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Excise Taxes
SEC. 129. Goods Subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax
imposed herein shall be in addition to the value-added tax imposed under Title IV.
For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any other
physical unit or measurement shall be referred to as "specific tax" and an excise tax herein imposed and based on
selling price or other specified value of the good shall be referred to as "ad valorem tax".
Excise taxes are applicable only to
1. Manufacturers, or
2. Importers
There are two kinds of excise taxes, namely:
1. Specific tax, and
2. Ad valorem tax
Specific taxes are those based on weight or volume capacity or any other physical unit
of measurement. Those subject to specific taxes are:
1. Alcohol products - proof liter (Sec 141-143)
2. Tobacco products - kilogram (Sec. 144)
3. Petroleum products - liter and kilogram (Sec. 148)
4. Coal and coke - metric ton (Sec. 151)
Ad valorem taxes are those based on the selling price or other specified value of the
article.
1. Automobiles importers/manufacturers selling price(Sec. 149)
2. Non-essential goods wholesale price or value of importation (Sec. 150)
Jewelry (real or imitation), opera glasses, lorgnettes
Perfumes and toilet waters
Yachts and other vessels intended for pleasure or sports
3. Other minerals, mineral products and quarry resources actual market value of
gross output (Sec. 151)
4. Cigars net retail price (Sec. 145)
5. Cigarettes packed by hand or machine net retail price per pack(Sec. 145)
For cigarettes pack by hand or machine, it is actually a hybrid because it is ad valorem
to the extent of selling price, but specific in its imposition (per pack)

"New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.
"'New brand' shall mean a brand registered after the date of effectivity of R.A. No. 8240.
"'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with
regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new brand against the net retail price as defined herein and determine
the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After
the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially
validated net retail price against the net retail price as of the time of revalidation in order to finally determine the
correct tax bracket under which a particular new brand of cigarettes shall be classified: Provided, however, That
brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of
December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and
December 31, 2003 shall not be revised except by an act of Congress.
"'Net retail price', as determined by the Bureau of Internal Revenue through a price survey to be conducted by the
Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which the cigarette is sold on retail in at least ten (10) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila,
the 'net retail price' shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and the value-added tax.

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"The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set
forth in Annex 'D', including the classification of brands for the same products which, although not set forth in said
Annex ID', were registered and were being commercially produced and marketed on or after October 1, 1996, and
which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force
until revised by Congress.

Suggested net retail price apply to new brands to be introduced. Its the net retail
price at which new brands are intended to be sold on retail in major supermarkets or
retail outlets in Metro Manila.
Net retail price apply to those brands already in the market. It is the price at which the
goods are sold on retail in at least 10 major supermarkets in Metro Manila.
The classification freeze provision in Sec 145 was the main issue in the case of British
American Tobacco v CIR.
o To the issues raised by British American Tobacco, the Supreme Court stated All
in all, the classification freeze provision addressed Congress's administrative
concerns in the simplification of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues. Consequently, there can
be no denial of the equal protection of the laws since the rational-basis test is
amply satisfied.
o The Court, in answering the claim of unfair competition created by the
classification freeze, merely stated that the it wasnt conceived in a hostile
attitude against newer brands compared to older brands. And, respecting the
wisdom of the Congress as a co-equal branch of the government, the Court could
not strike down the provision as unconstitutional, even if it were imperfect.
Excise tax is basically an indirect tax imposed on the consumption of a specified list of
goods or products.
The tax is directly levied on the manufacturer upon removal of the taxable goods from
the place of production but in reality, the tax is passed on to the end consumer as part
of the selling price of the goods sold.
o The main difference with VAT (which is also an indirect tax) is the ability of the
buyer to claim a refund.
In VAT, zero-rated buyers have express statutory basis which allows them
to claim refunds.
In excise tax, buyers cannot claim refunds because there is no statutory
basis. Hence, it is only the statutory taxpayer who can claim a refund (as
in the case of Silkair v CIR)

Those exempt from excise taxes or conditional tax-free removal

EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN ARTICLES
SEC. 133. Removal of Wines and Distilled Spirits for Treatment of Tobacco Leaf. - Upon issuance of a permit from
the Commissioner and subject to the rules and regulations prescribed by the Secretary of Finance, manufacturers
of cigars and cigarettes may withdraw from bond, free of excise local and imported wines and distilled spirits in
specific quantities and grades for use in the treatment of tobacco leaf to be used in the manufacture of cigars and
cigarettes; but such wines and distilled spirits must first be suitably denatured.
SEC. 134. Domestic Denatured Alcohol. - Domestic alcohol of not less than one hundred eighty degrees (180O)
proof (ninety percent [90%] absolute alcohol) shall, when suitably denatured and rendered unfit for oral intake, be
exempt from the excise tax prescribed in Section 141: Provided, however, That such denatured alcohol shall be
subject to tax under Section 106(A) of this Code: Provided, further, That if such alcohol is to be used for
automotive power, it shall be taxed under Section 148(d) of this Code: Provided, finally, That any alcohol,
previously rendered unfit for oral intake after denaturing but subsequently rendered fit for oral intake after
undergoing fermentation, dilution, purification, mixture or any other similar process shall be taxed under Section
141 of this Code and such tax shall be paid by the person in possession of such reprocessed spirits.
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum
products sold to the following are exempt from excise tax:

