant:  Refers to the Total absence/ or want/ or lack of taxation
1. Express in a particular circumstance
o Verbally/oral o example:
o In writing/ statutes  the non-inclusion in the taxpayer’s
2. Implied taxable gross income of gifts,
o Manifested by conduct bequest, and devises under Sec 32
o Considering the totality of circumstances (B)(3) of the NIRC
 As to Scope
1. Total/full/All-in/All the way o Exemption vs. Deduction
o Relates to the whole/entire tax  Exemption
2. Partial/1st-base lang  Refers to removal from taxation of a particular class or
o Affects only a portion item; whereas
 Deduction
 Refers to the reduction of taxable items
Tax exemptions may be given to achieve long term economic objectives:  by way of subtraction of other items.
Exemptions, incentives and the likes are given, by the state, occasionally o example:
 To attract new business; as well as  Under Section 34 NIRC: the ordinary
 To stimulate and elevate our economy – towards economic business expenses and depreciation
prosperity and progress. are deductable.
o It’s 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 o Deduction & Exclusion; Nature:
relationship which is way better than a one night-er.  They are in the nature of Tax Exemptions
 Thus, they are STRICTLY CONSTRUED
o 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 Approaches for Exemption
and objectives as they are written into the statute ** EVEN IF o P – I – Org - I
SOME REVENUES are lost in that very smart process. 1. Exemptions of Property
 Because the congress knows what they’re doing. lol. 2. Exemption of Individuals
 Basis: Separation of powers and stuff like that 3. Exemption of Organization
4. Exemptions of Income

33

o 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.
o 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. Charitable, Religious and non-profit organizations:
o These entities are considered to serve public purposes
2. Government and its entities
o General rule:
 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.
3. Entities on pension schemes
o Based on social justice. It complements social
legislation.
o Pensions which do not amount to income are not
taxable.
4. Educational institutions
o Exemptions of Income
 Includes:
 Income earned outside the taxing jurisdiction
 Income consisting of compensation for loss
 Inherited properties acquired by gifts
 Income earned in specific areas, such as the Special
Economic Zone, enterprises zones, etc.
o 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
 DTA’s – Double Taxation Agreements
Limitation under the constitution
34
 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”
o NOT SUBJECT TO CONSTITUTIONAL LIMITATIONS:
 Exemption is not the same as a total absence of taxation, 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:
 An exemption from a common burden cannot be permitted to
exist based on some vague implications (Asiatic Petroleum Co.
vs. Llanes)
5. There must be Convincing Proof
 The term which grants exemption must be crystal clear, and
convincing.
6. F. Equity – it does not apply:
 it lacks statutory basis
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
 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.
35

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. Equal treatment of taxpayers
 Strict construction in order to minimize differential
treatment which results to partiality, unfairness and
some bad stuff.
III. 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 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.
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 don’t 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
36
 o it cannot be withdrawn by a regulation,  Before determining if the person is tax exempt, we must first
o It cannot be withdrawn by a general law: determine if he falls within the scope covered by the law
 EVEN when the terms of the general imposing taxes
law is so broad, as to include the  It is illogical and impractical to determine who are exempted
matter in general law, it cannot be without first determining who are covered by the tax provisions.
withdrawn 2. It is a HORNBOOK DOCTRINE in the interpretation of tax laws:
 Except – if there is a manifest intent  That a Statute will not be construed as imposing a tax
to alter or repeal the special law; if >>>>Unless it does so Clearly, expressly, and
there is a special/specific provision in unambiguously.<<<<<
the general law which clearly intends  A tax cannot be imposed without clear and express words for
to repeal the special law. that purpose.
 If the tax exemption is based on a TREATY 3. The provision of a taxing act cannot be extended by mere implication.
o May be revoked only pursuant to the 4. In case of doubt,
withdrawal provision of the treaty.  it is construed most strongly against the government and in favor
Only Congress has the power to grant tax incentives of the tax payers,
1. Taxation is an inherent power which is legislative in nature. The power to  Because burdens are not to be imposed nor presumed to be
select the subjects of tax, and the power to grant exemptions is inherent imposed beyond what statutes expressly and clearly import (CIR
in the legislature, since it involves the promulgation of laws. vs. CA)
2. Basis:
 Article VI Section 28(4) of the Constitution provides: “no law REFUNDS
granting any tax exemption shall be passed without the 1. Definition
concurrence of a majority of all the members of the  Tax refunds is the return of excess amounts of income tax that a
CONGRESS… including Manny Pacquiao” taxpayer has paid to the state or local government throughout
the past year
 In Reality – it represents an interest free loan that a taxpayer
Tax-exempt buyer vs. Tax exempt transaction makes to the government – because the government merely
1. If the BUYER is EXEMPT returns the exact amount regardless of the period that has
 Seller is still taxable/liable – as the tax is not a tax on the buyer lapsed.
2. If the TRANSACTION is EXEMPT
 Seller is not liable for tax. There is no tax due. 2. NATURE:CONSTRUCTION; EVIDENCE
 If the buyer is not so smart – and he pays taxes despite the fact  Tax Refunds are in the nature of a tax exemption/ a derogation
that the transaction is exempt of sovereign authority
 It is the seller’s obligation to hold in trust for the buyer  Construed Strictissimi Juris against the person claiming the
the refunded tax refund; as well as the pieces of evidence presented – which
must be scrutinized.
HORNBOOK DOCTRINE in applying tax exemption principles  burden of proof is upon him who claims the exemptions

Persons entitled in case of indirect tax

37
 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
 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 President’s 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
EXCEPTION
 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.
38
  Impact of taxation – the point on which the tax is originally
6. Availment of tax amnesty is a purely personal defense and not imposed
available to co conspirators  Incidence – the point where the final burden settles down
- People vs. Castan~eda o Direct tax cannot be shifted.
- The defense relates to the circumstances of a particular accused o Tax cannot be shifter if:
and not to the character of the acts charged in the criminal i. Purely personal (poll tax)
information. ii. It has no relation to any business dealing of the taxpayer
(donors/estate tax)
7. Effects of Use of All Encompassing Words iii. If it is levied on economic surplus (income tax)
- Metropolitan Bank & Trust Co. vs. CIR
 If the amnesty law uses an ALL-ENCOMPASSING o Kinds of shifting
WORDS i. Forward s. – when the burden is transferred from a factor of
 There is absolutely no basis to limit immunity resulting production thru the factors of distribution until it finally settles on
from the payment of the tax amnesty – only to income the ultimate purchaser/consumer. (example : seller increase
tax – and to exclude others. price of beer)
ii. Backward s. – when the burden is transferred from the
8. Amnesty in case of Merger consumer thru the factors of distribution – to the factors of
- Tax liabilities of the Merged Corporation are ABSORBED by the production (example: seller doesn’t increase the price of beer –
surviving corporation. but reduces the price in materials)
iii. Onward s. – when the tax is shifted 2 or more times either
Escape From Taxation forward or backward.
 SHI – T – Ca –P- ha- D – S- a-D
Forms of Escape from Taxation Tax Capitalization/amortization
1. Tax Shifting - Circumstance where the purchaser of a taxable object, by cutting
2. Tax Transformation down the purchase price, discounts all the taxes which he may
3. Tax Capitalization be called to pay upon in the future.
4. Transfer Pricing - By depreciating the capital value – to a sum equal to the
5. Resort to tax Haven capitalized value of the tax (1/5 = 20%)
6. Tax Deferral Tax Transformation
7. Tax Shelter - In a situation where the producer upon whom the tax is imposed – fearing
8. Tax Avoidance that the consumers would not opt to buy his shit if he adds the tax to the
9. Tax Dodging/Evasion price
- The producer pays the tax; and
; - endeavors to recoup himself by improving/transforming his process of
Tax Shifting: production to make it more cost effective.
o It is the transfer of the burden of tax by the original payer (impact) to - The loss due is TRANSFORMED to a gain.
another (incidence) Resort to TAX Haven/ secrecy jurisdiction

39
 - 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 corporation’s 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 group’s 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 group’s 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 don’t 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 one’s
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
40
 o This 2 sons of bitches are the 2 most common ways used by your 3. Anything calculated to deceive them bitches
average motherfucker in escaping taxation (CIR vs Estate of Benigno  Including all acts, omissions, and concealment involving a
Toda) breach of legal/equitable duty, trust or confidence justly reposed,
o TO AVOID IS LEGAL resulting in the damage to another, or by which an undue and
o TO EVADE IS ILLEGAL unconscionable advantage is taken of another.
o Cannot be usually proven by direct proof
 It must be proven by circumstantial
Tax Avoidance/Loophole evidence and reasonable
o A tax saving device within the means sanctioned by law inference
o Should be used in good faith and at arms length. o Negligence is not equivalent to fraud(whether slight or gross)
o To get around/avoid the spirit of the law and the will of the legislature,  The fraudulent intent cannot be presumed
WITHOUT ACTUALLY BREAKING THE LAW  Intentional fraud must be established: he must act knowingly and
o It is the lessening of tax liabilities thru maximizations of deductions willfully
exclusion and exemptions and the minimization of income by legal o Assessment is not necessary
means.  Ungab vs. Cusi, Jr.
 An assessment of deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
Tax Evasion- Dodge/Dodging evade the income tax xxx A crime is complete when the
o A scheme used outside of those lawful means and when availed of, it motherfucker – with intent to evade - acted knowingly
usually subjects the taxpayer to further civil or criminal liabilities (CIR vs and willfully. The fact that the government failed to
Estate of Benigno Toda) discover the error and failed to assess promptly xxx has
o Illegal method of paying taxes no connection with the commission of the crime
 Criminal activity
o It must first be proved that a tax is due
 Usually thru deception
o Elements of Tax Evasion; 3 factors  In CIR vs CA:
 before 1 is prosecuted for tax evasion, the fact that a
1. The END to be Achieved
tax is due must first be proven.
o Pay less- or not pay at all bitch
 No prima facie case – not fraudulent – unless and until
2. State of mind
the BIR has made a final determination of what is
o It must be fucking intentional
supposed to be the correct tax, the taxpayer should not
o Bad faith / willful
be placed in the crucible of criminal prosecution
3. A course of action or failure of action which is unlawful  In Ungab vs. Cusi Jr:
 For a criminal prosecution to proceed without
Tax Fraud (intentional fraud) assessment – there must 1st be a PRIMA FACIE
o The use of deceit in order to evade taxes showing of willful attempt to evade taxes.
o Fraud
1. Actual  Substance over form
2. Constructive

41
  The court should examine with particular care the forms 6. Accounting irregularities
used by him for the accomplishment of his purpose and 7. Inconsistent explanation/behavior
if his ingenuity fails at any point, such court should not 8. Attempt to conceal illegal acts
lend him its aid by resolving doubts in his favor. 9. Inadequate records
 Payment is NOT A VALID DEFENSE 10. Failure to file returns
 Payment – after apprehension is fucked up – it is not a 11. Destruction of records (acts)
valid defense. Because he already transgressed the
law. o Honest difference in opinion and inadvertence do not amount to
fraud
 There must be a clear and convincing evidence to prove that
o Prima facie evidence of fraud some part of the underpayment of a tax was due to fraud.
1. Sec. 248 B – NIRC: A Substantial Underdeclaration of taxable  Intent is different from mere inadvertence, honest difference in
income/sales/receipt opinion, reliance on an incorrect technical advice, negligence or
 Or a Substantial OVERDECLARATION of Deductions carelessness.
o Shall constitute PRIMA FACIE evidence of
false or fraudulent return Tax credit
 Failure to report sales/income/ receipt in an amount Tax Credit vs Tax Deduction
exceeding 30% of that declared per return o Tax Credit
o And a claim of deductions in an amount  Generally refers to an amount that is subtracted directly from
exceeding 30% of actual deductions one’s total tax liability
o Shall render the taxpayer liable for substantial  It is an allowance against the tax itself, or a deduction from what
underdeclaration of sales, receipts or income is owed by a taxpayer to the government
or for overstatement of deductions  Examples
2. Failure to declare for taxation purposes True and Actual income  Withheld taxes, payments of estimated tax, and
derived from business for 2 consecutive years investment tax credits
3. Substantial under declaration of income in the tax returns for 4 o Tax Deductions
consecutive years coupled with intentional overstatements of  A subtraction from income for tax purposes, or an amount that is
deductions. allowed by law to reduce income prior to the application of the
tax rate to compute the amount of tax which is due.
o Must be proven by Circumstantial evidence and reasonable
inferences Tax Liability is required for tax credit
o It generally involves the following elements: o There ought to be a tax liability before a tax credit can be applied
1. Deception  Since the purpose of a tax credit is to reduce the tax liability.
2. Misrepresentation of material facts Without any tax liability, the tax credit is a piece of shit. It would
3. False or altered documents be PREMATURE and IMPRACTICAL.
4. Evasion/ diversion / omission o The existence of a tax credit – is not the same as the availment (tax credit
 Badges of Fraud is mandatory; whereas the availment of such credit is optional)
5. Improper deductions
42
 Double Taxation
Double Taxation
Prior tax payment not necessary
o Definition
o While tax liability is necessary for the availment of a tax credit – prior tax
 Taxing twice – the same subject matter -done by the same
payments are not. Payment is not indispensible.
taxing authority, within the same taxing district, for the same
o Nirc is replete with provisions granting tax credits even though no taxes
purpose, in the same taxing period.
have been previously paid
o No constitutional prohibition
 Examples
 It is not forbidden by our fundamental law
 Under Section 86(E) – in computing estate tax due – a
tax credit is allowed subject to certain limitations. The  It is not favored but is still permissible
tax credit in this instance allude to the prior payment of  Discretion of the Legislative
taxes, even if not made to out government.  General Rule:
 Sec 110 – a VAT registered person engaging in o Double taxation should not be permitted
transactions is allowed a tax credit that includes a unless the legislature has authority to impose
ratable portion of any input tax xxx which does not need it.
to be paid etc etc.  However
o Since the taxing power is exclusively a
Tax credit is not the same as a discount legislative function, and since it is absolute
o Tax credit – and unlimited: it is generally held that there is
 Is a deduction after the income is computed nothing to prevent the imposition of more than
o Discount one tax on the same subject matter, in the
 Is a deduction before the income is computed absence of an express or implied
1. Cash discount constitutional prohibition xxx such is a matter
 One granted by business to credit customers for their prompt payment within the discretion of the legislature.
 Purchase discount – is on the part of the seller
2. Quantity discount
 Kinds of double taxation
 Reduction in price allowed for purchase made in large quantities justified
by savings in packaging, shipping and handling
1. Direct Duplicate taxation (obnoxious double
- A.k.a : Volume or Bulk discount
taxation)
3. Trade discount
o In order to constitute double taxation in the
 Percentage reduction from the list price allowed by manufacturer to
objectionable/prohibited sense:
wholesalers.
 The same subject matter must e
 Chain Discount – a series of discounts from one list price – is recorded at
taxed twice – for the same purpose,
net
by the same taxing authority, within
4. Functional discount
the same taxing jurisdiction, during
 Similar to trade discount the same period, and they must be of
the same kind or character.

43

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
5. Tax Treaties
o Agreement between 2 jurisdictions that
mitigates the problem of double taxation that
can occur when tax laws consider a taxpayer a
resident of more than 1 jurisdiction.
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:
 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
 1st 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 state
 2nd 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. EXEMPTION METHOD
a. The income which is taxable in the state of
source is exempted in the state of residence
44
 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
2. 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.
 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 person’s 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.
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 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.
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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
required at the time of the commission of the offense.
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
▪ However, the nature of the tax and the circumstances in which it is laid
must be considered before it can be said that its retroactive application is
so oppressive as to transgress the Constitutional limitation.
III. It is applied prospectively
▪ They are prospective in operation
▪ However, while it is not favored, a statute may still operate retroactively
provided that it is expressly declared or is clearly the legislative intent.
IV. Res judicata is inapplicable
▪ This is due to the difference in the quantum of proof in civil and criminal
cases
▪ 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
Local Taxes – it is imposed and collected by the local government
The following are the sources of tax laws:
1. The Constitution – the 1987 Philippine Constitution sets the restrictions on the
exercise of the power to tax. It is a limitation upon the lawmaking power of the
state’s legislature.
Exception: local government taxation in the Philippines is based on the
Constitutional grant of the power to local governments. It gives the power
to create its own source of revenue
2. Laws – The National Internal Revenue Law; Local Tax Law; and Tariff and
Customs Code.
3. Case Law – these are the decisions of the Supreme Court which form part of
the law of the land.
4. Administrative Issuances/Interpretations – administrative agencies may fill in
what the congress may have no opportunity or competence to provide.
▪ 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. It must be germane to the object and purpose of the law
2. It does not contradict, but conform to the standards 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
Finance under Section 244 of the 1997 National Internal Revenue Code
are the following:
o 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.
o 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.
o The Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals, has the power to decide disputed
assessments, refund of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters
arising under the NIRC or other laws administered by the Bureau
of Internal Revenue.
46

Difference between RR, RMO, RMR, RMC, RB and BIR Ruling:
Revenue Regulations (RRs)
• are issuances signed by the Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions of the National Internal
Revenue Code (NIRC) and related statutes
Revenue Memorandum Orders (RMOs)
• are issuances that provide directives or instructions; prescribe guidelines; and outline
processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau
in all areas of operations, except auditing.
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
Revenue Memorandum Circular (RMCs)
• 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.
Revenue Bulletins (RB)
• refer to periodic issuances, notices and official announcements of the Commissioner of
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.
BIR Rulings
• are official positions of the Bureau to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.
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 liberally in favor of the taxpayer.
3. Tax laws shall not be interpreted to extend their provisions by implication beyond
the clear import of the language used or to enlarge their scope not particularly
specified.
4. In case of conflict, Special Tax laws shall prevail over General Tax statutes.
1. “Ubi Lex non distinguit neck now distinguire debemos “ (When the law does not
distinguish neither should we.)
2. American jurisprudence has persuasive effect on the interpretation of our own tax
laws.
3. Contemporaneous construction is given weight. The construction given by a
particular government agency that has acquired specialisation on the subject is entitled
to great respect and should be accorded great weight by the courts.
4. Estoppel, generally, does not apply to the government. The state cannot be bound by
the errors or mistakes of its agents in the interpretation or execution of tax laws.
5. 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
impairing the collection of taxes.
47
6. Words and phrases used in tax statutes shall be given their plain, ordinary and usual
meaning absent special circumstances indicating an intent to use such words or Have the force and effect of law  Courts Merely advisory  Courts can exercise
phrases in a different light. must decide in accordance with these their power to interpret these rules, i.e., these
rules, even if they do not agree with the are subject to judicial determination of
7. Administrative regulations, issued for the proper implementation and in accordance with
underlying policy whether correct or not
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:
Are coupled with sanctions for No sanctions imposed
• Must be in harmony with the provisions of the law ( within the noncompliance
authority conferred by law)

• Must be published( Official Gazette or Newspaper of General Public hearing and notice required No need for public hearing and notice
Circulation)
Rationale: Essentially statutes also, hence, Rationale: Merely provide internal guidelines
• Except: When regulation is merely internal or hearing and notice requirements apply for more effective admin implementation
interpretative in nature ( regulating only the personnel of
the administrative agency and not the public)

• Must be reasonable

Note: If Congress subsequently re-enacts a tax law using the meaning given to it by the
administrative agency, the re-enactment effectively confirms that the administrative
interpretation was correct.
Legislative Rules vs. Interpretative Rules
The Power of Oversight
DEFINITION: All activities undertaken by Congress to enhance its understanding of and
influence over the implementation of legislation it has enacted. In other words, these are
necessarily post-enactment activities – which raises issues as to their constitutionality (see
below).