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(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines:
Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank
and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other international agreements for their
use or consumption: Provided, however, That the country of said foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and
(c) Entities which are by law exempt from direct and indirect taxes.
SEC. 136. Denaturation, Withdrawal and Use of Denatured Alcohol. - Any person who produces, withdraws, sells,
transports or knowingly uses, or is in possession of denatured alcohol, or articles containing denatured alcohol in
violation of laws or regulations now or hereafter in force pertaining thereto shall be required to pay the
corresponding tax, in addition to the penalties provided for under Title X of this Code.
SEC. 137. Removal of Spirits Under Bond for Rectification.- Spirits requiring rectification may be removed from the
place of production to another establishment for the purpose of rectification without prepayment of the excise tax:
Provided, That the distiller removing such spirits and the rectifier receiving them shall file with the Commissioner
their joint bond conditioned upon the payment by the rectifier of the excise tax due on the rectified alcohol:
Provided, further, That in cases where alcohol has already been rectified either by original and continuous
distillation or by redistillation, no loss for rectification and handling shall be allowed and the rectifier thereof shall
pay the excise tax due on such losses: Provided, finally, That where a rectifier makes use of spirits upon which the
excise tax has not been paid, he shall be liable for the payment of the tax otherwise due thereon.
SEC. 138. Removal of Fermented Liquors to Bonded Warehouse. - Any brewer may remove or transport from his
brewery or other place of manufacture to a bonded warehouse used by him exclusively for the storage or sale in
bulk of fermented liquors of his own manufacture, any quantity of such fermented liquors, not less than one
thousand (1,000) liters at one removal, without prepayment of the tax thereon under a permit which shall be
granted by the Commissioner. Such permit shall be affixed to every package so removed and shall be cancelled or
destroyed in such manner as the Commissioner may prescribe. Thereafter, the manufacturer of such fermented
liquors shall pay the tax in the same manner and under the same penalty and liability as when paid at the brewery.
SEC. 139. Removal of Damaged Liquors Free of Tax. - When any fermented liquor has become sour or otherwise
damaged so as to be unfit for use as such, brewers may sell and after securing a special permit from the
Commissioner, under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary
of Finance, remove the same without the payment of tax thereon in cask or other packages, distinct from those
ordinarily used for fermented liquors, each containing not less than one hundred seventy-five (175) liters with a
note of their contents permanently affixed thereon.
SEC. 140. Removal of Tobacco Products Without Prepayment of Tax. - Products of tobacco entirely unfit for
chewing or smoking may be removed free of tax for agricultural or industrial use, under such conditions as may be
prescribed in the rules and regulations prescribed by the Secretary of Finance. Stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems, or midribs, and sweepings of
tobacco may be sold in bulk as raw material by one manufacturer directly to another without payment of the tax,
under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary of Finance.
"Stemmed leaf tobacco", as herein used, means leaf tobacco which has had the stem or midrib removed. The term
does not include broken leaf tobacco.
The following are exempt from paying excise taxes, or articles which can be removed,
without paying the excise tax, subject to a condition:
1. Wines and distilled spirits for treatment of tobacco leaf, but with prior approval of the
Commissioner and with corresponding bond
2. Domestic alcohol of not less than 180 degree proof (or 90% absolute alcohol), when
suitably denatured and rendered unfit for oral intake
3. Petroleum products sold to the following are exempt:
a. International carriers of Philippine or foreign registery on their use or consumption
outside the Philippines, provided that the petroleum products sold to these
international carriers shall be stored in a bonded storage tank, or
b. Exempt entities or agencies covered by tax treaties, conventions and other
international agreements for their use or consumption, provided that the country of
said foreign international carrier exempts from similar taxes petroleum products sold
to Philippine carriers, or
c. Entities which are by law exempt from direct and indirect taxes
4. Spirits requiring rectification upon filing of a bond
5. Fermented liquors removed by brewers from brewery to a bonded warehouse used
exclusively for the storage or sale in bulk of fermented liquors, not less than 1000 liters
at one removal
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6. Damaged fermented liquor unfit for use removed by brewers upon approval by the
Commissioner. The damaged fermented liquor must be in distinct packages different
from those used for fermented liquors.
7. Tobacco products entirely unfit for chewing or smoking
The proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even if
he shifts the burden thereof to another.
o In the case of Silkair v CIR, the excise tax was imposed upon Petron as the
manufacturer of petroleum products. Silkair was claiming for the refund on the
basis of a tax exemption. However, the Court ruled that it was Petron, the
statutory taxpayer who was the propert party to claim the tax refund, not Silkair.
o The Court noted that even if Petron passed on to a tax-exempt airline the burden
of the tax, the additional amount billed to the latter for jet fuel is not a tax but
part of the price which the airline had to pay as a purchaser.

Credit for excise tax on goods exported

(D) Credit for Excise Tax on Goods Actually Exported. - When goods locally produced or manufactured are
removed and actually exported without returning to the Philippines, whether so exported in their original state or
as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be credited or
refunded upon submission of the proof of actual exportation and upon receipt of the corresponding foreign
exchange payment: Provided, That the excise tax on mineral products, except coal and coke, imposed under
Section 151 shall not be creditable or refundable even if the mineral products are actually exported.
When goods locally produced or manufactured (except coal and coke under sec 151) are
removed and actually exported without returning to the Philippines, whether exported in
their original state or as ingredient or part of any manufactured goods or products, any
excise tax paid on such goods shall be credited or refunded upon submission of actual
exportation and upon receipt of the corresponding foreign exchange payment.

Who should pay? (Sec 130-131, didnt paste the codal, haba eh.)
For manufactured goods, the manufacturer or producer.
o But, if they are removed without paying the tax, the owner or person having
possession thereof shall be liable.
For imported goods, the importer or the owner.
o But, for tax-free articles brought or imported by persons exempt from tax which
are subsequently sold in the Philippines to non-exempt persons, the purchasers
shall be considered the importers and will have to pay the duty and tax due on
such importation.

When should the excise taxes be paid?

For locally manufactured goods, pay prior to the removal of the article from the place of
production.
For imported goods, pay prior to the release of the article from customs custody.

Documentary Stamp Taxes

SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. - Upon documents,
instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the
obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following
Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the
document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine
sources or the property is situated in the Philippines, and the same time such act is done or transaction had:
Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the
other party who is not exempt shall be the one directly liable for the tax.

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Documentary stamp taxes are paid by the person making, signing, issuing, accepting or
transferring the document.
o Whenever one party to the taxable document enjoys an exemption from the tax,
the other party who is not exempt shall be the one directly liable for the tax.

SEC. 200. Payment of Documentary Stamp Tax. -

(A) In General. - The provisions of Presidential Decree No. 1045 notwithstanding, any person liable to pay
documentary stamp tax upon any document subject to tax under Title VII of this Code shall file a tax return and
pay the tax in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
(B) Time for Filing and Payment of the Tax. - Except as provided by rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, the tax return prescribed in this Section shall be
filed within ten (10) days after the close of the month when the taxable document was made, signed, issued,
accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is filed.
(C) Where to File. - Except in cases where the Commissioner otherwise permits, the aforesaid tax return shall be
filed with and the tax due shall be paid through the authorized agent bank within the territorial jurisdiction of the
Revenue District Office which has jurisdiction over the residence or principal place of business of the taxpayer. In
places where there is no authorized agent bank, the return shall be filed with the Revenue District Officer,
collection agent, or duly authorized Treasurer of the city or municipality in which the taxpayer has his legal
residence or principal place of business.
(D) Exception. - In lieu of the foregoing provisions of this Section, the tax may be paid either through purchase and
actual affixture; or by imprinting the stamps through a documentary stamp metering machine, on the taxable
document, in the manner as may be prescribed by rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.

SEC. 201. Effect of Failure to Stamp Taxable Document. - An instrument, document or paper which is required by
law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall
not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in
evidence in any court until the requisite stamp or stamps are affixed thereto and cancelled.
When and how to pay?
o Return should be filed and the payment made within 10 days after the close of
the month when the taxable document was made, signed, issued, accepted or
transferred;
o In lieu of the above, by buying the required documentary stamp, affixing the
stamp on the document and canceling the stamp with indication of the date of
cancellation, or imprinting the amount of the required documentary stamp tax on
the document with the use of a special machine.
What if I fail to stamp the taxable document?
o An instrument, document or paper which is required by law to be stamped and
which has been signed, issued, accepted or transferred without being duly
stamped, shall
NOT be recorded, or
Any record of transfer of the same be admitted or used in evidence in any
court
until the requisite stamps shall have been paid.
o No notary public or officer authorized to administer oaths shall add his jurat or
acknowledgment to any document subject to the DST unless the proper
documentary stamps are paid.

DST on Original Issue of Shares of Stock

SEC. 174. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on
organization, reorganization or for any lawful purpose, of shares of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos
(P200), or fractional part thereof, of the par value, of such shares of stock: Provided, That in the case of the
original issue of shares of stock without par value the amount of the documentary stamp tax herein prescribed
shall be based upon the actual consideration for the issuance of such shares of stock: Provided, further, That in the
case of stock dividends, on the actual value represented by each share.

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For every original issue of shares of stock, P1 DST is paid for every P200 (or fraction
thereof) of the par value of such shares of stock
o If without par value, base will be the actual consideration
o If stock dividends, the base will be the actual value represented by each share

Example A stock certificate was issued by Safari, Inc with a par value of P500. With the
rate of P1.00 on each P200 or fractional part thereof, the tax is P3.00. (500/200 = 2.5,
round up to 3. Multiply 3 x P1.)

For other, check codal, Sections 173-198.

Give some examples of documents not subject to the DST (Section 199, wont copy it here
since its quite long, below is some random examples from the code)
1. Insurance policies or annuities made or granted by a fraternal or beneficiary society,
order, association, etc operated on the lodge system or local cooperation plan organized
and conducted solely by the members for the exclusive benefit of each member and not
for profit
2. Certificates of oaths administered to any government official in his official capacity
3. Papers filed in court for and by the government
4. Affidavits of poor folk for the purpose of proving poverty
5. Certificates of lands, not exceeding P200 in assessed value furnished by the municipal
treasurer to applicants for registration of title to land
6. Borrowing and lending of securities executed under the Securities Borrowing and
Lending Program of a registered exchange or in accordance with regulations prescribed
by the appropriate regulatory authority
7. Loan agreements or promissory notes the aggregate of which does not exceed
P250,000, executed by an individual for his purchase on installment for his personal use
a house, lot, motor vehicle, appliance or furniture
8. Assignment or transfer of any mortgage, lease or policy insurance, if there is no change
in the maturity period
9. Fixed income and other securities traded in the secondary market or through an
exchange
10. Derivatives
11. Interbranch or interdepartment advances within the same legal entity
12. All forbearances arising from sales or service contracts including credit card and trade
receivables
13. Bank deposit without a fixed term or maturity
14. All instruments related to the conduct of business of the BSP
15. Tax-free exchanges (Sec 40(c)2)
16. Interbank call loans with maturity of not more than 7 days to cover deficiency in
reserves against deposit liabilities irrelevant where the document was executed