CATEGORIES:
Legislative Rules Interpretative Rules

Scrutiny Congressional Legislative Supervision

Rules promulgated to “fill in the details” of Rendition of opinion or statement of policy, in Investigation
existing law interpreting existing law

Passive oversight Active oversight Active oversight

48

Reports and information More
periodically required from solicitation of information awareness.
agencies. Uses facts that from
are readily available. concerned
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
thorough Continuing and informed
provided in Art. VI. “Any action or step beyond that will undermine the separation of powers
Implies constant
guaranteed by the Constitution. Legislative vetoes fall in this class.”
the agencies legislative guidance, e.g., through
a legislative committee especially
Legislative Veto
assigned to an area of admin
activity.
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.

For determining efficiency Exercise of Constitutional Examination of administrative Arguments For Arguments Against
of administrative authority to conduct exercise of legislative power, plus
implementation inquiry in aid of curtailment if necessary Necessary to maintain balance of powers Intrudes into powers vested on the
legislation (Art. VI Sec. ➔ Gives Congress a way to control the executive
21) exercise of delegated legislative powers ➔ Interferes with
without having to repeal defective laws or implementation
enact reparative ones ➔ Once a law becomes
Inquires into past Inquires into past Examination of current activity, effective, it is deemed to
administrative activities to administrative activities to i.e., exercise of legislative have left the hands of
influence future acts influence future acts authority Congress

Promotes admin accountability Intrudes into powers vested on the

judiciary
➔ Allows Congress to
determine w/n the rules
CONSTITUTIONALITY conform to law

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. “Too deeply embedded in our law and practice” Permits evasion of the President’s
own veto power
The SC has ruled that oversight is not in itself unconstitutional, and may in fact enhance
separation of powers because it prevents too much authority from lodging in the executive
department. I.e., integral to checks and balances.

49
 - Doubts to be resolved against the local government.
Ensures that the legislative intent behind an - Tax power is deemed to exist.
enactment is carried through to implementation o Municipal corporations have a general power to levy taxes and create
➔ Problem often arises because other sources of revenue. They no longer have to wait for statutory grant.
implementing agency did not participate in o Power of legislature is to reduce this power by imposing limitations.
the crafting of the law, i.e., usually o Congress cannot enact laws depriving LGUs of the power to tax.
ignorant of the policy sought to be
enforced 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.

Permits incorrect enactments from being enforced Doctrine of Necessary Implication

at all - Legislative power to create political corporations for purposes of local self-
➔ Unlike mere scrutiny and investigation, government carries with it the power to confer on such local government agencies
which can only act after the fact 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
CHAPTER 6: LOCAL TAXATION - Not absolute; subject to limitations provided by law or Constitution
- Legislative; can be exercised by local legislature
Powers and Limitations - Territorial; bound by geographical limits

Constitutional grant [NI-NA-LT]

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 Sources of Revenue (sec. 287, NIRC)
many provide, consistent with the basic policy of local governments. (Sec. 5, Article 10 of 1. Local sources
1987 Constitution) - tax revenues from real property tax and business tax
- non tax revenues from fees and charges
Rationale: to safeguard viability and self-sufficiency of local governments by directly - receipts from government business operations
granting hem general and broad tax powers. (Fels Energy, Inc. vs. Province of Batangas) - proceeds from sale of assets

- Taxing power of local governments is NOT absolute. 2. External sources

o Limited by constitutional restrictions. - Internal Revenue Allotment (IRA)
- Taxation not is not an inherent power of local governments. - Special laws
- Local tax laws should be construed strictissimi juris - Grants

50
 - 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 taxpayer’s 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. Income tax, except when levied on banks and other financial institutions
2. Documentary stamp tax
3. Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa
[AGILE]
4. Customs duties, registrations fees of vessels, and wharfage on wharves, tonnage
dues, all other kinds of customs fees
5. Goods carried into or out of, or passing through territorial jurisdictions of LGUs
6. Agricultural and aquatic products
7. Business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of
registration;
8. Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;
9. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided in the LGC;
10. Taxes on the gross receipts of transportation contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in the LGC;
11. Taxes on premiums paid by way of reinsurance or retrocession;
12. Taxes, fees or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof, except tricycles;
13. Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided;
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under Republic Act No. 6810 "Magna Carta for
Countryside and Barangay Business Enterprises (Kalakalan 20)" and Republic Act
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) "Cooperatives Code of
the Philippines"
15. Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.
[VP-PRECIPITANCES]
Income Tax
- tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business
- LGU cannot impose tax on income, except in case of banks and other financial
institutions
- gross receipts
- from interest, commissions and discounts from lending activities, income from
financial leasing, dividends, rentals on property, profit from exchange or sale of
property, insurance premium
Interest and Dividend Incomes
- any tax imposed on interest or dividends received by non-bank and non-financial
institutions assume the nature of income tax
- banks and other financial institutions derive such gross receipts in the ordinary
course of their business as financial institutions
- for non-bank and non-financial institutions, interest and dividend incomes are
merely passive investment income
- nature of ordinary business income
- tax imposed thereon the nature of ordinary business tax
Documentary Stamp Tax
- tax on documents, instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto
51
 - imposed on the privilege of conducting a particular business or transaction and not - imposition of toll fees or charges for the use of any public roads, pier, or wharf
on the business or transaction itself funded and constructed by them
- the law taxes the document because of the transaction so that the tax becomes
Goods Carried Into, Out of, or Passing Through
due and payable at the time the transaction is had or accomplished
- on goods or merchandise
- cannot be imposed by the LGU pursuant to the LGC, presumably to avoid indirect
duplicate taxation - 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
Taxes on Gratuitous Acquisitions
- tax on these subjects is covered by the Tax Code and is collected by the national No Unjust Enrichment on the Part of the Users
government - those benefits resulted from the infrastructure that the LGU is mandated by law to
- estate tax is a tax on the net value of property left by a deceased on the date of his provide
death - no unjust enrichment where the one receiving the benefit has a legal right or
- inheritance tax is a tax calculated on the property received by a person from a entitlement
deceased through succession - when there is no causal relation between one's enrichment and the other's
- Section135 of the LGC, provinces and cities may impose a tax on the sale, impoverishment
donation, barter, or any other mode of transferring ownership or title of real Agricultural and Aquatic Products
property - whether in their original form or not
- imposition of the tax will definitely restrict the free flow because the price will have
Customs Duties, Vessel Registration Fees, and Wharfage to increase
Custom Duties
Marginal Farmer as Fisherman
- customs duties is covered by the Tariff and Customs Code and implemented by
- individual engaged in subsistence farming or fishing limited to the sale, barter or
the Bureau of Customs
exchange of agricultural or marine products produced by himself and his
- LGU cannot validly impose a tax based on a cargo manifest or bill of lading
immediate family, and whose annual net income does not exceed Fifty Thousand
- tax partakes of the nature of an import duty, which is beyond the LGU's authority to Pesos or the poverty line established by NEDA
impose by express provisions of law
BOI-Certified Enterprises
Vessel Registration - incentives to Registered Enterprises
- Section 149 of the LGC, municipalities may impose license fees for the operation - six (6) years from commercial operation for pioneer firms and four (4) years for
of fishing vessels of three (3) tons or less non-pioneer firms, new registered firms shall be fully exempt from income taxes
Wharfage levied by the National Government
- a fee assessed against the cargo of a vessel engaged in foreign or domestic trade No Retroactivity
based on quantity, weight, or measure received and/or discharged by vessel - only upon the effectivity of LGC which was on January 1, 1992
- wharfage fee is prohibited only on wharves constructed and maintained by the
national government not on those owned and operated by the LGU Excise Taxes and Petroleum Products
- Sections 153 and 155 of the LGC, LGUs, through their Sanggunian - LGUs are prohibited from imposing taxes on alcohol products, tobacco products,
petroleum products, miscellaneous products such as fireworks, cinematographic
52
 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
53
 ("LTFRB") and not registration of motor vehicles and issuance of licenses for the
driving thereof
- motor vehicles "used or operated on or upon any public highway"
Export Products
- Philippine products actually exported
- foreign products are not covered by the limitation
- prohibition pertains to the exported products, while business tax, to the business EXCEMPTION FROM LOCAL TAXES
exporting itself Grant of Tax Exemptions
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 Guidelines
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 Withdrawal of Tax Exemption Privileges
- 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
- 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
- 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
- Section 193
- tax exemptions or incentives granted to, or presently enjoyed by all persons are
hereby withdrawn upon the effectivity of this Code
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General Withdrawal - sanggunian shall cause the sending of written notices of the proposed ordinance,
- the taxpayer has the heavy burden of proving exemption enclosing a copy to the interested or affected parties operating or doing business
within the territorial jurisdiction of the LGU concerned
The later general law prevails - specify the date or dates and venue of the public hearing or hearing shall be held
- the rule that a special law must prevail over the provisions of a later general law not earlier than ten (10) days from the sending out of notice or the last day of
does not apply as the legislative purpose to withdraw tax privileges enjoyed under publication, or date of posting thereof, whichever is later
existing laws or charters is apparent from the express provisions of Sections 137 - all affected or interested parties shall be accorded an opportunity to appear and
and 193 of the LGC present or express their views, comments and recommendations until all issues
The exemption is limited to three entities have been presented fully deliberated upon or consensus is obtained
- local water districts - secretary of the sanggunian prepare the minutes attach to the minutes the position
- cooperatives duly registered under Republic Act No. 6938 papers, memoranda, other documents submitted by those who participated
- non-stock and non-profit hospitals and educational institutions Burden of Proof
- lack of a public hearing is a negative allegation essential to the taxpayer's cause of
Regional or Area Headquarters (RHQs) and Regional Operating Headquarters
action
(ROHQs)
- taxpayer is the party asserting has the burden of proof
- 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 - general rule regularity of the enactment of an officially promulgated statute or
government unit except real property tax 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
Exemption is Limited to Taxes the contrary
- are liable to pay building permit and related fees
Approval of Ordinance
Congress Prevails over LGU - ordinance enacted by the sangguniang panlalawigan, sangguaniang panlungsod,
- legal effect of the constitutional grant to local governments simply means that in sangguniang bayan presented to the provincial governor or city or municipal mayor
interpreting statutory provisions on municipal taxing powers, doubts must be - ordinances enacted by the sangguaniang barangay signed by the punong
resolved in favor of municipal corporations barangay
- in case Congress enacts a later law granting exemption, same prevails over the - affix his signature on each and every page
provision withdrawing exemption under the LGC - veto it and return the same with his objections
- sangguanian concerned may override the veto of the local chief executive by two-
thirds (2/3) vote of all its members, making the ordinance or resolution effective for
ENACTMENT OF LOCAL TAX ORDINANCES
all legal intents and purposes
Conduct of public hearing is mandatory
- veto shall be communicated by the local chief executive concerned to the
- public hearings conducted for the purpose
sanggunian within fifteen (15) days in the case of a province, ten (10) days in the
Procedure case of a city or a municipality; otherwise, the ordinance shall be deemed
- within ten (10) days from filing of any proposed tax ordinance published for three approved as if he had signed it
(3) consecutive days in a newspaper of local circulation at least four (4)
Publication and Dissemination
conspicuous public places
- published and disseminated