Powers of the BIR

SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be
under the supervision and control of the Department of Finance and its powers and duties shall comprehend the
assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to and administer the
supervisory and police powers conferred to it by this Code or other laws.
The BIR has the power and duty
o to assess and collect all taxes, fees and charges,
o to enforce all forfeitures, penalties and fines in connection therewith,
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this includes execution of judgments in all cases decided in its favor
SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall have a chief
to be known as Commissioner of Internal Revenue, hereinafter referred to as the Commissioner and four (4)
assistant chiefs to be known as Deputy Commissioners.
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been
made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or
in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or officer of the national and local governments, government
agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled
corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of multinational companies, joint accounts,
associations, joint ventures of consortia and registered partnerships, and their members; (
C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or
any person having possession, custody, or care of the books of accounts and other accounting records containing
entries relating to the business of the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and place specified in the summons and to produce
such books, papers, records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry;
and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with respect to which a tax is
imposed. The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed
as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F)
of this Code.
The Commissioner is authorized by law to do a whole host of things (see codal) in
o ascertaining the correctness of any return, or
o making a return when none has been made, or
o collecting any such liability, or
o evaluating tax compliance, or
o in determining the liability of any person for tax.
The law allows the BIR access to all relevant or material records and data in the person
of the taxpayer. In fact, the BIR can accept documents which cannot be admitted in a
judicial proceeding where the Rules of Court are strictly observed. (Fitness by Design v
CIR)
The rule on the best evidence obtainable applies when a tax report is required by law
for the purpose of assessment and it is not available or when the tax report is
incomplete or fraudulent. (Sy Po v CTA)
The failure of the taxpayers to present their books of accounts for examination is a
reason for the CIR to resort to his powers.
The CIR may delegate the power to assess taxes to his subordinates. (Republic v Hizon)
o But he cannot delegate the power:
To recommend the promulgation of rules and regulations by the Sec of
Finance,
To issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the bureau,
To compromise or abate any tax liability (but if P500,000 or less, he can
delegate)
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To assign or reassign officers to establishments where excise tax articles
are produced or kept. (Sec 7, NIRC)

Tax Assessment
SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporation. -
(A) Payment of Tax. -
(1) In General. - The total amount of tax imposed by this Title shall be paid by the person subject thereto at the
time the return is filed. In the case of tramp vessels, the shipping agents and/or the husbanding agents, and in
their absence, the captains thereof are required to file the return herein provided and pay the tax due thereon
before their departure. Upon failure of the said agents or captains to file the return and pay the tax, the Bureau of
Customs is hereby authorized to hold the vessel and prevent its departure until proof of payment of the tax is
presented or a sufficient bond is filed to answer for the tax due.
(2) Installment of Payment. - When the tax due is in excess of Two thousand pesos (P2,000), the taxpayer other
than a corporation may elect to pay the tax in two (2) equal installments in which case, the first installment shall
be paid at the time the return is filed and the second installment, on or before July 15 following the close of the
calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the
tax unpaid becomes due and payable, together with the delinquency penalties.
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c), 24(D),
27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed by the person
liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption
of capital gains under existing special laws, no such payments shall be required : Provided, further, That in case of
failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the
gains realized from the original transaction shall immediately become due and payable, subject to the penalties
prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax,
submits such proof of intent within six (6) months from the registration of the document transferring the real
property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for
such exemption.
In case the taxpayer elects and is qualified to report the gain by installments under Section 49 of this Code, the tax
due from each installment payment shall be paid within (30) days from the receipt of such payments.
No registration of any document transferring real property shall be effected by the Register of Deeds unless the
Commissioner or his duly authorized repre
sentative has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid.
(B) Assessment and Payment of Deficiency Tax. - After the return is filed, the Commissioner shall examine it and
assess the correct amount of the tax. The tax or deficiency income tax so discovered shall be paid upon notice and
demand from the Commissioner.
As used in this Chapter, in respect of a tax imposed by this Title, the term "deficiency" means:
(1) The amount by which the tax imposed by this Title exceeds the amount shown as the tax by the taxpayer upon
his return; but the amount so shown on the return shall be increased by the amounts previously assessed (or
collected without assessment) as a deficiency
, and decreased by the amount previously abated, credited, returned or otherwise repaid in respect of such tax; or
(2) If no amount is shown as the tax by the taxpayer upon this return, or if no return is made by the taxpayer,
then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a
deficiency; but such amounts previously assessed or collected without assessment shall first be decreased by the
amounts previously abated, credited returned or otherwise repaid in respect of such tax.
An assessment is an official action by an administrative officer to determine the tax due
of the taxpayer.
It consists of:
o a computation of the amount of tax that must be paid by the taxpayer,
o coupled with a demand to pay the tax within a specified period of time.
There are two kinds of assessment:
1. Self-assessment (Section 56 (A))
a. This is when the taxpayer files his return and pays
2. Deficiency assessment (Section 56 (B)
a. This occurs upon discovery of the BIR that the self-assessment was either
deficient, or when no return was made by the taxpayer

1. Tax assessment by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. (Sy Po v CTA)

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2. However, assessments cannot be based on mere presumptions on the part of the
government. There must be a minimum effort on the government before the
presumption of correctness sets in. (CIR v Benipayo, wherein the Court said that a
charge of fraud against a taxpayer is a serious one and must be supported by clear and
convincing proof).
3. Mandamus does not lie to compel the CIR to impose a tax assessment not found by him
to be proper. (Meralco Securities v Savellano, a case where an informer wanted his
reward)
4. The assessment must always be addressed to the proper party.

Ok, youve got a deficiency tax assessment, what happens now? (RR 12-99, Reyes)
1. The revenue officer who audited the taxpayers records shall state in his report
whether or not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency taxes
2. The BIR will inform the taxpayer of the discrepancies and will call the taxpayer for a
conference, using a Notice of Informal Conference.
a. Taxpayer has 15 days from receipt of the Notice to respond. If he doesnt,
default
3. The finding of the examiner and the response of the taxpayer will be reviewed by the
Assessment Division of the Revenue District Officer
4. If there is sufficient basis for an assessment, the BIR will issue a pre-assessment
notice (PAN) stating the facts, laws, rules, regs, and jurisprudence on which the
proposed assessment is based
a. Taxpayer has 15 days from receipt of the PAN to respond. If he doesnt,
default.
5. If the taxpayer is in DEFAULT or his response is NOT meritorious, the BIR will issue a
formal letter of demand and assessment. It too will state the facts, laws, etc etc.
6. The taxpayer must file a letter of protest within 30 days thereof. He too should state
the laws, facts, etc etc.
a. For issues which he did not raise, a collection letter shall be issue telling the
taxpayer to pay up.
b. For issues protested, the prescriptive period on assessment and collection will
be suspended.
c. If the taxpayer failed to file a valid protest within the period, the assessment
will become final, executory and demandable. (yari ka boy!)
7. The taxpayer must submit supporting documents within 60 days from filing his letter
of protest. If he doesnt, assessment shall become Final. Executory. And.
Demandable!!!!!!!!
8. If the protest is denied in whole or in part, appeal to the CTA within 30 days from
date of receipt of decision
a. But if the denial was by an agent of the Commissioner, protest first to the
Commissioner within 30 days.
b. If the commissioner or his agent fails to act on the taxpayers protest within
180 days from the submission of documents, the taxpayer has to appeal to
the CTA within 30 days from the lapse of the 180 day period. If not, yari ka
na naman.
9. Within 15 days from receipt of the decision of the CTA, appeal it to the SC.

Filing of tax return BIR finds deficiency

Notice of Informal Conference (15 days to respond)
PAN (15 days to respond)
Formal Assessment (30 days to protest)
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Taxpayer Protest Letter Submit Supporting Documents (60 days from time of
protest letter)
BIR Decision Appeal to CTA (within 30 days from decision)
BIR no decision in 180 days Appeal to CTA (within 30 days from lapse of
180 days)

When is the PAN not needed? (Formal Assessment enough)

1. Any deficiency tax is the result of mathematical error in the computation of the tax
evident on the face of the return
2. Discrepancy between the tax withheld and the amount actually remitted by the
withholding agent
3. Taxpayer opted to claim a refund or tax credit for excess creditable withholding tax
carried it over and automatically applied the amount claimed against the estimated
tax liabilities for the taxable quarter of the succeeding taxable year
4. Excise tax due on excisable articles has not been paid
5. When an article locally purchase or imported by an exempt person has been sold,
traded or transferred to non-exempt person

Remedies
The government has the following tax remedies for its tax collection and tax
enforcement:
1. Compromise and abatement
2. Tax lien
3. Distraint and levy
4. Forfeiture
5. Civil penalties and interests
6. Civil action
7. Criminal action
The government can avail of these remedies of collection when the assessment has
become final, executory and demandable.
o When does that happen? Um, read the previous section.

Compromise
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner
may -
(A) Compromise the Payment of any Internal Revenue Tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) 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:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic
assessed tax; and
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.
The grounds for compromise are:
1. Doubtful validity of the claim against the taxpayer, or
2. Financial incapacity of the taxpayer
The BIR and the law allows compromise because may tulog (a 70s term that Atty.
Montero uses). In other words, the BIR would rather compromise than go to court
because there is a chance that once brought to court, they might not collect because of
some rabbit that the taxpayer might pull out of his hat.
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A compromise in extra-judicial settlement of the taxpayers criminal liability for his
violation is consensual in character, hence, may not be imposed on the taxpayer without
his consent. (RR 12-99)
The cases which may be compromised are:
1. Delinquent accounts
2. Pending admin cases under admin protest after issuance of final assessment notice
to the taxpayer
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations
o EXCEPT if 1) already filed in court or 2) involving criminal tax fraud
The following cases can NOT be compromised:
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that
cast doubt on the taxpayers obligation to withhold. (Atty Montero asked why, dont
know why!)
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue
or his duly authorized representative
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments (taxpayer
already given a chance to pay in installments, gusto pang magcompromise, grabe
na!);
5. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for the purpose. (taxpayer
already agreed to the reduction, gusto pang magcompromise, sobra na!)
6. Cases which become final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment
This was also the doctrine in Rovero v Amparo
7. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer (its not the taxpayer who will pay anyway, but the estate)

What are the examples for doubtful validity?

1. Delinquent account/disputed assessment resulted from a jeopardy assessment
a. Jeopardy assessment is an assessment without the benefit of complete or
partial audit by an authorized revenue officer
b. These assessments are usually done just before the end of the prescription
period.
c. Thus, they are called jeopardy because the tax is in jeopardy of not being
collected at all and the officer is in jeopardy of losing his job. Nag-assess na
lang para lang may ma-assess.
2. The assessment seems to be:
a. Arbitrary,
b. Based on presumptions, and
c. There is reason to believe that is lacking in legal/factual basis
3. There is reason to believe that the assessment is lacking in legal and factual basis
and taxpayer failed:
a. to file an admin protest because of alleged failure to receive notice of
assessment, or
b. to file a request for reinvestigation reconsideration within 30 days from
receipt of final assessment notice, or

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c. to elevate to the Court of Tax Appeals (CTA) an adverse decision of the
Commissioner, or his authorized representative, in some cases, within 30
days from receipt thereof.
4. The assessments were issued on or after January 1, 1998, where the demand notice
allegedly failed to comply with the formalities prescribed under Sec. 228 of the
National Internal Revenue Code of 1997
5. Assessments made based on the Best Evidence Obtainable Rule and there is reason
to believe that the same can be disputed by sufficient and competent evidence
6. The assessment was:
a. issued within the period extended by the taxpayers execution of Waiver of
Statute of Limitations and
b. the waivers authenticity is being questioned and
c. there is strong reason to believe and evidence to prove that it is not authentic.