55
 - within ten (10) days after their approval, certified true copies of all provincial, city,
municipal tax ordinances or published in full for three (3) consecutive days in a
newspaper of local circulation
- at least two (2) conspicuous and publicly accessible places
- barangay tax ordinances furnished the respective local treasurers for public
dissemination
- if the tax ordinance or revenue measure contains penal provisions, the gist of such
tax ordinance or revenue measure published in a newspaper of general circulation
within the province where the sanggunian concerned belongs
- shall be considered as falling at the beginning of the next ensuing quarter the
taxes, fees, or charges, due to accrue therefrom
Purpose of Publication
- a condition precedent to the effectivity and enforceability of an ordinance to inform
the public of its contents before rights are affected by the same
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.
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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
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
57
 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 manufacturer’s
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 company’s branch office in the city.
SPECIFIC TAXES THAT MAY BE LEVIED BY LGUs
Taxing Powers of Provinces
The province may levy only the following taxes, fees and charges:
1. Taxes on transfer of Real Property Ownership at rate not more than 50
per cent of 1 per cent of total consideration;
2. Franchise tax- at a rate not exceeding 50 per cent of 1 per cent of the
gross receipts for the preceeding calendar year;
3. Tax on Sand, gravel and other Resources- at a rate not more than 10 per
cent of fair market value;
4. Tax on business of Printing and Publication- at a rate not exceeding 50
per cent of 1 per cent;
5. Professional Tax- at a rate not more than 300 pesos annually.
6. Amusement Tax- at a rate not more than 10 per cent of gross receipts
from admission fees;
7. Annual fixed tax for every Delivery truck or van of manufacturers in
certain products- at a rate not exceeding 500 pesos annually.
[PD FRAPS]
Taxes on transfer of Real Property Ownership. Taxes on the sale, donation, barter or on
any other mode of transferring ownership or title of real property at rate not more than 50
per cent of 1 per cent of total consideration involed in the acquisition of property or their fair
market value in case the monetary consideration involved in the transfer is not substantial,
whicever is higher.
Exemption. The sale, transfer or any disporition of real property pursuant to RA No. 6657
(The Comprehensive Agrarian Reform Law of 1998). Also, socialize housing for the benefit
of the underprivileged and homeless is exempt from transfer tax. Also, the change in
ownership of the corporation will not trigger the tax on transfer of real property. Moreover,
the subsequent registration of title to the land in the name of condominium corporation is not
subject to transfer tax.
NOTE: Transfers without monetary consideration such as donations, braters and succesion
are taxbale. What is being taxed is the exercise of privilege to transfer or convey a property.
The determining factor is whether or not there is indeed a transfer of ownership or title over
the real property.
The acquisition for official use of embassies, consulates or diplomats is exempted from
transfer tax under the generally accepted principles of international laws.
Tax on business of Printing and Publication. Tax on the business of persons engaged in
the printing of and publication of books, cards, posters, leaflets, etc. at a rate not exceeding
50 per cent of 1 per cent of the gross annual receipts for the preceeding calendar year. In
case of a newly started business, it shall not exceed the 1/20 of 1 per cent of the capital
investment.
Exemption: the recepts from the printing of books or other reading materials prescribed by
the DepEd as school texts or references.
Franchise Tax. Tax on the business enjoying franchise at a rate not exceeding 50 per cent
of 1 per cent of the gross receipts for the preceeding calendar year based ont eh incoming
receipt realized within its territorial jurisdiction. In case of a newly started business, it shall
not exceed the 1/20 of 1 per cent of the capital investment. In the succeeding year, the tax
shall be based on the gross receipts for the preceeding claendar year.
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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 employee’s profesional tax on his
profession beofre employment and annually thereafter. It shall be payable annuall or on or
before the 31st day of January.
NOTE: Professionals exclusively employed in the government shall be exempt from the
payment of this tax.
Those covered professionals are those who only passed the bar examination or any board
or other examinations conducted by the PRC.
Amusement Tax. Provinces may levy tan amusement taxt to be collected from the
proprietors, lesees or operatoers of theathers, cinemas, concert halls, boxing stadiaand
other places of amusements at a rate not more than 10 per cent of gross receipts from
admission fees.
Amusment is a pleasurable diversion and entertainment. It is synonymous to relaxation,
pastime or fun.
EXEMPTION: The holding of operas, concerts, dramas, paintings, flower shows, musical
programs, literay and oratorical presentations except pop rock or similar concerts shall be
expemt from the payment of the tax.
The proceeds from the amusment taxt shall be shared equally by the province and the
municipality where such amusement places are located.
Amusement not covered by amusment tax:
1. Professional basketball games
2. Resorts, swimming pools, bath houses, hot springs and tourist spots
NOTE: LGUs cannot impose amusement tax pursuant to the principle of pre-emption.
Annual fixed tax for every Delivery truck or van of manufacturers in certain products.
Annual fixed tax for every truck, van or any vehicle used by manufactures, producer,
wholesalers, dealers, etc in the delivery or distribution of distilled spirits, fermented liquors,
soft drinks, cigars, etc wihtin the province at a rate not exceeding 500 pesos annually.
Taxing Powers of Municipalities
Municipalities may levy taxes, fees and charges not otherwise levied by the province.
Tax on business. See Section 143 of the LGC.
NOTE: SERVICE is not an article of commerce. The word article refers to such material or
corporeal things as goods or physical property, which is distinguished from service which is
intangible product.
Taxing Powers of Cities
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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.
3. Public Utility Charges for the operation of public utilities owned,
operated and maintained by them within their jurisdiction.
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 [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) physically-
handicapped 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 cédula (sedula in Tagalog), which has a strongly negative
connotation due to the events that took place during the Philippine Revolution, particularly
when the revolutionaries cried “Punitin and sedula!”43 at Pugadlawin as a sign of protest and
revolt against the Spaniards who had been taxing the Filipinos heavily for centuries.
Although it has been a traditional form of identification for centuries, for notarial purposes,
however, it is no longer valid.
Individuals who are liable for community tax are inhabitants of legal age who:
1. Is engaged in business or occupation; or
2. Is required by law to file an income tax return; or
3. Owns real property with an aggregate assessed value of 1,000 pesos or
more; or
4. Has been regularly employed on a wage or salary basis for at least 30
consecutive working days.
[BROS]
They shall pay an annual community tax of five pesos and an addition tax of one peso for
every one thousand pesos of income, which in no case shall exceed 5,000 pesos.
As for juridical persons, every corporation no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an
annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which,
in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following
schedule:
1. For every Five thousand pesos (P5,000.00) worth of real property in the
Philippines owned by it during the preceding year based on the valuation
used for the payment of real property tax under existing laws, found in the
43
“Tear all cedulas!”
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).
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 voter’s 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 State’s need to have a system of
identifying its citizens. The State has means, other than requirement of presentation of the
community tax certificate, to identify a registrant.
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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 Year’s Day. Payment should be made
within twenty days from the date of accrual of the tax, that is until January 20, or for
installments, until April 20, for the second quarter; until July 20, for the third; and until
October 20, for the last.
The Sanggunian, however, may extend the time for payment without imposing any
surcharges or penalties, but only for a period not to exceed six months.
If payment is not made within the allotted time, a surcharge not exceeding 25%, and an
interest not exceeding 2%, may be imposed. Interest shall, however, stop from accruing at
the end of the 36th month.
It is the treasurer of the local government unit (i.e. the barangay, municipal, city, or
provincial treasurer) or his duly authorized deputy who shall collect the taxes, fees and other
charges. Such treasurer has the power to examine the books of accounts and pertinent
records of any natural or juridical person for the purpose of ascertaining, assessing and
collecting the correct amount of tax.
Remedies for Collection of Revenues
There are two major remedies for the collection of revenues, and they are (1) the imposition
of a local government’s lien and the (2) availing of civil remedies.
A local government’s 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
[Sisa And Pepe Rizal Shall Die]44
In seizure, upon failure to pay a tax within the required time, the LGU treasurer or his deputy
shall send a written notice to the delinquent taxpayer. After sending the notice, the treasurer
then shall proceed to “seizure proper” and before doing so, he shall issue a duly
authenticated certificate based upon the records of his office showing the fact of
delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate
shall serve as sufficient warrant for the distraint of personal property, subject to the
taxpayer's right to claim exemption under the provisions of existing laws. He may thereafter
seize or confiscate any personal property belonging to that person or any personal property
subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in question.
Distrained personal property shall be sold at public auction in the manner hereon provided
for.
Right after seizing, the officer executing the distraint shall make an accounting and issue a
copy of such to the owner, to the person who had possession of the property seized or to
someone of suitable age and discretion who is found at the residence or place of business
of the person whose property is seized.
A notice of sale shall be posted at three public and conspicuous places and such notice
shall be published.
If, however, before the consummation of the said sale, the person whose property has been
seized, pays up his delinquent taxes, charges or fees, the property so seized may be
released.
During the sale, the property shall be awarded to the highest bidder for cash. If the property
remains unsold for a period of 120 days from the day of distraint, the property shall be
considered sold to the LGU for the amount of the assessment made by the Committee on
Appraisals.
Finally, the proceeds shall be disposed by applying it to satisfy the tax, and to the penalties,
interests and surcharges that accrued because of the delinquency. Also it shall be applied
to the expenses of the sale.
44
Based on literary, historical, philosophical and biological truths.
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If the proceeds are not sufficient, another distraint may be effected. At any time before the date of The sale shall proceed if the taxpayer
the sale, the taxpayer may fails to stay the sale through payment
For levy on real property, it may be done before, simultaneously or after distraint of personal stay the proceedings by
property. The procedure may be best demonstrated by the following: paying the taxes, fees
charges, penalties and
Duly Authenticated Certificate interests.
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.
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
Writing Upon Certificate a Description of the Property the purchaser
Levy shall be effected upon writing the 3. Any excess of the proceeds shall be
description of the property to be levied and upon turned over to the owner.
notice to interested persons

Redemption Final Deed to Purchaser

Notice of levy Within one year from the sale, If the taxpayer fails to
Written notice shall be served upon: the delinquent taxpayer has redeem, a final deed shall
1. The assessor the right to redeem the be issued to the purchaser.
2. Registrar of deeds property upon payment of the
3. The delinquent taxpayer taxes, etc. plus an interest of
2% per month on the
purchase price.

Advertisement
Within 30 days after levy, the LGU treasurer shall advertise for at least 30 days the
sale or auction of the property levied.

Just like distraint, levy may be repeated once or several times as long as the full amount
due has not been extinguished.
Staying of Sale Sale
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Although either may be exercised several times, the law provides certain exemptions from Activity
distraint or levy. (Insight) Such exemptions are provided in order for the delinquent Period of assessment, 5 years, from the 1. The treasurer is legally prevented
taxpayer’s dignity be recognized and that he be afforded his human rights to a decent living, in general due date from making the assessment of
to health, to exercise his profession, and to survival. Furthermore, it is intended by the law collection.
that the delinquent taxpayer be left with sufficient properties so that he could recover from Period of assessment 10 years, from 2. The taxpayer requests for a
his financial woes. when fraud is involved discovery of fraud reinvestigation and executes a
The following are the exempted properties: Period to collect 5 years, from the waiver
date of assessment 3. The taxpayer is out of the country
(a) Provisions, including crops, actually provided for individual or family
use sufficient for four (4) months; Remedies of the Taxpayer
(b) Household furniture and utensils necessary for housekeeping and The taxpayer has two major remedies: (1) administrative and (2) judicial action. For
used for that purpose by the delinquent taxpayer, such as he may administrative remedies, the taxpayer has the following remedies:
select, of a value not exceeding Ten thousand pesos (P10,000.00); 1. Before assessment, an appeal to the Secretary of Justice;
(c) One fishing boat and net, not exceeding the total value of Ten 2. After assessment, a protest of assessment, a claim for refund or tax
thousand pesos (P10,000.00), by the lawful use of which a fisherman credit, and redemption
earns his livelihood; [JARRed]
(d) Any material or article forming part of a house or improvement of any
real property. The appeal to the Secretary of Justice should involve questions of law, or specifically,
(e) His necessary clothing, and that of all his family; questions on the constitutionality or legality of tax ordinances or revenue measures. Such
(f) The professional libraries of doctors, engineers, lawyers and judges; appeal shall be made within 30 days from the effectivity of such ordinance or measure. The
(g) One (1) horse, cow, carabao, or other beast of burden, such as the Secretary has 60 days to act upon the appeal. If he denies, the taxpayer may file a court
delinquent taxpayer may select, and necessarily used by him in his action within 30 days from receipt of notice of such denial. However, after the lapse of 60
ordinary occupation; days from the filing of appeal before the Secretary, and the latter has not acted upon it, a
(h) Implements and tools necessarily used by the delinquent taxpayer in party can seek judicial relief even without any prior decision from the Secretary.
his trade or employment;
A protest of assessment may be filed before the local treasurer within 60 days from the
[PUBIC AngHIT] notice of assessment. The local treasurer shall decide within 60 days and may accept or
reject wholly or partially the protest.
For the other major remedy of judicial action, the procedure is (Insight) the same as any As for claim of refund or tax credit, this is required to be filed before the local treasurer
other ordinary civil action akin to a petition for a collection of debt. The real party-in-interest before a a taxpayer may proceed to judicial relief. If a tax credit is granted, this is not
is the local government unit concerned, through its treasurer. The cause of action, however, refundable to cash but may be applied to future tax obligations.
prescribes within five years. As for redemption, the delinquent taxpayer may redeem real property sold within one year
from the date of sale.
Prescription For judicial remedies, the taxpayer has the following options:
The following is a table of the periods of prescription of certain tax collection-related 1. Court action;
activities, and the corresponding suspensions of the periods: 2. Declaratory relief; and
3. Injunction.
Tax Collection Period Suspension of the Period
For a court action, the following table demonstrates the procedure:
64
Mode Period to file the Period to file the Court
Administrative Action Action
Appeal to the Secretary of 30 days from effectivity of tax 30 days if the Secretary
Justice ordinance or measure decides the appeal;
After the lapse of 60 days
from filing with the
Secretary, if the Secretary
does not act upon the
appeal.
Denial of Protest of 60 days from receipt of the 30 days from the receipt of
Assessment notice of assessment the denial or from the lapse
of the 60-day period to
appeal to the court.
Denial of Claim for Tax Within two years from the In refund cases, when the
Refund date of payment. two-year period is about to
expire, a taxpayer may
proceed to court without
waiting for the decision of
the treasurer.
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.

For declaratory relief, the same procedure as stated in the 1997 Rules of Court shall
apply.
Finally, for injunction, this may be availed by a taxpayer when he wishes to enjoin the
collection of a local tax.The issuance of a writ of injunction is prohibited if the subject matter
is a national internal revenue tax. The requisites of the issuance of a writ of injunction are:
(1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent
and paramount necessity for the writ to prevent serious damage. Although the two
requisites may be present, the judge has the ultimate discretion to issue such writ. It is not a
matter of right especially that writs of injunction against local taxes are frowned upon.
Sources:
The Local Government Code of the Philippines (Republic Act No. 7160)
Efren Vincent Dizon, Taxation Law Compendium, Volume 1 (2013).
CHAPTER 7: REAL PROPERTY TAX
A. Definitions and Taxing Authority
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.

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IMMOVABLE PROPERTY (ART 415) PERMANENCE: “permanence intended in its construction and use”; expression
ART 415: The following are immovable property “permanent” as applied to an improvement does not imply that the improvement must be
1. Lands, buildings, roads and constructions of all kinds adhered to soil used perpetually but only until the purpose to which the principal realty is devoted has been
2. Trees, plants and growing fruits, while attached to land or form an integral part of accomplished. It is sufficient that the improvement remain as long as the land to which it is
an immovable annexed is still used for that purpose.
3. Everything attached to an immovable in a fixed manner, such way it cannot be LGUS WITH POWER TO IMPOSE REAL PROPERTY TAX—following may levy an annual
separated without breaking the material or deterioration of object ad valorem on real property not specifically exempted
4. Statues, reliefs, paintings or other objects for use or ornamentation placed in 1. Provinces
buildings or on lands by the owner of the immovable in such a manner that it 2. Cities
reveals the intention to attach them permanently to the tenements 3. Municipalities within Metro Manila
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 B. Fundamental principles, exempt properties and classification of property
piece of land and which tend directly to meet the needs of the said industry or FUNDAMENTAL PRINCIPLES
works 1. Real property shall be appraised at its current and fair market value.
6. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar 2. Real property shall be classified for assessment purposes on the basis of its actual
nature, in case their owner has placed them or preserves them with the intention to use.
have them permanently attached to the land, and forming a permanent part of it; 3. Real property shall be assessed on the basis of a uniform classification within each
the animals in these places are included LGU.
7. Fertilizer actually used on a piece of land 4. Appraisal and assessment of real property shall be equitable.
8. Mines, quarries and slag dumps, while matter forms part of the bed and waters
either running or stagnant EXEMPT PROPERTIES
9. Docks and structures though floating, are intended by their nature and object to 1. All RP owned by Republic or any of its political subdivisions
remain at a fixed place on a river, lake or coast a. EXCEPTION: when the beneficial use has been granted to a taxable
10. Contracts for public works and servitudes and other real rights over immovable person
property 2. Charitable institutions, churches, parsonages or convents appurtenant to and all
lands, buildings and improvements actually, directly and exclusively used for
MACHINERY should be actually, directly and exclusively used to meet the needs of the religious, charitable or educational purposes
particular industry, business or activity and which by their very nature and purpose are 3. All machinery and equipment that are actually, directly and exclusively used by
designed for, or necessary to its manufacturing, mining, logging, commercial, industrial, or local water districts and GOCCs engaged in the supply and distribution of water
agricultural purposes. and/or generation and transmission of electric power.
4. All real property owned by registered cooperatives in RA 6938
IMPROVEMENT: valuable addition made to a property or an amelioration in its condition, 5. Machinery and equipment exclusively used for pollution control and environmental
amounting to more than a mere repair or replacement of parts involving capital expenditures protection
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 Ownership exemptions Character exemptions Usage exemptions
permanent in character. On basis of ownership; On basis of their On basis of actual, direct and
Owned by character exclusive use to which they are

66
 1. Republic 1. Charitable devoted
2. Province institutions 1. All lands, buildings and DOCTRINE OF EXEMPTION OF NATIONAL GOVERNMENT FROM LOCAL TAX
3. City 2. Houses and improvements actually, emanates from SUPREMACY OF NATIONAL GOVERNMENT
4. Municipality temples of directly and exclusively
5. Barangay prayer used for religious, SEC 234 LGC--- government property being used by a taxable person or entity is subject to
6. Registered 3. Non-profit or charitable or educational tax
cooperatives religious purposes Real property, although owned by the Republic, is not devoted to public use or public
cemeteries 2. All machinery and service but to private gain of taxable person.
equipment that are
actually, directly and EXCEPTION: when national government are subject to any kind of tax by local
exclusively used by local governments.
water districts and Exception to the exemption applies only to real estate tax and not to any other tax.
GOCCs engaged in the Title of government property
supply and distribution of 1. In the name of Republic
water and/or generation 2. In the name of agencies or instrumentalities
and transmission of a. Republic may grant beneficial use of its real property to any agency or
electric power instrumentality when real property is transferred to it even as Republic
3. Machinery and equipment remains the owner.
exclusively used for
pollution control and Tax liability of beneficial use—corresponding liability for payment devolves on taxable
environmental protection beneficial user and not the government.
Property over which government has right to use—if the government has right to use the
1. All RP owned by Republic or any of its political subdivisions property, the same may be exempted from realty tax
EXCEPTION: when the beneficial use has been granted to a taxable person
Note: LGU cannot tax the national government RECLAIMED AREAS—foreshore and submerged areas belong to the public domain and
Liberal construction of exemption—General Rule: Tax exemption is strictly construed are inalienable unless reclaimed, classified as alienable lands upon to disposition and
against the taxpayer claiming the exemption. further declared no longer needed for public service.
Ownership remains with the State unless it is withdrawn by law or presidential proclamation
EXCEPTION: When Congress grants an exemption to a national government from public use.
instrumentality from local taxation, such exemption is construed liberally in favor of the Even if alienable lands of public domain were transferred to Philippine Reclamation
national government instrumentality 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
EXCEPTION TO EXCEPTION: When legislature clearly intended to tax government when qualified private parties acquire these lands will the lands become private lands.
instrumentalities for delivery of essential public services for sound and compelling policy EMBASSIES—ART 23 Vienna Convention of Diplomatic Relations: sending state and head
considerations. of mission shall be exempt from all national, regional or municipal dues and taxes in respect
There must be express language in the law empowering local governments to tax national of premises of mission, whether owned or leased.
government instrumentalities.
SEC 133 LGC “unless otherwise provided”