What are examples of financial incapacity?

1. Corporation ceased or dissolved (but the tax liabilities for the assets distributed to
the stockholders as return of capital can not be compromised)
2. Taxpayer has a surplus deficit resulting to capital impairment by at least 50%
a. Provided taxpayer has no sufficient liquid asset to satisfy liability
b. Provided that amounts payable or due to stockholders other than business-
related transactions which are properly includible in the regular accounts
payable are by fiction of law considered as part of capital and not liability
3. Net Worth deficit (for corps), and for an individual, if he has no other leviable
properties except his family home
4. Taxpayer is a compensation earner and he has no more leviable assets except his
family home
5. Taxpayer declared to be bankrupt by any court/tribunal/authority/body/government
agency
Minimum Compromise Rates
Based on financial incapacity 10% of the basic assessed tax
Based on doubtful validity 40% of the basic assessed tax
Where the basic tax involved exceeds P1m or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the
Evaluation Board.
The expansion and discussion are based on RR 30-2002.

Abatement and Cancellation of Tax Liability

(B) Abate or Cancel a Tax Liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the
amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.
Abatement of the penalties and/or interest is allowed when:
1. The taxes or any portion thereof appears to be unjustly or excessively assessed, or
2. The administration and collection costs do not justify the collection of the amount
due.
What are the instances where there appears to be unjust or excessive assessment?
1. Filing of the return/payment was made at the wrong venue
2. Taxpayers mistake in payment of tax was due to erroneous written advice of a
revenue officer
3. Taxpayers non-compliance is due to a difficult interpretation of said law
4. Failure to pay on time because of substantial losses from prolonged labor disputes,
force majeure, legitimate business reverses
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5. Failure to pay because of circumstances beyond his control
In 4 & 5, the abatement will only cover the surcharge and the compromise
penalty, not the interest.
6. Late payment of tax under meritorious circumstances like:
One-day late filing in the bank
Use of wrong tax form but correct amount of tax was remitted
Filing an amended return under meritorious circumstances (here, only
penalties are abated, not interest)
Surcharge erroneously imposed
Late filing due to unresolved issue on classification/valuation of real property
(for capital gains)
Offsetting of taxes of the same kind
Offsetting of one kind of withholding against the underpayment of another
kind
Late remittance of withholding tax on compensation of expats
Wrong use of the Tax Credit Certificate
Analogous cases
What are the instances where the collection costs are more than the amount sought to
be collected (i.e. not worth it)?
o Basically, cases where the taxpayer appealed the assessment or is contesting an
assessment which had already been reinvestigated and other meritorious
circumstances
o Whats important is that the abatement of the surcharge and compromise will
only be allowed upon written application by the taxpayer that he is signifying his
willingness to pay the basic tax and interest or just the basic tax (depending on
the circumstances)
The expansion and discussion are based on RR 13-2001.

Tax Liens
SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account (cuentas en
participacion), association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may
accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, That this
lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed
by the Commissioner in the office of the Register of Deeds of the province or city where the property of the
taxpayer is situated or located.
When a taxpayer neglects or refuses to pay his internal revenue tax liability after
demand, the amount demanded shall be a lien in favor of the government from the time
the assessment was made by the CIR until paid with interest, penalties, and costs that
may accrue in addition thereto upon all property and rights to property belonging to the
taxpayer
However, the lien shall not be valid against any mortgagee, purchaser or judgment
creditor until notice of such lien is registered in the office of the RD.
Well-settled that the claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicted on a judgment. (CIR v NLRC)

Distraint and Levvvvvvvvvy!!!!!!! WHAT UP!

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal
revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks
and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy

upon real property and interest in rights to real property; and (b) By civil or criminal action. Either of these

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remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of
such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of where the amount of

tax involve is not more than One hundred pesos (P100). The judgment in the criminal case shall not only impose
the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the

Commissioner. The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by
means of civil or criminal action, including the preservation or transportation of personal property distrained and
the advertisement and sale thereof, as well as of real property and improvements thereon.
Collection by distraint and levy are known as summary, extrajudicial or administrative
enforcement remedies.
o They are distinguished from remedies of collection by civil and criminal actions,
where are judicial in nature.
However, the remedies of distraint and levy, as well as collection by civil and criminal
action may by be pursued singly or independently of each other or all of them
simultaneously.
Distraint is enforced on personal property.
Levy is enforced on real property.

Lets talk about distraint.