67
 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 exemption—contractual assumption of the obligation to pay real property tax is
not sufficient to make one compellable to pay taxes due. It must be supplemented by an
interest that the party assuming the liability has on the property tax.
Thus, where vendee assumed liability for taxes, vendee is liable because he acquired use
and possession of the property, even though title remained with the vendor pending full
payment of the purchase price in a contract of conditional sale.
Liability is prospective and does not cover delinquent taxes. This is because of the principle
that user of the property bears the tax. He cannot assume where he has no possession.
Assumption of tax by an exempt entity—tax exempt entity may not validly assume the tax in
a contract with a taxable beneficial user with the intention of indirectly extending the
former’s exemption to the latter. Such does not bind the LGU, a 3 rd party not privy to the
agreement and the beneficial user remains to be liable. Realty tax is directly chargeable to
the beneficial user.
4. 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 cooperative—duly 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
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 2. Cooperatives with accumulated reserves an undivided net savings of not more
than 10M shall pay the following taxes at full rate
a. Income tax—amount 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. VAT—on 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. All other taxes unless otherwise provided
d. Donations to charitable, research and educational institutions and
reinvestment to socioeconomic projects within the area of operation may
be tax deductible
3. 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
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
WITHDRAWAL OF EXEMPTION—exemption from payment of real property tax previously
granted or enjoyed by all persons was withdrawn by LGC
Taxability of Squatted Property
Express grant of temporary exemption—LGU 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
Zoning—city 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 on actual use irrespective of any previous assessment or taxpayer’s
valuation which is based on a taxpayer’s 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
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Approaches in determining fair market value—assessor uses any or all in analyzing data 2. Additional Ad Valorem tax in idle lands
gathered to arrive at the estimate fair market value to be included in the ordinance 3. Special levy by local government units, through a tax ordinance describing with
containing the schedule of fair market values. reasonable accuracy the:
a. Nature
b. Extent
1. Sales analysis or market 2. Income capitalization 3. Replacement or c. Location of the public works projects or improvements to be undertaken
data approach approach reproduction cost approach d. State of the estimated cost thereof
Price paid in actual market Value of an income Factual approach used e. Specify the metes and bounds by monuments and lines; and
transactions is considered producing property is no exclusively in appraising man- f. The number of annual installments for the payment of the special levy
by taking into account valid more than the return derived made improvements such as which in no case shall be less than 5 nor more than 10 years.
sales data accumulated from it. An analysis of the buildings and other structures, *The Sanggunian concerned shall conduct a public hearing before the enactment
from among various income produced is based on such data as of an ordinance imposing a special levy.
sources stated in LGC necessary in order to materials and labor costs to 4. Socialized Housing Tax: additional 0.5% tax in the assessed value of all lands in
estimate the sum which reproduce a new replica of the urban areas in excess of Php 50, 000.00
might be invested in the improvement
purchase of the property PENALTIES FOR VIOLATION OF TAX ORDINANCES
1. Sanggunian of local government unit:
No rigid rule a. Fine – Php 1, 000.00 to Php 5, 000.00; and/or
C. Rates of Levy, Penalties and Condonation b. Imprisonment – 1 month to 6 months
UNIFORM RATE OF BASIC REAL PROPERTY TAX 2. Sangguniang barangay:
1. Province: not exceeding 1% of the assessed value of real property a. Fine – Php 100.00 to Php1, 000.00
2. City or municipality within Metro Manila Area: not exceeding 2% of the assessed
value of real property CONDONATION OR REDUCTION OF REAL PROPERTY TAX
By the sanggunian concerned, upon recommendation of the Local Disaster Coordinating
Local Government Unit authorized to collect real estate tax on properties: Council in cases of:
1. Within its territorial jurisdiction; and 1. General failure of crops
2. Unquestionably within its geographical boundaries. 2. Substantial decrease in the price of agricultural or agri-based products
3. Calamity
In case of BOUNDARY DISPUTE between two local governments, while the case is By the President of the Philippines in cases:
pending: 4. When public interest so requires
1. if the taxpayer already paid real property tax in one unit, no liability to pay in the
other unit D. Declaration, Assessment, and Appraisal of Real Property
2. if he has yet to pay, deposit due real property taxes in an escrow account with a COMPUTATION OF REAL PROPERTY TAX
government bank. Steps:
No public hearing shall be required before the enactment of a local tax ordinance levying i. Determine the market value;
the basic real property tax. ii. Ascertain the assessment level of property
SPECIAL LEVIES ON REAL PROPERTY iii. Multiply the market value by the applicable assessment level of the property to
1. Additional levy for the Educational Fund determine the assessed value; and

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 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. Fair Market Value x Assessment Level = Assessed Value
2. 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.
 Failure to provide such certificate: ROD will refuse the registration of the
document.
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
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 - 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.
- 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.
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
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
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 1. Summon witnesses - CBAA’s authority is not limited to the exercise of its appellate jurisdiction.
2. Administer Oaths Why? Because the Supreme Court, in the exercise of its extraordinary jurisdiction,
3. Conduct Ocular Inspection may also designate it as a “court appointed fact-finding commission to assist the
4. Take Depositions court in factual decisions” raised in certain actions such as prohibition.
5. Issue Subpoena and Subpoena Duces Tecum
G. Collection of Real Property Tax
Decision and Degree of Evidence Required Date or Accrual of Tax
- The Board after hearing, shall render its decision based on substantial evidence - The real property tax for any year shall accrue on January 1
or such relevant evidence on record as a reasonable mind might accepts as - From that date, it shall constitute a lien on the property.
adequate to support the conclusion. - Such lien shall be superior to any other lien, mortgage, or encumbrance of
- The Board shall decide the appeal within 120 days from the date of receipt of any kind.
such appeal. - It will only be extinguished upon the payment of the delinquent tax.
Exception to Exhaustion of Administrative Remedies
- Exhaustion of administrative remedies does not apply in cases where the Person Responsible for Collection of Tax
controversy does not involve questions of fact but only of law.  City or Municipal Treasurer
- In this case, the jurisdiction is with the trial court. - Collection of the real property tax with interest thereon and related
expenses, and the enforcement of the remedies.
Estoppel in Questioning Jurisdiction  Barangay Treasurer
- A party cannot invoke a court’s jurisdiction to secure affirmative relief and, - May be deputized by the city of municipal treasurer to collect all taxes on
after failing to obtain the requested relief, question that same jurisdiction. real property located in the barangay provided that the barangay treasurer
Appeal of Unfavorable Decision is properly bonded.
- 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 Collection by Municipalities
Board of Assessment Appeals. - Real property tax is a provincial imposition
- The decision of the Central Board shall be final and executory. - But the collection of which is delegated to the component municipalities through
their respective Municipal Treasurers who shall issue official receipts for payments
Composition of the Central Board of Assessment Appeals received and recorded in the reports of collections and deposits and in the cash
- Chairman books.
- 2 Members to be appointed by the President, who shall serve for a term of 7
years without reappointment Conversion of Municipality to City
1. The remittance of the share of the mother Province from the basic real property
 Hearing Officers taxes is a statutory obligation of the component municipalities which are only deputized
- shall be appointed by the Central Board of Assessment Appeals pursuant to the to collect real property tax.
civil service laws, rules, and regulations. 2. A component municipality that has been converted into a city remains obligated to
- shall serve for 6 years, without reappointment until their successors have been remit the share of the mother province from any real property tax due before its
appointed and qualified. conversion, but were paid and collected thereafter.

 Fact-Finding Function
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 3. A newly converted city that has not enacted its own real property tax ordinance, but
collects real property tax using the real property tax ordinance of the province is
obligated to remit the share therefrom of the latter.
4. Once the newly converted city enacts its own property tax due and collected
pursuant thereto shall accrue exclusively to the city.
Payment of Real Property Taxes in Installments
- The owner of the real property of the person having legal interest therein may pay
the basic real property tax and the additional tax for Special Education Fund due
thereon without interest in four equal instalments.
Pretemission of Holiday
What happens if the last day of the quarterly payment falls on a holiday or
non-working day? the next succeeding business day is considered the last day
of payment of the tax.
Tax Discount for Advanced Prompt Payment
- If the basic real property tax and the additional tax accruing to the Special
Education Fund are paid in advance, the sanggunian shall grant a discound not
exceeding 20% of the annual tax due.
Repayment of Excessive Collections
 Assessment of basic real property tax or any other tax is found to be illegal
or erroneous
- Taxpayer may file a written claim or refund or credit for taxes and
interests within 2 years from the date that the taxpayer is entitled to such
reduction or adjustment.
- The provincial or city treasurer shall decide the claim for tax refund or
credit within 60 days from receipt thereof.
- Claim for tax is denied – the taxpayer may avail of assessment appeals.
Payment under Protest
- No protest shall be entertained unless the taxpayer first pays the tax.
- There shall be annotated on the tax receipts the words “paid under protest”.
Protest Not Required in Refund
- Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund.
Procedure
- Should the taxpayer or real property owner question the excessiveness of
reasonableness of the assessment, the taxpayer should first pay the tax due
before his protest can be entertained.
- There shall be annotated on the tax receipts the words “paid under protest”
- The local treasurer would not entertain the protest unless the tax due has been
paid.
- If the local treasurer denies the protest or fails to act upon it within the 60-day
period, the taxpayer or real property owner may then appeal or directly file a
verified petition with the LBAA within 60 days from denial of the protest or receipt
of the notice of assessment.
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 owner’s 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.
- In no case shall the total interest on the unpaid tax or portion thereof exceed 36
months.
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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 taxpayer’s 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.
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 - 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
- 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) there’s 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.
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 - 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 2.
- Prescriptive periods were provided to enforce the collection of real property tax 3.
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 4.
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 5.
deliberately failed to perform his mandated duties.
Example: conditionally free importations (Sec. 105)
Grant of exemption by the President of the Philippines
Those exempted pursuant to special laws
Example: RA 9290
Exemption granted to government agencies, instrumentalities, and GOCCs with
contracts and agreements with foreign countries or international organizations
Exemption of international organizations or institutions pursuant to agreements,
treaties or special laws

Interruption or Suspension of Prescriptive Period Fees Charged by the Bureau of Customs (WHAT-BS)
The period to collection shall be interrupted or suspended in the following instances:
i. Local treasurer is legally prevented from collecting the tax What Who Pays
ii. Owner of the property or the person having legal interest therein requests for Wharfage Amount assessed against the cargo of the Owner, consignee, or agent
reinvestigation and executes waiver in writing before the expiration of the due vessel engaged in foreign trade based on the of the owner or consignee
period within which to collect, and quantity, weight, or measure received or of the article
iii. Owner of the property or the person having legal interest therein is out of the discharged by such vessel
country or otherwise cannot be located Harbor fee Payment for each entrance into or departure Owner, agent, operator or
from a port of entry in the PH master of a vessel
Arrastre Payment for the handling, receiving, and Owner, consignee, or agent
Prescriptive Period for Refund or Credit
charge custody of the imported or exported article or of the owner or consignee
- Taxpayer may file a written claim for refund or credit for taxes and interests with
baggage of the passengers of the article or baggage
the provincial or city treasurer within 2 years from the date of entitlement to
Tonnage Amount paid based on the net tonnage of the Owner, agent, operator, or
such reduction or adjustment.
due vessel or weight of the articles discharged or master of the vessel
laden in PH
CHAPTER 8: PHILIPPINE TARIFF AND CUSTOMS Berthing Amount assessed against a vessel for mooring Owner, agent, operator, or
charge or berthing at a pier or wharf at any port in the master of the vessel
A. POWERS AND LIMITATIONS PH
Storage Amount assessed on articles for storage in Owner, consignee, or agent
“Tariff” – the system of imposing duties or taxes on the importation of foreign merchandise charge customs premises, cargo shed and of the owner or consignee
“Customs duties” – taxes on the importation or exportation of commodities; a tax levied on warehouses of the government of the article
imports by the customs authorities of a country to raise state revenue, and/or to protect
domestic industries from competitors abroad Articles Subject to Duty – goods, ware, merchandise and anything that may be made the
subject of importation or exportation
GENERAL RULE: All articles imported from foreign country into the Philippines are subject 1. Freely-importable articles – articles that may be imported without regulation,
to duty. The same rule applies if the article has been previously exported from the prohibition, or prior clearance from the government
Philippines 2. Regulated articles – articles which may be imported in the PH subject to
clearances or permits from appropriate regulatory government agencies or
EXCEPTIONS: (EPIS-G) departments
1. Those expressly exempted under the Tariff and Customs Code 3. Money, checks, and money orders
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Prohibited Articles
1. Absolutely prohibited articles
Example:
a. Written or printed articles advocating or inciting treason, rebellion, sedition,
insurrection or subversion against the government of PH
b. Written or printed articles, negatives, or cinematographic film, photograph and
similar articles representing obscene or immoral character
c. Articles, drugs, instruments for producing unlawful abortion
d. Opium pipes and parts thereof
2. Qualifiedly prohibited articles – those that may be imported subject to certain
conditions or limitations
a. Dynamite, gunpowder, ammunition and other explosives, firearms and
weapons of war
b. Devices used for gambling (roulette wheels, gambling outfits, loaded dice,
marked cards)
c. Lottery and sweepstakes tickets except those authorized by the PH
government
d. Any article manufactured in whole or in part of gold, silver or other precious
metals or alloys thereof, the stamps, brands or marks of which do not indicate
the actual fineness of quality of said metals or alloys
e. Marijuana, opium poppies, coca leaves, heroin and other narcotics or
synthetic drugs which are declared habit-forming by the president of PH
Conditionally-free Importations – articles that are exempt from payment of import duties
upon compliance with prescribed formalities or regulations
Fraudulent practice – any article sold, bartered, hired or used for purposes other than that
they were intended without prior payment of duties, taxes or charges due and payable at the
time of entry
Temporary admission/temporary imports – those conditionally-free importations that may
be imported without payment of duties upon posting of a bond equivalent to 150% of the
taxes due thereon conditioned on the re-exportation thereof within a specified period
Example:
a. Articles brought for repair to be re-exported upon completion of the repair
b. Articles used exclusively for public entertainment, public display or exhibition
c. Articles brought by foreign film producers directly and exclusively used for making
or recording motion picture films on location in the PH (THINK: Jason Bourne
movie)
d. Personal and household effects and vehicles of foreign consultants and experts
hired by the government
e. Imported material used in manufacturing, packaging, covering, branding and
labeling articles in a bonded manufacturing house
“Drawbacks” – a refund of duties especially on imported products subsequently exported
or used to produce a product for export
Who pays: Bureau of Customs
When paid: 60 days after receipt of properly accomplished claims
B. 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
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)
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.
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 *Similar goods: although not alike in all respects, have like characteristics and like
component materials which enable them to perform the same functions and to be
commercially interchangeable.
Method Four: Deductive Value – based on the unit price sold in the Philippines in the
greatest aggregate quantity to persons not related to the persons from whom they buy such
goods.
Method Five: Computed Value - computed value which shall be the sum of:
a. cost or value employed in producing the imported
goods;
b. amount for profit and general expenses reflected in
the sale of goods;
c. freight insurance fees and other transportation
expenses;
d. Any assist, if its value is not included under par. (a);
and
e. cost of containers and packing.
Method Six: Fallback Value – using other reasonable means and on the basis of data
available in the Philippines.
*Limitations: No dutiable value shall be determined under this method on the basis
of:
1. selling price in the Philippines of goods produced in the Philippines;
2. system that provides for the acceptance for customs purposes of the
higher of 2 alternative values;
3. price of goods in the domestic market of the country of exportation;
4. cost of production, other than computed values, that have been
determined for identical or similar goods
5. price of goods for export to a country other than the Philippines;
6. minimum customs values; or
7. arbitrary or fictitious values.
*Release of Goods in Case of Delay – if it becomes necessary to delay the final
determination of such dutiable value, the importer shall secure the release of the
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.
*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
importer’s right to appeal.
2. Bases of Dutiable Weight.
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.
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.
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5. Entry or Withdrawal from Warehouse, for Consumption:
*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.
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
when destined for domestic consumption in the exporting country. (Formula: Anti-Dumping
Duty =Normal Value – Export Price)

*deemed “withdrawn” from a warehouse in the Phil. For consumption – when Elements of Dumping:
the specified form is properly filed and accepted at the time of withdrawal by the customs a. Like Product
official designated to receive the withdrawal entry and any fees required to be paid at the b. Price Difference
time of withdrawal have been deposited. c. Injury
d. Causal Link
C. REGULAR AND SPECIAL DUTIES
Effects of Dumped Products:
1. Regular Duties/Tariff Barriers – Taxes that are imposed or assessed upon a. Price Depression
merchandise from, or exported to a foreign country for the purpose of raising revenue. It b. Price Suppression
may also limit the amount of goods, which can be imported into a country. c. Price Undercutting

Purpose of Tariff Barriers: Designed to protect the domestic manufacturers or producers Procedure:
from foreign competition. a. Filing of Anti –Dumping Protest
b. Filing a Bond
Kinds of Regular Duties/Tariff Barriers c. Prima Facie Determination
d. Preliminary Determination
Four ways to assessed Custom Duties: e. Final Determination
f. Issuance of Department Order
1.1 Ad valorem Duty – Assessed as percentage of the import value of goods(e.g., 30% of g. Judicial Review
Free on Board price).
1.2 Specific Duty - Assessed on the basis of some units of measurement such as Dumped Import Product - Refers to any product commodity or article of commerce
quantity (e.g., Php500.00 per dozen) or weight, either net, legal or gross weight. introduced into the Philippines at an export price less than its normal value in the ordinary
1.3 Alternating Duty – Alternates ad valorem and specific duties. course of trade which is causing material injury to the domestic industry.
1.4 Compound Duty – Assessed as a combination of the specific duty and ad valorem
duty (e.g., Php 200.00 per kilogram net, plus 30% of FOB price). 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
2. Special Duties/Non-tariff Barriers – Imposed and collected in addition to the ordinary discrimination between two national markets.
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 2.2. Countervailing Duty – It is levied, in addition to the regular duty and other charges by
competition posed y foreign-made products. an importing country on its imports which have been found to be subsidized in the country of

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origin or exportation. It is equal to the ascertained amount of subsidy calculated in terms of 2.3. Marking Duty – It is imposed on every article of foreign origin imported into the
subsidy per unit of the subsidized export product. 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
Elements: permit (in such a manner as to indicate to an ultimate purchaser in the Philippines) the
a. Product Compatibility name of the country of origin of the article.
b. Subsidy
c. Injury Note:
d. Causal Link The failure or refusal of the owner or importer to mark the articles within a period of thirty
e. days after due notice shall constitute as an act of abandonment of said articles.
Procedure:
h. Filing a Petition 2.4 Discriminatory Duty – It is imposed on articles wholly or in part the growth or product
i. Prima Facie Determination of or imported in a vessel of any foreign country whenever such country:
j. Preliminary Determination
k. Final Determination (i.) Imposes directly or indirectly upon the disposition or transportation in transit
l. Issuance of Department Order through or re-exportation from such country of any article wholly or in part the
m. Judicial Review growth.