There are two kinds of distraint:
o ACTUAL distraint, wherein actual delinquency in tax payment is necessary; and
o CONSTRUCTIVE distraint, wherein no actual delinquency is necessary.
SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the
Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or
any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the
Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to
obstruct the proceedings for collecting the tax due or which may be due from him.
The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the same ;in any manner whatever, without the
express authority of the Commissioner.
In case the taxpayer or the person having the possession and control of the property sought to be placed under
constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed,
leave a copy thereof in the premises where the property distrained is located, after which the said property shall be
deemed to have been placed under constructive distraint.
Constructive distraint is a preventive remedy of the Government which aims at
forestalling possible dissipation of the taxpayers assets when delinquency sets in. Again,
actual delinquency is not necessary before this can be resorted to.
Some instances when constructive distraint may be availed of; the CIR believes the
taxpayer:
o Is retiring from any business subject to tax,
o Intends to leave the Philippines
o Intends to remove his property from the Philippines
o Intends to hide or conceal his property
o Performs any act tending to obstruct the proceedings for collecting the tax due.
How is constructive distraint effected?
o The taxpayer will be required to sign a receipt covering the property distrained
and obligate himself to:
Preserve it intact and unaltered, and
Not dispose of it in any manner, without express authority of the CIR
o If the taxpayer refuses, the officer will prepare a list of the properties distrained
and will leave a copy thereof in the premises, in the presence of 2 witnesses.
Procedure for actual distraint:

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1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property
4. Release of distrained property, prior to sale
5. Sale of property distrained
6. Purchase by Government at sale upon distraint

Codal provisions for the process, each box corresponds to one step of the process
(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or delinquent
revenue to pay the same at the time required, the Commissioner or his duly authorized representative, if the
amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if the amount
involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the
personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights
to personal property of such persons ;in sufficient quantity to satisfy the tax, or charge, together with any
increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the distraining
officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner or
his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided, further, That a
consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary.

SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make
or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of
which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels,
or effects or other personal property were taken, or at the dwelling or place of business of such person and with
someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of
the time and place of sale.
Stocks and other securities shall be distrained 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 said stocks or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or
under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be
sufficient authority to the person owning the debts or having in his possession or under his control any credits
belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank
shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the
Government.

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or his duly
authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules
and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith
cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the
distraint is made, specifying; the time and place of sale and the articles distrained. The time of sale shall not be
less than twenty (20) days after notice. One place for the posting of such notice shall be at the Office of the Mayor
of the city or municipality in which the property is distrained.

SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects
distrained shall be restored to the owner.

SEC. 209 (CONTINUED) At the time and place fixed in such notice, the said revenue officer shall sell the goods,
chattels, or effects, or other personal property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity
or stock exchanges.
In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall
deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks
or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or association shall make
the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and
issue, if required to do so, the corresponding certificates of stock or other securities.
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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. The expenses chargeable upon each seizure and sale shall embrace only the actual
expenses of seizure and preservation of the property pending ;the sale, and no charge shall be imposed for the
services of the local internal revenue officer or his deputy.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property under
distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles
offered for sale, the Commissioner or his deputy may purchase the same in behalf of the national Government for
the amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations
prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and
accounted for as internal revenue.

The procedure for levy of real property is:

1. Commencement of levy proceedings
2. Service of warrant of levy
3. Advertisement for sale
4. Public sale of the property under levy
5. Redemption of property sold
6. Forfeiture to the Government for want of bidder
7. Resale of real estate taken for taxes
8. Further distraint and levy

Codal provisions for the process, each box corresponds to one step of the process
(B) Levy on Real Property. - After the expiration of the time required to pay the delinquent tax or delinquent
revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the distraint
of personal property belonging to the delinquent. To this end, any internal revenue officer designated by the
Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name
of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force
of a legal execution throughout the Philippines.

Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the
same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the province or
city where the property is located and upon the delinquent taxpayer, or if he be 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, to the occupant of
the property in question.
In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on
personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the
Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to
the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the
Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That
the Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy
issued in accordance with the provisions hereof.

SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the proceedings
shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and
cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by
posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in
the barrio or district in which the real estate lies and ;by publication once a week for three (3) weeks in a
newspaper of general circulation in the municipality or city where the property is located. The advertisement shall
contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the
taxpayer against whom taxes are levied, and a short description of the property to be sold.

At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of

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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 sale shall specify.
Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered
upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director.
The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out and deliver to
the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold
stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided,
however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over
to the owner of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance
an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code,
including ;the preservation or transportation in case of personal property, and the advertisement and subsequent
sale, both in cases of personal and real property including improvements found on the latter. In his monthly
collection reports, such advances shall be reflected and supported by receipts.

SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer,
or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes,
penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said
purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of
redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the
purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the
Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus
been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.

The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents
and other income thereof until the expiration of the time allowed for its redemption.

SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property exposed
for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and
costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in
satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and
the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds
concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property
forfeited to the Government without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property
by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall
become absolute.

SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real estate
obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs arising under
this Code or in compromise or adjustment of any claim therefore, and said Commissioner may, upon the giving of
not less than twenty (20) days notice, sell and dispose of the same of public auction or with prior approval of the
Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of the sale shall be
deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman of the
Commission on Audit.

SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected.

Forfeiture
SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any
sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of
real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or
criminal, as the case may require.
The difference between distraint/levy (or collectively, seizure) and forfeiture is
o In seizure, the residue after deducting tax liability and expenses shall go to the
taxpayer.
o In forfeiture, all the proceeds of the sale will go to the government.
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Taxation Two

Civil Penalties and Interest

CHAPTER I
ADDITIONS TO TAX

SEC. 247. General Provisions. -

(a) The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all taxes, fees and charges
imposed in this Code. The Amount so added to the tax shall be collected at the same time, in the same manner
and as part of the tax.
(b) If the withholding agent is the Government or any of its agencies, political subdivisions or instrumentalities, or
a government-owned or controlled corporation, the employee thereof responsible for the withholding and
remittance of the tax shall be personally liable for the additions to the tax prescribed herein.
(c) the term "person", as used in this Chapter, includes an officer or employee of a corporation who as such officer,
employee or member is under a duty to perform the act in respect of which the violation occurs.