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. Yellow Subsidies or Actionable subsidies – Neither non-actionable nor
prohibited subsidies
b. Green Subsidies or Non- Actionable Subsidies – Permitted as they are of a
general nature
c. Red Subsidies or Prohibited Subsidies – Include export subsidies that are
contingent on export performance and on the use of domestic over imported
goods.
Note:
Industries are deemed to have received subsidy as a result of : ( i) Direct or potential
transfer of government fund (ii) The government foregoing the revenue that should have
otherwise been collected ( iii) The government providing goods or services or purchasing
goods
Subsidy in order to be countervailable must be ( i) Specific (ii) An industry sector or
group of industries (iii) A designated geographic region within the jurisdiction of the granting
authority
(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:
The Secretary shall apply a general safeguard measure upon a positive final determination
of the Commission that a product is being imported into the country in increased quantities
as to be a substantial cause of injury or threat to the domestic industry.

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 c) Report shall be submitted to NEDA within 30 days after termination of the
General Safeguard Measure administered by: public hearing
Except: in the imposition of additional duty not exceeding 10% ad valorem
a. Department of Trade and Industry/ Bureau of Import Services
b. Department of Agriculture Power to modify the form of duty: the corresponding ad valorem or specific equivalents of
c. Tariff Commission the duty with respect to imports from the principal competing foreign country for the most
d. DTI or DA Secretary recent representative period shall be used as bases

Note: Powers of the President Regarding Foreign Trade

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

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All passengers arriving from abroad are entitled and can avail of the privilege upon 7) Minors: consumable items only; cannot purchase liquors, wines, cigarettes,
presentation of: electronics, home appliances
1) Valid passport 8) Tourist can purchase electronic and home appliance but subject to payment
2) Flight ticket and of duties and taxes Balikbayan boxes
3) Boarding pass  packages of personal effects; “pasalubongs” sent by Filipinos
Subject to the following limitations: working or residing abroad to their families or relatives in the
1) As to amount Philippines
18 years old and above Minors  only non-commercial goods/not in commercial quantity strictly for
personal use only
Balikbayans Tax Exempt Purchase: US$ 250  value must not exceed US$ 500
US$ 1,500  consignor/sender is allowed to send 1 box during a 6-month
period
Kabuhayan Shopping  opened by Philippine Customs
Privilege (livelihood  100% examination is required by law to:
tools): US$ 2,000  Protect the legitimate interests of
consignors/senders and their consignees and the
All other passengers US$ 1,000 US$ 250 transacting public
(Tourists and Filipinos  Protect the interest of the government
traveling to or returning  Prevent and suppress smuggling and other fraud
from abroad) upon customs

2) As to Quantity Importation of a brand new motor vehicle no longer require prior authority
Criteria to be satisfied:
Cigarettes – 2 reams a) of current or advance year model
Tobacco – 2 tins b) never been registered or used
Liquor and/or wine – 2 bottles c) covered by certificate of first ownership
Non-consumable items (value exceeds US$ 200) – 1 only d) of the year of the immediate preceding year in the country of origin
and/or manufacturer provided:
3) Purchase shall only be made in US$ or other acceptable foreign currencies i) mileage not more than 50 km
4) Purchases shall be made within ii) acquired by the importer from the dealer as first owner
 48 hrs from date of arrival for regular passengers
 15 days from date of arrival of balikbayan; extended to 30 days Importation of used vehicles continue to be regulated, require prior authority from
during Christmas season (Nov 15 to Jan 15) BIS, DTI
 1 year from date of arrival of senior citizen/handicapped Individuals may be allowed to bring in used vehicles:
balikbayan a) returning Filipino/former Filipino citizen (stayed abroad for more than
5) Non-transferrable a year)
6) Balikbayan privilege can only be availed once a year; if balikbayan arrives b) immigrant to the Philippines (at least a holder of a 13G Visa duly
again within the year – considered a regular passenger for shopping purposes issued by BID)

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 Provided: ii. Relation between duty rates between raw materials and finished
i) only 1 unit per family; products
ii) registered in his name for at least 6 months prior to iii. Effects of Ad Valorem and Specific Duties
shipment; and iv. Questions related to schedules and classification
iii) proof can be presented that it was acquired out of the v. Tariff relations
earnings abroad vi. Importations vs. domestic production
vii. Effects of competition with foreign industries
Requirements and applicable duties viii. Investigative Operations
1. personal presence of the car-owner ix. Nature and composition of articles
2. vehicle must be left-hand drive c. Duties of the Commission
3. subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from i. Ascertain conversion and production costs in principal centers
15% to 100% (depending on its piston displacement) and in foreign countries
4. its book value serves as the tax base (not the purchase price nor the ii. Select representative articles
acquisition cost) iii. Ascertain import costs and selling prices
5. spare parts are taxed separately iv. Ascertain other facts which affect competition
6. older model: depreciation schedule is 10% per year counted v. Ascertain effects of tariff modifications and import restrictions
downwards from current year (which has 0% depreciation rate) vi. Annual reports
7. with piston displacement of 2000 cc: max depreciation of 50%; d. Commission has access and compulsory process to any document,
below 2000 cc: max of 70% summons, testimony, oaths, subpoenas

F. EXPORT DUTIES B. BUREAU OF CUSTOMS

a. Chief Officials
E.O. No. 26, July 1, 1986 abolished the export duties on all export products i. Chief
 except: logs as imposed under Section 154 of the TCC ii. Assistant Chief
 export duty imposed on logs: 20% of the gross FOB value at the time of shipment b. Powers:
based on the prevailing rate of exchange i. Assessment and collection of lawful revenues from import
 only planted trees are subject to the export duty, since all naturally grown trees are ii. Prevention and suppression of smuggling
banned from being exported iii. Supervision and control over entrance and clearance of vessels
and aircraft
CHAPTER 9: ADMINISTRATION OF TARRIFF AND CUSTOMS iv. General supervision of vessels carrying passengers or freight
v. Prohibition of unnecessary noise
A. TARIFF COMMISSION vi. Exclusion of 150 ton vessels from Pasig River
a. Chief Officials vii. Registration and inspection of vessels
i. Chairman viii. Enforcement of quarantine regulations and of tariff and custom
ii. 2 Member Commissioners to be appointed by the President laws
b. Investigative Functions ix. Licensing of marine/pilots
i. Administration and effects of tariff and custom laws x. Supervision and control over handling of foreign mail
c. Territorial Jurisdiction

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 i. Over all seas within Philippine jurisdiction ii. Duly licensed customs broker
ii. Exclusive control in respective ports of entry iii. Agent or attorney-in-fact
d. Hot Pursuit b. Import entry is a declaration to the BOC showing the particulars of the
i. May continue beyond maritime zone imported article
e. Collection Districts c. Informal entry if article is commercial in nature or personal/household
i. Collector of Customs at each port of entry effects
f. Visitorial Power d. Formal entry if for immediate consumption or if there is a domestic letter
i. In any place where foreign articles are openly offered for sale of credit
ii. Kept in storage e. Declaration of import entry
g. Search Warrant is needed in case of dwelling house i. Full account of the value
ii. Invoice and bill of lading are genuine and true
C. IMPORTATION IN GENERAL
a. Kinds F. EXAMINATION
i. Freely Importable a. Conditions for examination
ii. Regulated i. If surveyor seal is tampered
iii. Prohibited ii. Container is damaged
iv. Conditionally free iii. If shipment is covered by alert orders
b. Importation begins upon entry into jurisdiction and terminated upon iv. If the manifest differs from the actual number, weight, measure
payment of duty b. Appraisers shall ascertain, estimate, determine the value and describe all
c. Owner of Imported Articles the articles
i. Person to whom the same are consigned c. Readjustment of Appraisal, Classification, Return upon request in the
ii. Holder of bill of lading form of a timely protest
iii. Consignee
d. Importer is personally liable G. DELIVERY OF ARTICLES
e. Government imports also subject to tax a. Collector not liable for any defect in the bill of lading
f. Liability limited to the value b. No delivery if no bill of lading
g. Transit cargo is an exemption to importation 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
D. JURISDICTION OVER IMPORTATION f. Customs expenses constitute a lien on the articles
a. Collector shall cause all articles to be entered into a customhouse, g. No delivery until fines, surcharges are paid
appraised, classified, assess, collect, hold until payment of duties
b. Collector shall exercise this jurisdiction H. LIQUIDATION OF DUTIES
c. Commissioner liable for lost shipment a. Shall be made on the face of the entry
b. Tentative liquidation if an action is required to determine the exact amount
E. ENTRY AT CUSTOMHOUSE c. Finality is 3 year from the date of payment of final duties
a. Persons authorized
i. Importer or holder of bill of lading I. ABATEMENTS AND REFUNDS

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 a. No abatement for damage incurred during voyage e. General warrant allowed if specific description is unavailable
b. Abatement for missing articles allowed upon proof and certification by the f. Warrantless search not allowed in dwelling house
importer g. Right to search vessels, aircraft, persons, articles, vehicles, beasts,
c. Abatement for deficiency in package contents also allowed persons
d. Abatement of duty on dead or injured animals allowed
e. Investigation is required
M. ADMINISTRATIVE PROCEEDINGS
f. Claim for refund must be made in writing and forwarded to the collector
a. Collector shall issue a warrant for the detention of the property
b. Seizure to be reported to the commissioner and auditor and the
J. ABANDONMENT
corresponding notice to owner/importer
a. Kinds
c. Legality of seizure can only be contested by those whose rights have
i. Express
been impaired
ii. Implied
d. Settlement involves the payment of fine or the appraised value
b. Ipso facto deemed property of the government
e. Redemption prohibited for prohibited articles
f. Scope shall be limited to subject matter
K. RECORDS
g. Reliquidation if protest is proper
a. All importers required to keep records for a period of 3 years from the
h. 15 days review by the commissioner
date of importation
i. Automatic review if adverse to the government
b. Compliance audit
j. Confirmation of decision
i. Full and free access
k. Notice of decision
ii. BOC has contempt powers
l. Reliquidation
c. Scope
m. Government has the right to compulsory acquisition to protect revenues
i. Firms selected by computer-aided risk management system
against undervaluation
ii. Errors in import declaration detected
iii. Voluntary request to be audited
N. JUDICIAL PROCEEDINGS
d. Record to be kept by Customs
i. Articles of Incorporation
1. Actions instituted under the authority of the Tariff and Customs Code shall be
ii. Company Structure
brought in the name of the Philippine government and conducted by customs.
iii. Key importations
Approval of the Commissioner is required in an action for recovery of duties.
iv. Privileges
2. Aggrieved party may appeal to the CTA. If no appeal, ruling of the Commissioner is
v. Penalties
final and conclusive.
3. BOC has exclusive jurisdiction over imported goods for enforcement of custom
L. SEARCH, SEIZURE, ARREST
laws. Seizure and forfeiture is for the Collector and then the Commissioner.
a. No obstruction of customs premises
4. Exclusive original jurisdiction of the Collector pertains only to goods seized
b. Customs service shall exercise surveillance for protection of revenue and
pursuant to the authority under the Tariff and Customs Code.
prevention of smuggling
c. To be exercised within the limits of the collection district, particular vessel
O. SURCHARGES, FINES AND FORFEITURES
d. Customs official or any authorized officer may exercise the power of
seizure and arrest
1. Violations subject to surcharges, fines and forfeitures
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 2. Properties subject to forfeiture 2. Property shall be sold or disposed of upon the order of the Collector of the port
a. Unmanifested cargo which is unloaded is subject to forfeiture where the property in question is found.
b. Possession of smuggled articles is sufficient to authorize conviction 3. Property shall be sold at public auction after 10 days notice. No customs official or
c. Illegally withdrawn articles may be validly seized employee shall be allowed to bid.
3. Prima facie presumption shall exist: 4. The following charges shall be paid from the proceeds of the sale in the order
a. If the conveyance has been used for smuggling at least twice before named:
b. If the owner is not in the business for which the conveyance is generally a. Expenses of appraisal, advertisement and sale
used b. Duties except in the case of abandoned and forfeited articles
c. If the owner is not financially in a position to own such conveyance c. Taxes and other charges
d. Common carriers if the owner has knowledge of its use in smuggling d. Government storage charges
4. Forfeiture shall be effected only when and while the article is in the custody or e. Arrastre and private storage charges
within the jurisdiction of the customs authorities f. Freight, lighterage or general average, on the voyage of importation
5. Administrative fines and forfeitures shall be enforced by the seizure of the vehicle, 5. Any surplus remaining after the satisfaction of all unlawful charges shall be
vessel, aircraft retained by the Collector for 10 days subject to the call of the owner.
6. Vessel or aircraft may be seized for delinquency of owner 6. Perishable articles may be sold at auction, after public notice, not exceeding 3
7. Burden of proof shall lie upon the claimant days.
8. Commissioner may authorize seizure of other articles if no evidence of payment of 7. Disposition of articles unfit for use or sale or injurious to public health shall be
duties is shown ordered by the Collector in such a manner as the case may require.
9. False or fraudulent practice to make an entry of article shall be punished 8. Disposition of contraband:
a. Undervaluation – reduce duty, escape filing of formal entry, circumvent a. Ammunition and weapons to the AFP
quota restrictions b. Highly dangerous shall be destroyed
i. False invoice description c. Contraband coin and bullion to BSP
ii. False country of origin d. Other contraband of commercial value and capable of legitimate use may
b. Overvaluation be sold under such restrictions
i. Avoid imposition of anti-dumping duties 9. Disposition of articles for want of bidders shall be used by BOC to promote
ii. Reduce internal revenue tax base collection of taxes or channeled to official use of other offices.
c. Forfeiture in case of fraud requisites: 10. Dangerous explosives shall be subject to disposition in the discretion of the
i. Wrongful making of any declaration or invoice Commissioner.
ii. Such declaration or invoice is false 11. Disposition of Smuggled Articles:
a. Written or printed articles inciting treason or rebellion
P. DISPOSITION OF PROPERTY IN CUSTOMS CUSTODY b. Written or printed articles or other representation of an obscene or
immoral character
1. Property under customs custody shall be subject to sale: c. Articles, instruments, drugs for unlawful abortion
a. Abandoned articles d. Apparatus or devices used in gambling
b. Articles entered under warehousing entry not withdrawn nor duties or e. Opium pipes
taxes paid
c. Seized property after liability to sale shall have been established Q. OFFENSES
d. Any article subject to a valid lien for customs duties

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1. Failure to report fraud is punishable. 2. The respondent if not the importer himself must have in
2. Statutory offenses of officials and employees: any manner facilitated the transportation, concealment
a. Extortion or willful oppression or sale of the merchandise
b. Those who knowingly demand other or greater sums than are authorized 3. Knowledge or possession
by law 4. Knowledge that the goods have been imported contrary
c. Those who willfully neglect to give receipts to law
d. Those who willfully make opportunity for any person to defraud the iv. Mere possession is enough to convict and payment of tax due
customs revenue after apprehension is not a defense
e. Those who permit the violation of the law
f. Those who make or sign any false entry in any book R. SUMMARY OF CARGO CLEARANCE AND REMEDIES
g. Those who fail to report any fraud
h. Those who without authority attempt to collect payment 1. Cargo clearance/Classification procedure
i. Those who disclose confidential information without authority a. Importer shall accomplish IED and pay
3. Offenses punishable under the Tariff and Customs Code: advance duty to AAB
a. Concealment or destruction of evidence of fraud b. IEIRD to be submitted to BOC along with other
b. Breaking of seal on car forms
c. Alteration of marks on any package of warehoused articles c. Computation of duties and taxes
d. Fraudulent opening or entering of warehouse d. BOC conducts review of submitted documents
e. Fraudulent removal or concealment of warehoused articles e. Importer given 10 days to justify accuracy of
f. Violation of custom laws and regulations in general declared value
4. Liability for unlawful importation f. VCRC will calendar the classification issue for
a. Duty to declare deliberation
b. Administrative penalty is separate and distinct of criminal liability for g. Elevation to CVCRC
smuggling h. Resolution
c. A Penal provision: i. Endorsement and implementation
i. Fraudulently imports j. Subject to only one MR
ii. Assists in so doing 2. Remedies of the BOC
iii. Transportation, concealment, sale a. Tax lien
d. Kinds of smuggling b. Administrative fines and forfeitures
1. Outright – secretly contrary to law without paying duties c. Reduction of customs duties/compromise
imposed d. Search, Seizure, and Arrest
2. Technical – fraudulent or erroneous declaration to avoid i. Collector of customs has exclusive
duties jurisdiction over seizure and forfeiture
ii. Contraband – refers to articles of prohibited importations and ii. In case of grave abuse of discretion,
exportations. an appeal lies to the Commissioner
iii. Elements then the CTA
1. Fraudulently or knowingly imported contrary to law iii. Not criminal in nature

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 1. Proof beyond reasonable CHAPTER 10: THE COURT OF TAX APPEALS
doubt not required
iv. Warrant is sine qua non condition ★A. NATURE, COMPOSITION, AND POWERS ★
before any forfeiture proceeding
e. Judicial remedies 1. HIGHLY SPECIALIZED BODY
3. Remedies of the taxpayer
a. Protest The CTA is a highly specialized body speicifically created for the purpose of reviewing
i. Writing tax cases. The SC will not set aside the conclusion of the CTA which is dedicated
ii. Point out the particular decision or exclusively to the study and consideration of tax problems and has developed an
ruling expertise on the subject unless there has been abuse or improvident exercise of
iii. State the grounds authority.
iv. Limited to the subject matter
v. Filed within 15 days after payment 1.1. ACCORDED RESPECT
vi. Furnish samples of goods
b. Refund Its conclusions will not be overturned unless there has been an abuse or improvident
i. Missing packages exercise of authority. Such findings can only be disturbed on appeal if substantial
ii. Deficiencies in contents evidence or a showing of gross error or abuse on the part of the Tax Court does not
iii. Lost articles support them.
iv. Dead or injured animals
v. Manifest clerical errors 2. LAW CREATING THE CTA AND ITS AMENDMENTS
vi. Drawback
c. Settlement of any seizure by payment of fine  Originally created by R.A. 1125 (June 16, 1954)
or redemption  Amended by R.A. 9282 (March 30, 2004)
i. Instance of fraud  Pursuant to the amendment:
1. Use of spurious documents o The CTA was elevated to the same level as the CA
2. Prima facie evidence of o Consequently, appeals from its decision (en banc) shall be made before the SC
fraud o Jurisdiction of the CTA was expanded to include:
3. False machinations,
 EXCLUSIVE ORIGINAL JURISDICTION:
concealment of facts
 Over tax collection where the amount is less than PhP 1,000,000.00
4. Similar cases
 all criminal offense under the NIRC, and Tariff Customs Code, BIR, and
d. Appeal to the Commissioner within 15 days
BOC where the amount of taxes and fines is PhP 1,000,000.00
e. Abandonment
 EXCLUSIVE APPELLATE JURISDICTION:
f. Appeal to the CTA within 30 days
 In criminal offense over appeals from the RTC
i. BOC liable to pay the value if
shipment can no longer be delivered  Over tax collection where the amount is less than PhP 1,000,000.00
without interest  APPELLATE JURISDICTION over the RTC decisions on local taxes

3. COMPOSITPOIN AND APPOINTMENT OF MEMBERS

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 ★B. JURISDICTION OF THE CTA DIVISION ★
 Presiding Justice
 Eight (8) Associate Justices appointed by the President
 It may sit en banc or in three (3) Divisions, each Division of three (3) Justices each,
including the Presiding Justice, who shall be the Chairperson of the First Division
and the two (2) most Senior Associate Justices shall be served as Chairpersons of
the Second and Third Divisions.

3.1. QUORUM
 The presence of five (5) members is necessary to constitute a quorum and the
same number of affirmative vote to render a valid decision.
 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.”

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  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 CRIMINAL CASES:
o Refunds of Internal Revenue Taxes, fees or other charges  Criminal offenses from violation of the:
o Penalties in relation to the abovementioned a. NIRC
o Other matters arising under the NIRC or other laws b. Tariff and Customs Code
administered by the BIR where the NIRC provides a specific
c. Other laws administered by the BIR or the BOC
period of action in which case the inaction shall be deemed a EXCLUSIVE
denial
ORIGINAL
 Offenses or felonies where the principal amount of taxes and
 Decisions or resolutions of the RTC in local tax cases originally decided JURISDICTION fees, exclusive of charges and penalties, claimed is less than
or resolved by them in the exercise of their original or appellate OVER PhP 1,000,000.00 shall be tried by the regular courts and that
jurisdiction CRIMINAL the jurisdiction of the CTA shall be appellate
 Decisions of the Commissioner of Customs in cases involving: OFFENSES
TAX COLLECTION CASES:
o Liability for custom duties, fees or other money charges
 Tax collection cases involving final and executor assessments
o Detention or release of property attached
EXCLUSIVE for taxes, fees, charges and penalties
o Fines, forfeitures, other penalties in relation to the
APPELLATE  Collection cases where the principal amount of taxes and
JURISDICTION abovementioned
fees, exclusive of charges and penalties, is less than PhP
o Other matters arising under the customs law or other laws
1,000,000.00 shall be tried by the MTC and the RTC
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 C. JURISDICTION OF CTA En Banc
the provincial or city board of assessment appeals
 Decisions of the Secretary of Finance on cases elevated to him for The CTA En Banc has exclusive appellate jurisdiction over the following cases:
automatic review from decisions of the Commissioner of Customs which
are adverse to the Government under the tariff and customs code 1. Decisions, resolutions or orders of the RTC in the exercise of its appellate jurisdiction
 Decisions of the DTI Secretary in the case of non-agricultural product, over local tax cases and tax collection cases
commodity, or aritcles
2. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
 Decisions of the Secretary of Agriculture in the case of agricultural
jurisdiction over cases involving the assessment and taxation of real property
product, commodity, or aritcles involving dumping and counter ailing
duties under the Tariff and Customs Code.
3. Decisions of CTA Divisions
TAX COLLECTION CASES:
★D. MODE OF APPEAL TO THE CTA ★
 Appeals from the judgments, resolutions or orders of the RTC in tax
collection cases
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 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.

1. HOW APPEAL IS MADE
 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.
2. PERIOD TO APPEAL
 In case of assessment by the BIR, the taxpayer shall appeal within 30 days from
receipt of decision or ruling or upon the lapse of 180 days.
o The 30-day period runs from the date the taxpayer receives the appealable
decision and that failure to lodge his appeal:
i. Bars his appeal and renders the questioned decision final and executor
ii. The assessment is considered correct and all that is necessary is for the
Commissioner to enforce the collection of the tax by summary remedies
or judicial action
iii. The taxpayer may only raise defenses of absence of jurisdiction, collusion
between the parties, or fraud
 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 taxpayer’s 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. NEW ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL
 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.
4. 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.
 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
Collector’s 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
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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. DISPOSITION OF CASES
 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.
9. 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.
 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
 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 taxpayer’s 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.
NIRC SECTIONS 1 TO 21 AND NIRC REMEDIES
TITLE I
ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE
POWERS AND DUTIES OF THE BIR:
1. Assessment and collection of all national internal revenue taxes, fees, and
charges.
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 2. Enforcement of all forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favour by the Court of Tax
Appeals and the ordinary courts.
3. Shall give effect to and administer the supervisory and police powers conferred
to it by this Code or other laws.
COMPOSITION OF THE BIR:
Chief Commissioner and four assistant chiefs to be known as Deputy
Commissioners.
POWERS OF THE CHIEF COMMISSIONER:
1. The exclusive original jurisdiction to interpret the provisions of the NIRC and other
tax laws subject to review by the Secretary of Finance.
2. To decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under the
NIRC or other laws or portions thereof administered by the Bureau of Internal
Revenue subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
3. 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.
5. 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.
6. Shall employ, assign, or reassign internal revenue officers involved in excise tax
functions, as often as the exigencies of the revenue service may require, to
establishments or places where articles subject to excise tax are produced or kept:
Provided, That an internal revenue officer assigned to any such establishment
shall in no case stay in his assignment for more than two (2) years, subject to rules
and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
7. Assign or reassign internal revenue officers and employees of the Bureau of
Internal Revenue, without change in their official rank and salary, to other or
special duties connected with the enforcement or administration of the revenue
laws as the exigencies of the service may require: Provided, That internal revenue
officers assigned to perform assessment or collection function shall not remain in
the same assignment for more than three (3) years; Provided, further, That
assignment of internal revenue officers and employees of the Bureau to special
duties shall not exceed one (1) year.
POWERS OF THE COMMISIONER THAT CANNOT BE DELEGATED:
1. The power to recommend the promulgation of rules and regulations by the
Secretary of Finance;
2. The power to issue rulings of first impression or to reverse, revoke or modify
any existing ruling of the Bureau;
3. 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,
invoices, books, receipts, instruments, appliances and apparatus used in
administering the laws falling within the jurisdiction of the Bureau.
2. To acknowledge the payment of tax if payment was made, expressing the amount
paid and the particular account for which such payment was made in a form and
manner prescribed therefor by the Commissioner.
3. Furnish its appropriate Committee pertinent information including but not limited to:
industry audits, collection performance data, status reports in criminal actions
initiated against persons and taxpayer's returns.
4. Submit to the Oversight Committee referred to in Section 290 hereof, through the
Chairmen of the Committee on Ways and Means of the Senate and House of
Representatives, a report on the exercise of his powers pursuant to the said
section, every six (6) months of each calendar year.
JURISDICTION OF THE REVENUE REGIONAL DIRECTOR:
1. Implement laws, policies, plans, programs, rules and regulations of the department
or agencies in the regional area;
2. Administer and enforce internal revenue laws, and rules and regulations, including
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
area;
6. 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.
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Duties of Revenue District Officers and Other Internal Revenue Officers: 7. Such other taxes as are or hereafter may be imposed and collected by the Bureau
1. To ensure that all laws, and rules and regulations affecting national internal of Internal Revenue.
revenue are faithfully executed and complied with, and to aid in the prevention,
detection and punishment of frauds of delinquencies in connection therewith.
2. To examine the efficiency of all officers and employees of the Bureau of Internal NIRC REMEDIES
Revenue under his supervision, and to report in writing to the Commissioner, OUTLINE OF REMEDIES
through the Regional Director, any neglect of duty, incompetency, delinquency, or REMEDIES OF THE GOVERNMENT
malfeasance in office of any internal revenue officer of which he may obtain Basic Remedies:
knowledge, with a statement of all the facts and any evidence sustaining each 1. Assessment
case. 2. Collection

Agents of the Commissioner: OTHER CLASSIFICATIONS

1. The Commissioner of Customs and his subordinates with respect to the I. As to procedure
collection of national internal revenue taxes on imported goods; A. Assessment and Collection
2. The head of the appropriate government office and his subordinates with B. Collection without assessment
respect to the collection of energy tax; and II. As to the nature of proceeding
3. Banks duly accredited by the Commissioner with respect to receipt of A. Administrative Remedies
payments internal revenue taxes authorized to be made thru bank. 1. Exercise of power to make assessments
2. Remedies in collection stage
AUTHORITY OF REVENUE OFFICERS: a. Tax lien
1. Examine taxpayers within the jurisdiction of the district pursuant to a letter of b. Distraint of personal property or garnishment of bank deposits
authority issued by the Revenue Regional Director in order to collect the correct c. Levy of real property
amount of tax, or to recommend the assessment of any deficiency tax due in the d. Compromise and abatement (Discussed under Remedies of the
same manner that the said acts could have been performed by the Revenue Taxpayer)
Regional Director himself. e. Penalties and fines (Discussed under Tax Administration and
2. To administer oaths and to take testimony in any official matter or investigation Enforcement)
conducted by them regarding matters within the jurisdiction of the Bureau. f. Non-availability of injunction to restrain collection of taxes
3. To make arrests and seizures for the violation of any penal law, rule or regulation 3. Other remedies
administered by the Bureau of Internal Revenue. a. Forfeiture

b. Suspension of business operations (Discussed under Tax

SOURCES OF REVENUE: Administration and Enforcement)
1. Income tax; B. Judicial Remedies
2. Estate and donor's taxes; 1. Civil
3. Value-added tax; 2. Criminal
4. Other percentage taxes;
5. Excise taxes; REMEDIES OF THE TAXPAYER
6. Documentary stamp taxes; and I. Before payment
A. Administrative Remedies

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 1. Protest
2. Compromise
3. Abatement
II. After payment
A. Administrative Remedy
1. Tax refund
2. Tax credit
B. Judicial Remedies
REMEDIES OF THE GOVERNMENT
Assessment
It is an official action of an administrative officer in:
1. Determining the computation of the sum due.
2. Giving notice to that effect to the taxpayer.
3. Making, simultaneously with or sometimes after the giving of notice, of demand
upon him for the payment of the tax deficiency stated within a specified period
(CIR v. PASCOR Realty Development Corp., G.R. No. 128315, June 29, 1999).
* A notice of assessment without a due date cannot be considered as a demand but
mere requests for payment (First Gas Power Corp. v. CIR, CTA Case No. 7281,
September 24, 2012).
Reason for Assessment: There is a tax due to the government which has not been paid by
the taxpayer either as a delinquency or a deficiency tax. If the tax was properly paid,
assessment is not necessary.
General Rule: Taxes are self-assessing and thus do not require the issuance of an
assessment notice in order to establish the tax liability of the taxpayer.
Exceptions
Instances where taxes require assessment to establish additional tax liability:
1. Tax period of a taxpayer is terminated ( TAX CODE, Sec. 6[D])
2. Deficiency tax liability arising from a tax audit by the BIR (TAX CODE, Sec. 56 [B])
3. Tax lien (TAX CODE, Sec. 219)
4. Dissolving corporation (TAX CODE, Sec. 52[C])
Principle Governing Tax Assessments
1. General Rule: All presumptions are in the favour of tax assessments. When an
assessment is made, the same is presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise, and in the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a BIR
examiner and approved by his superior officers will not be disturbed ( CIR v.
Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 2005).
Exception: The prima facie correctness of a tax assessment does not apply when
the CIR comes out with a naked assessment (an assessment that is without
foundation and hence, arbitrary and capricious) (CIR v. Hantex Trading, G.R. No.
L-13975, March 31, 2005).
2. 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 assessment
must be based on actual facts (Collector v. Benippayo, G.R. No. L-13656, January
31, 1962).
3. General Rule: Assessment is discretionary on the part of the CIR. Mandamus will
not lie for it will constitute judicial encroachment on executive functions.
Exception: If in the exercise of his discretion, there is evidence of arbitrariness
and grave abuse of discretion as to go beyond statutory authority (Maceda v.
Macaraig, Jr., G.R. No. 88291, June 8, 1993).
4. The authority to assess taxes may be delegated to subordinate officers. Said
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. Assessments must be directed to the right party (Republic v. De la Rama, G.R.
No. L-21108, November 29, 1966).
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. Donor’s tax
d. VAT
2. Deficiency assessment – made by the tax assessor himself where the correct
amount of tax is determined after an examination or investigation is conducted
(TAX CODE, Sec. 56[B]).
3. Disputed assessment – takes place when a taxpayer questions an assessment
and asks the collector to reconsider or cancel the same because he believes he is
96
 not liable therefore (St. Stephen’s Association v. CIR, G.R. No. L-11238, August
21, 1958).
4. Jeopardy assessment – a tax assessment made by an authorized Revenue
Officer, without the benefit of a complete or partial audit, in light of the officer’s
belief that the assessment and collection of a deficiency tax will be jeopardized by
delay caused by the taxpayers failure to:
a. Comply with audit and investigation requirements to present his books of
accounts and/or pertinent records.
b. Substantiate all or any kind of the deductions, exemptions, or credits claimed
in his return (RR No. 30-2002, Sec 3[1][a]).
Means Employed by the Commissioner in the Assessment of Taxes
The following are the general (constructive) methods developed by the BIR for
reconstructing a taxpayer’s income where the taxpayer keeps no or inadequate records or
where there is a strong suspicion that it has received income from undisclosed sources:
1. Percentage Method - equivalent of a ratio analysis of percentages considered
typical of the business under investigation to indicate potential areas of revenue
adjustment in examination where revenue records do not exist.
2. Net Worth Method – method of reconstructing income based on the theory that if
the taxpayer’s net worth has increased in a given year in an amount larger than his
reported income, he had understated his income for that year.
3. Bank Deposit Method – the bank records of the taxpayer are analyzed and the
Revenue Officer estimates income on the basis of the total bank deposits after
eliminating non-income items.
* This does not alter the confidentiality rule of bank deposits.
4. Cash Expenditure Method – assumes that the excess of a taxpayer’s
expenditures during a tax period over his reported income for that period is taxable
to the extent not approved otherwise.
5. Unit and Value Method – the determination or verification of gross receipts may
be computed by applying price and profit figures to the known ascertainable
quantity of business done by the taxpayer.
6. 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)
Assessment Process
Summary:
1. Issuance of Letter of Authority
2. Audit or Tax investigation
3. Issuance of Preliminary Notice of Assessment (PAN)
4. Reply to PAN
5. Issuance of Formal Letter of Demand and Final Assessment Notice (FAN)
1. Issuance of Letter of Authority (LA)
An LA is a request to the taxpayer to permit the bearer thereof, a particular enforcement
officer, to conduct the necessary tax examination and verification of books and records (DE
LEON, NIRC, p. 584).
2. Audit and Tax Investigation
The Revenue Officer shall, within 120 days from the date of issuance and service of the LA,
conduct his audit and submit his report of investigation (ABAN, p. 196; RMO No. 38-88).
Effect of Failure to Complete the 120-day Period
Audit will continue without the need to revalidate the LA, but the officer concerned shall be
subjected to administrative sanctions (RMO No, 23, 2009; RMO No. 44-2010).
3. Issuance of Preliminary Assessment Notice (PAN)
PAN is issued to the taxpayer informing him of the findings of the Revenue Officer if after
review and evaluation of the taxpayer’s 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 of probable deficiency taxes and penalties (RMC No. 11-2014).
Requisites of a Valid PAN
1. Must be served to the taxpayer personally, and if not practicable, by substituted
service or by mail (RR No. 18-2013, Sec. 3.1.6).
2. The assessment was conducted within the scope of authority given by a valid LA
(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
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)
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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, CTA Case No. 6185, October 26, 2004).
* The issuance of a Notice of Informal Conference under RR No. 12-99 before issuing
a PAN is already dispensed with pursuant to RR No, 18-2013 issued on November 28,
2013.
4. Reply to PAN
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
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-
2013).
Effects of Failure to Submit a Valid Reply to PAN
1. 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).
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
final, executory, and demandable.
3. From which the prescriptive period to collect commences to run.
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).
2. Must be issued by the CIR or his duly Authorized representative (RR No. 18-2013,
Sec. 3.1.3; RMC No. 11-2014).
3. Must be served to the taxpayer personally, and if not practicable, by substituted
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. Must be in writing and contain the facts and the law on which the assessment is
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).
Period to issue FLD/FAN
General Rule: Fan can be issued only after a PAN was issued. This is part of the
requirements 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 no. 8496, February 10, 2014).
After the issuance of the PAN, the FAN may be issued in any of the following
circumstances:
1. After the lapse of the 15-day period to respond to the PAN without the taxpayer
submitting a reply (RR No. 18-2013, Sec. 3.1.1).
2. Before the lapse of the 15-day period to respond to the PAN and the taxpayer has
not yet submitted a reply to PAN (Oakwood Management Services v. CIR, CTA
Case No. 7989, August 8, 2013).
* The issuance of the FAN before the lapse of the 15-day period for the taxpayer to
file a reply to the PAN inflicts no prejudice on the taxpayer as long as the taxpayer is
properly served the FAN and is able to intelligently contest the FAN by filing a protest
within the period allowed by law.
Reason: A PAN preparatory to the issuance of the FAN is not legally speaking an
assessment even if it contains the computation of the taxpayer’s liabilities (Oakwood
Management Services v. CIR, CTA Case No. 7989, August 8, 2013).
3. Within the 15 days after the filing of the response to the PAN (RR No. 18-2013,
Sec. 3.1.1).
4. After/Beyond the 15-day period after the filing of the response to PAN (RMC No.
11-2014).
* Issuance of the FLD/FAN beyond 15 days from the filing of the response to the PAN
shall not render it invalid. The non-observance of the 15-day period, however, shall
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constitute an administrative infraction and the revenue officers who caused the delay
shall be subjected to administrative sanctions (RMC No. 11-2014).
Exceptions: In the following instances where PAN is not required, A FLD/FAN shall be
issued outright:
1. When the finding for any deficiency tax is the result of mathematical error in the
computation of tax as appearing on the face of the return.
2. When the excise tax due on excisable items has not been paid.
3. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent.
4. When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to a non-exempt person.
5. When the taxpayer has opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year (RR No. 18-
2013, Sec. 3.1.2).
Service of FLD/FAN
A. Modes of Service (RR. No. 18-2013, Sec. 3.1.6; RMC No. 11-2014)
1. Personal Service - the notice shall be served by delivering personally a
copy thereof to the party at his registered or known address or wherever
he may be found.
“Known address” – a place other than the registered address where
business activities of the party are conducted or his place of residence.
In case personal service is not practicable, the notice shall be served by
substituted service or by mail.
2. Substituted Service – resorted to when the party is not present at the
registered address or known address under the following circumstances:
a. Notice may be left at the party’s registered address with his clerk or
with a person having charge thereof.
b. If the known address is a place where business activities of the party
are conducted, the notice may be left with his clerk or with a person
having charge thereof.
c. If the known address is the place of residence, substituted service
can be made by leaving a copy with a person of legal age residing
therein
d. If no person is found at the registered/known address, the revenue
officer shall bring a barangay official and two disinterested witnesses
to the address so that they may personally observe and attest to
such absence. The notice shall be given to the barangay official.
Such facts shall be contained in the bottom portion of the notice, as
well as the names, official position and signature of the witnesses.
e. Should the party be found at his registered or known address or any
other place but refuses to receive the notice, the revenue officer shall
bring a barangay official and 2 disinterested witnesses so that they
may personally observe and attest to such fact of refusal. The notice
shall be left to the barangay official. Such facts shall be contained in
the bottom portion of the notice, as well as the names, official
position and signature of the witnesses.
“Disinterested witness” – persons of legal age other than employees of the BIR.
3. Service by Mail – done by sending a copy of the notice to the registered
or known address of the party by:
a. Registered mail with instruction to the postmaster to return the mail to
the sender after ten days if undelivered, or by reputable professional
courier service.
b. Ordinary mail if no registry or reputable professional courier service is
available in the locality of the addressee.
The server shall accomplish the bottom portion of the notice and make a written report
under oath setting forth the manner, place, and date of service, the name of the
person/barangay official/professional courier service who received the same and other
relevant information.
* Service to the tax agent/practitioner, who is appointed by the taxpayer under the
circumstances prescribed in the pertinent regulations on accreditation of tax agents,
shall be deemed service to the taxpayer.
The aforementioned modes of service are also applicable to the service of the PAN and
the FDDA.
The notice shall first be served to the taxpayer’s registered address before the same
may be served to the taxpayer’s known address or in the alternative, may be served to
the taxpayer’s registered and know address simultaneously (RMC No. 11-2014).
B. When FAN deemed made
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The assessment is deemed to have been made on the date when the demand letter or
notice of assessment is released, mailed, or sent, even though the same is actually
received by the taxpayer after the expiration of the prescriptive period. (Basilan Estates
v. CIR, G.R. No. L-22492, September 5, 1967).
General Rule: When a mail matter is sent by registered mail, there exists a
presumption that it was received in the regular course of mail (Republic v. CA, G.R. No.
L-38540, April 30, 1987).
For the presumption to apply, the following facts must be proven:
1. Letter was properly addressed with postage prepaid.
2. Letter was mailed (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
August 7, 2006).
Proof of Mailing
The registry receipt issued by the post office or the official receipt issued by the
professional courier service containing sufficiently identifiable details of the transaction
shall constitute sufficient proof of mailing and shall be attached to the case docket
(RMC No. 18-2013, Sec. 3.1.6).
BIR record book is not sufficient (Barcelon Roxas Securities, Inc. V. CIR, G.R. No.
157064, August 7, 2006).
Exception: When there is a direct denial of the receipt. The burden is shifted to the BIR
to prove the letter mailed was received by the addressee. (Republic v. CA, G.R. No. L-
38540, April 30, 1987; Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064,
August 7, 2006).
C. Questioning the Validity of FLD/FAN
1. Prescription as a Defence
An FLD/FAN must be served to the taxpayer within the prescriptive period to make
a valid assessment (TAX CODE, Sec. 203).
The defence may be raised even for the first time on appeal when it is apparent on
the record that the assessment has already prescribed (CIR v. First Sumiden
Realty, Inc., CTA EB No. 975 re: CTA Case No. 8151, January 7, 2014).
2. Establishing Legal and Factual Bases of Tax Assessment
The details in the assessment notices issue to the taxpayer must be sufficient to
allow the taxpayer to intelligently answer the assessment as well as prepare the
documentary evidence for protest. If the BIR merely stated that per computerized
matching, the taxpayer has undeclared importations, the assessment is invalid
(CIR v. BASF Philippines, Inc., CTA EB Case No, 872 re CTA Case No. 7415,
September 12, 2013).
An assessment based on a Summary List of Purchases (SLP) cannot be used as
the sole basis. The SLP is doubtful, inconclusive and unreliable. The CIR must
prove the source of the information, otherwise the assessment is invalid (CIR v.
Fax N Parcel, Inc., CTA EB Case No. 883 re CTA Case No, 7415, February 14,
2013).
Authority of the CIR to make subsequent assessment or modify or revise assessment
The CIR has the authority to make subsequent assessments or modify or revise the original
assessment to collect additional sums covered by the original assessment as long as the
modification or revision is done within the prescriptive period for making assessments, and
even while the appeal of the taxpayer from the original assessment is still pending in the
CTA, so as to avoid multiplicity of suits (CIR v. Batangas Transportation Co., G.R. No. L-
9692, January 6, 1958).
Collection
It is the actual effort exerted by the government to effect the exaction of what is due from
the taxpayer. It is the final stage and goal of tax administration.
Is assessment necessary before collection?
General Rule: Yes, No proceeding in court without assessment for the collection of such
taxes shall be commenced (TAX CODE, Sec. 203).
A warrant of distraint and/or levy without issuance of a FAN is void (Gold Harvest Global
Corp. v. CIR, CTA Case No. 7503, September 18, 2009).
Exception: A proceeding in court for the collection of tax may be filed without prior
assessment in the following cases:
1. False or fraudulent return with intent to evade tax.
2. Failure to file a return (TAX CODE, Sec. 222[1]).
When does tax become collectible:
The government can collect when the assessment becomes final and executor for:
1. Failure to protest an FLD/FAN within the prescribed period.
2. Failure to appeal an FDDA within the prescribed period.
3. Failure to appeal an adverse decision of the court within the prescribed period.
ADMINISTRATIVE REMEDIES
Enforcement of Tax Lien
Tax Lien
A legal claim or charge on property, real or personal, established by law as
security in default of the payment of taxes (HSBC v. Rafferty, G.R. No. L-13188,
November 15, 1918).
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Nature of Tax Lien
When a taxpayer neglects or refuses to pay his internal revenue tax liability after
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,
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:
1. With respect to personal property – from the time the tax became due and
payable.
2. 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 claim of a private litigant predicated on a judgement. The tax lien attaches not
only from the service of the warrant of distraint but from the time the tax became due
and payable (CIR v. NLRC, G.R. No. 74965, November 9, 1994).
Validity of Tax Lien
The lien shall be valid against any mortgagee purchaser or judgement creditor only when
notice of such lien shall be filed by the CIR in the office of the Register of Deeds of the
province or city where the property of the taxpayer is situated (TAX CODE, Sec. 219).
Distraint of Personal Property
Kinds of Distraint:
1. Actual Distraint
Resorted to when at the time required for payment, a person fails to pay his
delinquent tax obligation (NIRC, Sec. 207[A]).
It is the actual seizure and taking possession of personal property of the taxpayer.
Delinquent Taxpayer
A taxpayer is considered delinquent in the payment of his tax when the:
a. Self-assessed tax per return filed on the prescribed date was not paid at all or
partially paid.
b. Deficiency tax assessed by the BIR became final and executor.
Procedure for Actual Distraint
a. Commencement of distraint proceedings by:
1. CIR or his duly authorized representative – where amount involved is
greater than 1M.
2. Revenue District Officer – where amount involved is 1M or less (TAX
CODE, Sec. 207[A]).
b. Service of warrant of distraint
The personal property of the taxpayer is physically taken by the distraining
officer (TAX CODE, Sec. 208).
c. Report on the distraint
1. It shall be submitted by the distraining officer to the Revenue District
Officer and to the Revenue Regional Director within 10 days from receipt
of warrant.
2. The CIR or his duly authorized representative has the power to lift the
order of distraint (TAX CODE, Sec. 207[A]).
d. Notice of sale of distrained properties
1. Notice shall specify the time and place of sale and the articles distrained.
2. The time of sale shall not be less than 20 days after the notice to the
owner or possessor of the property and posting of such notice.
3. The posting shall be made in not less than two public places in the city or
municipality where the distraint is made. One place for the posting of such
notice is at the Office of the Mayor of such city or municipality in which the
property is distrained (TAX CODE, Sec. 209).
e. Sale at public auction
1. Sale must be held at the time and place stated at the notice.
2. 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.
4. If the sale is through a licensed commodity or stock exchange, it must be
with the approval of the CIR.
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
corporation, company or association (CCA) which issued the stocks or
other securities. Upon receipt of the copy of the bill of sale, an entry of
transfer should be made in the CCA’s book and a corresponding
certificate of stock shall be issued if required (TAX CODE, Sec. 209).
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 6. Any residue over and above what is required to pay the entire claim
including expenses shall be returned to the owner of the property sold.
Expenses chargeable upon seizure shall include only those actual
expenses of seizure and preservation of the property pending the sale
and does not include services of the Revenue Officer (TAX CODE, Sec.
210)
Right of Pre-emption: If at any time prior to the consummation of the sale all
proper charges are paid to the officer conducting the sale, all the distrained
properties shall be restored to the owner (TAX CODE, Sec. 211).
There is no right of Redemption
Purchase by the Government at Sale upon Distraint (TAX CODE, Sec. 212)
When the amount bid for the distrained property is:
a. Not equal to the amount of tax.
b. Very much less than the actual market value of the property offered for sale.
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:
a. Stocks and other securities – by serving a copy of the warrant of distraint
upon the taxpayer and upon the president, manager, treasurer, or other
responsible officer of the corporation, company, or association, which issued
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. Bank accounts – by serving a warrant of garnishment upon the taxpayer and
upon the president, manager, treasurer, or other responsible officer of the
bank ((TAX CODE, Sec. 208)
Garnishment
The taking of personal properties, usually cash or sums of money, owned by the
delinquent taxpayer which is in the possession of a third party.
Bank accounts may be distrained notwithstanding the Bank Secrecy Act (R.A.
1405) which prohibits inquiry into bank accounts, since in the case of distraints, no
inquiry is made. The BIR merely seizes so much of the deposits as is sufficient to
discharge the obligation without having to know how much the deposits are, or
where the money or part of it came from (Opinion of the Secretary of Justice, No.
54 s. 1956)
2. Constructive Distraint
Issued where no actual tax delinquency of the taxpayer is necessary before the same is
resorted to by the government (ABAN, p. 238)
It is a preventive remedy to forestall possible dissipation of the taxpayer’s assets when
delinquency takes place.
It is issued in the following cases when the taxpayer is:
a. Retiring from any business subject to tax.
b. Intending to leave the Philippines.
c. Intending to remove his properties therefrom or to hide or conceal his property.
d. Intending to perform any act tending to obstruct the proceedings for collecting the
tax due or which may be due from him (TAX CODE, Sec. 206)
Constructive distraint is effected:
a. By requiring the taxpayer or any person having possession or control of such
property to sign a receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the same in any
manner whatever without the express authority of the CIR.
Punishment in case of violation: Upon the conviction, a fine of not less than twice the
value of the property so sold, encumbered, or disposed of but not less than P 5,000, or
suffer imprisonment of not less than two years and one day but not more than four
years, or both (TAX CODE, Sec. 276)
b. In case the person refuse or fails to sign the receipt, the Revenue Officer effecting
the constructive distraint shall prepare a list of the property and in the presence of
two witnesses, leave a copy thereof in the premises of the property where the
property distrained is located (TAX CODE, Sec. 206).
Levy of Real Property
Levy
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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
Real property may be levied upon before, simultaneously, or after the distraint of
personal property belonging to the delinquent taxpayer (TAX CODE, Sec. 207[B]);
and the remedy of distraint and levy may be repeated if necessary if the full
amount, including expenses, is collected (TAX CODE, Sec. 217).
In case the warrant of levy is not issued before, or simultaneously with the warrant
of distraint and the personal property of the taxpayer is not sufficient to satisfy his
delinquency, the CIR or his authorized representative shall, within 30 days after the
execution of the distraint, proceed with the levy on the taxpayer’s real property
(TAX CODE, Sec. 207[B]).
Procedure for levy
1. Issuance of Warrant of Levy
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
This certificate shall operate with the force and effect of a legal execution
throughout the Philippines (TAX CODE, Sec. 207[B]).
2. Service of the Warrant
How is levy effected
Written notice of the levy shall be mailed or served upon:
a. The Register of Deeds of the city or province where the property is
located.
b. Upon the delinquent taxpayer, or if he is absent from the Philippines, to
his agent or the manager of the business in respect to which the liability
arose, or if there be none, the occupant of the property in question (TAX
CODE, Sec. 207[B])
3. Advertisement of Sale
The Advertisement shall contain:
a. Amount of tax and penalties due.
b. Name of the taxpayer against whom the taxes are levied.
c. Time and place of sale.
d. Short description of the property to be sold.
The advertisement shall be made within 20 days after the levy, and the same
shall be for a period of at least 30 days (TAX CODE, Sec. 213).
Advertisement shall be effectuated by:
a. Posting a notice at the main entrance of the municipal building or city hall
and in a public and conspicuous place in the barrio or district in which
the real property lies.
b. Publication once a week for three weeks in a newspaper of general
circulation in the municipality or city where the property is located.
4. Public Sale of Property under Levy
Taxpayer is given the right of pre-emption before the sale.
If he does not exercise it, the sale shall proceed and shall be held either at the
main entrance of the municipal building or city hall, or on the premises to be
sold, as the officer conducting the proceedings shall determine and as the
notice of the sale shall specify (TAX CODE, Sec. 213).
Right of Pre-emption: The taxpayer may discontinue all proceedings by
paying the taxes, penalties, and interest at any time before the day fixed for
the sale.
A Certificate of Sale shall be delivered to the purchaser.
If the proceeds of the sale exceed the claim and cost of sale, the excess shall
be turned over to the owner of the property.
5. Redemption of Property (TAX CODE, Sec. 214)
Period: Within one year from the date of the sale.
The one year period for redemption begins from the registration of the deed of
sale (Santos v. RFC, G.R. No. L-9796, July 31, 1967).
Who may redeem: The delinquent taxpayer or anyone for him.
To whom made: To the Revenue District Officer.
How made: Upon payment of the taxes, penalties, and interest thereon from
the date of the delinquency to the date of sale, together with interest on
purchase price at 15% per annum from the date of sale to the date of
redemption.
The owner shall not be deprived of the possession of the property and shall be
entitled to the rents and other income thereof until the expiration of the time
allowed for redemption.
Effects of Redemption of Property Sold:
a. Such payment shall entitle the taxpayer to the delivery of the certificate
issued to the purchaser and a certificate from the RDO that he has
redeemed the property.
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 b. The RDO shall pay the purchaser the amount by which such property has
been redeemed and said property shall be free from lien of such taxes
and penalties.
6. Further Distraint and Levy
The remedy of distraint and levy may be repeated if necessary until the full
amount of the tax delinquency including all expenses is collected from the
taxpayer (TAX CODE, Sec. 217)
Grounds for Forfeiture to the Government:
a. No bidder for the real property.
b. The highest bid is for an amount insufficient to pay the taxes, penalties,
and costs (TAX CODE, Sec. 215)
The Register of Deeds shall transfer title to the Government upon registration
with his office of the declaration of forfeiture.
Within one year from forfeiture, the taxpayer may redeem his property.
Resale of Real Estate Taken for Taxes
The CIR shall have charge of any real estate obtained by the Government in
payment of taxes, penalties or costs arising under the Tax Code or in
compromise or adjustment of any claim.
The CIR may:
a. Sell and dispose of the same at a public auction upon giving of not less
than 20 days notice.
b. Dispose of the same at a private sale with the approval of the Secretary
of Finance (TAX CODE, Sec. 216)
c.
* The remedies of distraint and levy as well as collection by civil and criminal action
may, in the discretion of the CIR, be pursued singly or independently of each other,
or all of them simultaneously.
Both distraint and levy are summary remedies and cannot be availed of
where the amount of tax involved is than P 100.
Real property placed under levy may be sold at public auction for less than
its market value (NIRC, Sec. 215) since the taxpayer is given the right to
redeem (NIRC, Sec. 214). With respect to distrained personal property the
rule is different (NIRC, Sec. 212).
Penalties and Fines
Increments to the basic tax incident to the taxpayer’s non-compliance with certain legal
requirements.
No Injunction to Restrain Collection of Tax
No court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed (TAX CODE, Sec. 218), except when
in 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
surety bond for not more than double the amount with the court (R.A. 922, Sec. 9).
Forfeiture (of Confiscated Articles)
Forfeiture
The divestiture of property without compensation, in consequence of a default or offense
(Balllantine’s Law Dictionary, p. 519).
Seizure v. Forfeiture
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.
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 3, 1938).
Enforcement of the Remedy of Forfeiture
1. In case of personal property – by seizure and sale or destruction of specific
forfeited property.
2. In case of real property – by judgement of condemnation and sale in a legal action
or proceeding, civil or criminal, as the case may require (TAX CODE, Sec. 224)
This remedy is different from the provision directing forfeiture of real property in certain
cases in the remedy of levy under Sec. 215. Judicial intervention, which is required for
forfeiture of real property under Sec. 224, is not required under Sec. 215 since the
taxpayer has the right of redemption (DE LEON, NIRC 2, pp. 515-516).
Forfeited Goods or Articles (TAX CODE, Sec. 225)
1. 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. Destroyed – in case of distilled spirits, liquors, cigarettes, other manufactured
products of tobacco and all apparatuses used in or about the illicit production of
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 such articles, by the CIR when the sale of the same for consumption or use would
be injurious to public health or prejudicial to the enforcement of law.
3. 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
internal revenue stamps and labels which are in imitation of or purport to be lawful
stamps, or labels, in the discretion of the Commissioner.
* Forfeited property shall not be destroyed until at least 20 days after seizure.
Instances when Forfeiture is Appropriate
1. All chattels and removable fixtures of any sort, used in the unlicensed production of
articles (TAX CODE, Sec. 268 [B])
2. Dies used for printing or making of any imitation revenue stamp, label or tag which
is an imitation of or purports to be a lawful stamp, label or tag (TAX CODE, Sec.
268[B])
3. Liquor or tobacco shipped under a false name or brand (TAX CODE, Sec. 262)
JUDICIAL REMEDIES
Civil Action
For tax remedy purposes, these are actions instituted by the government to collect internal
revenue taxes including the filing by the government of claims against the deceased
taxpayer with the probate court. The government can collect when the assessment has
become final and executor.
Two Ways to Enforce Civil Liability through Civil Action
1. By filing a civil case for collection of a sum of money with the proper regular court
(TAX CODE, Sec. 203 and 222).
2. By filing an answer to the petition for review filed by the taxpayer with the CTA
( Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969).
Can the BIR file a civil action for the collection pending the decision of the
administrative protest?
Yes. The request for reinvestigation and reconsideration was in effect considered denied by
the CIR when the latter filed a civil suit for collection of deficiency income ( CIR v. Union
Shipping, G.R. No. L-66160, May 21, 1990).
Forms and Mode of Proceeding:
1. Civil actions shall be brought in the name of the Government of the Philippines.
2. It shall be conducted by legal officers of the BIR.
3. No civil or criminal action for the recovery of taxes shall be filed in court without the
approval of the CIR (TAX CODE, Sec. 220).
* The CIR may delegate such power (NIRC, Sec. 7)
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:
1. Attempt to evade or defeat tax (TAX CODE, SEC. 254).
2. Failure to file a return, supply correct and accurate information, pay tax, withhold
and remit tax and refund excess taxes withheld on compensation (TAX CODE,
Sec. 255).
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).
Any person convicted of a crime penalized by the NIRC shall, in addition to being liable for
the payment of the tax, be subject to the penalties imposed herein (TAX CODE, Sec.
253[a]).
Form and Mode of Proceeding
Same with civil actions (TAX CODE, Sec. 220).
Letters of referral/complaints filed by the CIR that states, “I hereby recommend the
prosecution of the following for violation of the National Internal Revenue Code, as
amended” constitute approval of filing of cases in court (People v. Tan, G.R. No. 144707,
July 13, 2004).
Importance Principles on Criminal Actions
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 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,
provided however, that there is prima facie showing of a wilful attempt to evade
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 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
one is prosecuted for wilful attempt to evade or defeat any tax under Sec's. 253
and 255 of the NIRC, the fact that a tax is due must first be proved (CIR v. CA and
Fortune Tobacco, G.R. No. 119322, June 4, 1996).
2. Effect of acquittal of the taxpayer in the criminal action
It does not necessarily result in the exoneration of said taxpayer from his civil
liability to pay taxes.
Reason: The duty to pay is imposed by statute prior to and independent of any
attempt on the part of the taxpayer to evade payment. It is neither a mere
consequence of the felonious acts charged nor is it a mere civil liability derived
from a crime (Republic v. Patanao, G.R. No. L-14142, May 30, 1961).
3. Effect of subsequent satisfaction of civil liability
It does not extinguish the taxpayer’s criminal liability (People v. Tierra, G.R. Nos.
L-17177-80, December 28, 1964).
4. No subsidiary imprisonment
In case of insolvency on the part of the taxpayer, subsidiary imprisonment cannot
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
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. Filing of a criminal action is not an implied assessment by the CIR
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).
The recommendation by the CIR to the DOJ for the filing of a criminal complaint
against the taxpayer cannot be considered a formal assessment. Even a cursory
perusal of the letter would reveal three key points:
a. It was not addressed to the taxpayer.
b. There was no demand made to the taxpayer to pay the tax liability, nor a
period for payment set therein.
c. The letter was never mailed or sent to the taxpayer by the CIR.
In fine, the said recommendation letter served merely as the prima facie basis for
the filing of the criminal information that the taxpayer had violated the penal
provisions of the tax code (Adamson v. CA, G.R. No. 1290935, May 21, 2009).
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).
STATUTE OF LIMITATIONS
Assessment
General Rule: Within three years after the last day prescribed by the law for the filing of the
return or from the date of actual filing the return, whichever comes later (ordinary or
normal assessment) (TAX CODE, Sec. 203).
Exceptions:
1. In case of false or fraudulent return with intent to evade tax or failure to file a
return – within 10 years after the discovery of falsity, fraud or omission
(extraordinary or abnormal assessment) (TAX CODE, Sec.222[a]).
2. In case there is valid waiver of the statute of limitations – up to the extended
period agreed upon (TAX CODE, Sec. 222[b]).
* The prescriptive period for making assessment shall also apply when the
Government makes an erroneous refund of internal revenue taxes. The prescriptive
period is not the six-year period of limitation under Art. 1145 of the Civil Code on
quasi-contracts (ABAN, p. 296) because the demand of the Government on the taxpayer
to pay the erroneously refunded tax is in effect an assessment of deficiency tax (Guaga
Electric v. CIR, G.R. No. L-23611, April 24, 1967).
Construction of Statutory Provision on Prescription
For the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax law provides a statute of limitations in the collection of
taxes. Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection. As a corollary, the exceptions to the law on
prescription should perforce be strictly construed (CIR v. B.F. Goodrich Phils., Inc. G.R. No.
104171, February 24, 1999).
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The law of prescription should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommended the approval of the law (Republic v. Ablaza, G.R. No. L-
14519, July 26, 1990).
Computing for the Prescriptive Period
Both Art. 13 of the Civil Code and the Administrative Code deal the computation of legal
periods. The Administrative Code being the more recent law, it shall govern the computation
of legal periods under the principle Lex posterior derogate priori (CIR v. Primetown Property
Group, Inc, G.R. No. 162155, August 28, 2007).
Burden of proof that a return was filed to apply the three year prescriptive period
It is incumbent on the taxpayer to prove that a return had been filed by him in order that the
three-year prescriptive period may apply (Republic v. Marsman Dev't., G.R. No. L-18956,
April 27, 1972) because the prescription of the Government’s right to assess taxes is an
affirmative defence (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
Requisites in order that a return may be considered filed for purposes of starting the
running of the prescriptive period:
1. The return must be valid – it must comply substantially with the requirements of the
law.
2. The return must be appropriate – it is a return for the particular tax required by law.
Thus, an income tax return cannot be considered as the equivalent of the Vat or
percentage return (Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601, February 28,
1966).
Amendment of Tax Return
General Rule: The following shall govern in case there is an amendment of the return:
1. If the amendment is substantial, the counting of the prescriptive period shall be
reckoned on the date the substantial amendment was made.
2. If the amendment was superficial, the counting of the prescriptive period is still the
original period (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
Example of Substantial amendment: An amendment of an original income tax return
showing a net loss to show more losses (CIR v. Phoenix Assurance, G.R. No. L-19727,
May 20, 1965).
Reason: To prevent taxpayers from evading the payment of taxes by simply reporting
in their original return heavy losses and amending the same more years later when the
CIR has lost his authority to assess the proper tax thereunder. The object of the NIRC
is to impose taxes for the needs of the Government and not to enhance tax avoidance
to its prejudice (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
Exception: If the return is sufficiently complete to enable the CIR to intelligently
determine the proper amount of tax to be assessed, then the prescriptive period for the
assessment starts from the filing of the original return (A.L. Ammen Transportation v.
Collector, CTA Case No. 540, November 10, 1965).
False Return
That which contains wrong information due to mistake, carelessness or ignorance
(Aznar v. CIR, G.R. No. L-20569, August 23, 1974).
A substantial under-remittance of withholding tax on compensation constitutes falsity to
warrant the 10-year prescriptive period (Samar-I Electric Cooperative, Inc. v CIR, CTA
EB Case No. 462, March 11 2010).
Fraudulent Return
For the 10-year prescriptive period to apply based on fraud, such fact must first be
proved as a fact by the BIR.
Such fact in a fraud assessment which has already become final and executor shall be
judicially taken cognizance of in a civil or criminal action for the collection thereof (TAX
CODE, Sec. 222[a]).
The following instances negate the existence of fraud and preclude the application of
the 10-year prescriptive period:
1. The CIR failed to impute fraud in the assessment notice or demand for payment.
2. The CIR failed to allege fraud in his answer to the taxpayer’s petition for review
when the case is appealed to CTA (ABAN, pp. 274-275).
3. The fact that the CTA raised the question of fraud only for the first time in his
memorandum which was filed with the CTA after he had rested his case
(Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
4. The fact that the CIR did not include fraud penalty in his deficiency assessment
which was issued after the filing of the return as an indication that he himself did
not believe that there was fraud (Gomez v. Domingo, CTA Case no, 1168,
February 15, 1964).
5. In an assessment, where the BIR appeared “not so sure” as to the real amount of
the taxpayer’s net income, as where the BIR arrived at three highly different
computations (Republic v. Lim de Yu, G.R. No. L-17438, April 30, 1964).
6. The CIR merely relied upon an alleged substantial under declaration of income tax
resulting from his own computation.
7. Mere understatement of gross earnings does not by itself prove fraud (Yutivo Sons
v. CTA, G.R. No. L-13203, January 28, 1961).
Failure to File a Return
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The following constitutes failure to file to warrant the 10-year prescriptive period:
1. A deficient return prevented the CIR from computing taxes due. Such defective
return is the same as if no return was filed (CIR v. Gonzales, G.R. No, L-19495,
November 24, 1964).
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).
Waiver of Statute of Limitations
Requisites:
1. In must be in the proper form prescribe under RDAO No. 05-01.
2. It must specify a definite agreed date between the BIR and the taxpayer within
which the former may assess and collect taxes.
3. It must be signed by the taxpayer himself or his duly authorized representative.
a. In case of a corporation, the waiver must be signed by any of its responsible
officials.
b. 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
that the BIR has accepted and agreed to the waiver.
a. The date of such acceptance by the BIR must be indicated.
b. Before signing the waiver, the CIR or the revenue official authorized must
make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
5. 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
lapse of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies.
a. Original copy - attached to the docket of the case.
b. Second Copy – taxpayer’s copy.
c. Third Copy – copy of the Office accepting the waiver.
7. The fact of receipt by the taxpayer of his/her copy must be indicated in the original
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.
9. It must not reduce but extend the period allowed for the government to assess and
collect taxes (RMO No, 20-90; RDAO No. 05-01; RMC No. 06-05; Republic v.
Lopez, G.R. No. :-18007, March 30, 1963).
* The waiver of the statute of limitations does not mean that the taxpayer relinquishes
its right to invoked prescription (Philippine Journalists, Inc. v. CIR, G.R. No. 162852,
December 16, 2004).
Failure to comply with all the requirements stated above renders the waiver invalid.
As such, the prescriptive period shall not be extended.
The taxpayer may, however, be stopped to question the validity of the waiver as when
he made partial payment of the revised assessments issued within the extended
period as provided in the questioned waivers. The Court held that had he believed the
waivers were invalid and the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount of taxes in the revised
assessments (RCBC v. CIR, G.R. No. 1702567, September 7, 2011).
Collection
The following rules shall govern the prescriptive period of collection of taxes:
1. For both normal or ordinary assessment (one with the three-year period to
assess) and Abnormal or extraordinary assessment (one with the 10-year
period to assess) – Five years from the time the assessment was made.
2. Collection without assessment through judicial action – 10 years after the
discovery of the falsity, fraud or omission to file a return.
The Government may collect without prior assessment in the same instances
under abnormal or extraordinary assessment.
Grounds for Suspension of the Running of the Statute of Limitations to Assess and
Collect: (TAX CODE, Sec. 223)
1. When the CIR is prohibited from making the assessment or beginning the distraint
or levy or a proceeding in court, and for sixty days thereafter.
2. When the taxpayer requests for reinvestigation and is granted by the CIR.
Requisites:
a. There must be a request for reinvestigation and not a request for
reconsideration (CIR v. Philippine Global Communications, G.R. No. 167146,
October 31, 2006).
b. The request for reinvestigation must be granted or acted upon by the CIR (BPI
v. CIR, G.R. No. 174942, March 7, 2008).
108

* The burden of proof that the request for reinvestigation had been actually granted
shall be on the CIR. Such grant may be expressed in its communication with the
taxpayer or implied from the action of the CIR or his authorized representative in
response to the request for reinvestigation (BPI v. CIR, G.R. No. 174942, March 7,
2008).
3. When the taxpayer cannot be located in the address given by him in the return,
unless he informs the CIR of any change in his address.
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.
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. 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).
Interruption of the Prescriptive Period
The period shall be interrupted:
1. When the proceedings are instituted against the guilty persons.
2. When the offender is absent from the Philippines (TAX CODE, Sec. 281).
* In No. 1, the period shall run again if the proceedings are dismissed for reasons not
constituting jeopardy (TAX CODE, Sec. 281).
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
A. Administrative Remedies
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 re-evaluation 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.
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
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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
Commissioner’s 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
Bureau’s 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,
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 Revenue District Offices, Legal Service, Large Taxpayer Service
(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
Division’s 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. 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 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).
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
111
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. 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.
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(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?
ANSWER: No, hence, the taxpayer should not wait for the decision of the
CIR. Both the claim for refund and subsequent appeal must be filed within
the 2-year period.

QUESTION: When is there waiver of the prescription in an action for

refund?
ANSWER: If the government failed to plead prescription in a motion to
dismiss or as a defence in its answer to the petition for review. Exception:
taxpayer amends his petition for review alleging therein a new cause of
action and the government pleads prescription in his answer to the
amended petition for review.

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