Penalties and interests apply to ALL taxes, fees and charges imposed by the NIRC.
Tax laws imposing penalties for delinquencies are intended to hasten tax payments by
punishing evasions or neglect of duty in respect thereof.
It is mandatory to collect penalty and interest at the stated rate in case of delinquency.
(PRC v CA)

SEC. 248. Civil Penalties. -

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and
regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than
those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations,
or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of
the tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the
discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income,
or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or
fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty
percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.

Civil penalties can be divided into two categories those with a 25% surcharge, and
those with a 50% surcharge.
A penalty of 25% on the amount due will be imposed in the following cases:
1. Failure to file any return AND pay the tax due
2. Filing a return with an internal revenue officer other than those with whom the
return is required to be filed
3. Failure to pay the deficiency tax within the time prescribed in the notice of
assessment
4. Failure to pay the full or part of the amount of tax stated in the return (or full
amount when no return is required) on or before the date prescribed for its payment
o Note: There is NO 25% surcharge when you file on time, pay the full amount
stated in the return, but subsequently find out that the return filed and the
amount paid was erroneous. See situation 4.1 and 4.2 below.
A penalty of 50% of the deficiency tax will be imposed in the following cases:
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1. Willful neglect to file a return within the period prescribed by law
2. False or fraudulent return is willfully made
a. Prima facie evidence of a false and fraudulent return when substantial
underdeclaration of taxable income or substantial overstatement of
deductions (failure to declare an amount exceeding 30% for taxable income
or actual deductions)
Note on willful neglect: if the taxpayer voluntarily files the return, without notice from
the BIR, only 25% surcharge shall be imposed for late filing and late payment of the tax.
o But if the taxpayer files the return only after prior notice in writing from the BIR,
then the 50% surcharge will be imposed.
In other words, no demand on the BIR and the taxpayer pays, albeit late,
25%.
With demand by the BIR, 50%.
The 25% surcharge for non-payment of the sales tax is not imposable where such non-
payment arose from a legitimate dispute on whether an article is subject or not to the
sales tax. (CIR v Republic Cement, wherein Republic Cements erroneous payment was
based on the original stand of the BIR regarding the classification of cement. CIR should
have abated the surcharge. This ruling seems to have been incorporated to RR 13-2001
on abatement)
o Where imposition of a tax statute was controversial, taxpayer may not be held
liable to pay surcharge and interest. It should be liable only for tax proper and
should not be held liable for the surcharge and interest. (Cagayan Electric v CIR)
Willful neglect to file the required tax return or the fraudulent intent to evade the
payment of taxes, considering that the same is accompanied by legal consequences, can
not be presumed. (CIR v Air India)
o The fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to give up some
legal right. (Aznar v CTA)

SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the
interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date
prescribed for its payment until the full payment thereof.
(C) Delinquency Interest. - In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of
the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in
Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such
amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized
an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.
There are four kinds of interest in this article:
o General interest
o Deficiency
o Delinquency
o Extended Payment interest
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For general, the interest on unpaid taxes is 20% per annum on any unpaid amount of
tax from the date prescribed for payment until the amount is fully paid.
For deficiency interest, the rate is 20% per annum on any deficiency in the tax due from
the date prescribed for its payment until full payment
For delinquency interest, 20% per annum on the unpaid amount in case of failure to
pay:
o Amount of tax due on any return required to be filed, or
o Amount of tax due for which no return is required, or
o Deficiency tax, or any surcharge or interest thereon on the due date appearing in
the notice and demand of the CIR.
For interest on extended payment, the rate is 20% per annum.
o This is imposed when a taxpayer is qualified and elects to pay the tax on
installment, but fails to pay the tax or any installment thereof, or pays it beyond
the period of payment; or
o CIR has authorized an extension of time within which pay a tax or a deficiency
tax or any part thereof.

Situations based on RR 12-99

1. Late filing and late payment of the tax; no BIR intervention/demand
Rocky forgot to file on April 15. He filed on June 30 after he woke up and realized his
error.
Penalties: 25% surcharge for late filing and late payment
20% general interest from date due up to time paid
Result: Pay the tax due + penalties

2. Tax return filed on time, but filed through an internal revenue officer other than with
whom the return is required to be filed. (Paid in the wrong venue)
Rocky paid on April 15, but he paid to the wrong agent bank.
Penalties: 25% surcharge only
No interest charge because he paid on time, just at the wrong place
Result: Pay the surcharge (no need to pay the tax due, you paid it na eh)

3. Late filing and late payment due to taxpayers willful neglect; i.e. did not file, then BIR
notified him to pay by a certain time, and only then did he file and pay his tax.
Rocky didnt file on April 15. He didnt care until a demand letter was sent to him by the
BIR to pay by June 30. He paid on June 30.
Penalties: 50% surcharge
20% general interest from date due (not from demand) up to time paid
Result: Pay tax, plus penalties

4. Penalty or penalties for deficiency tax

As a rule, no surcharge is imposed on deficiency tax and on the basic tax. However, if
the amount due inclusive of penalties is not paid on or before the due date stated on the
demand letter, the corresponding surcharge will be imposed.

4.1 Paid on time, error in computation resulting to deficiency tax.

Rocky filed his income tax return on time (April 15) and paid P100,000. Upon pre-audit,
it was discovered that there was an error in computation. The correct amount due was
P120,000. He was assessed for deficiency income tax in a letter of demand and
assessment noticed, telling him to pay by June 30. He did.

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Penalties: 20% deficiency interest imposed on the deficiency tax from date due up to
time paid
No surcharge (Note here that the there are no grounds for the imposition of
the 25% surcharge)

4.2 Paid on time, BIR disallowed deductions resulting to deficiency tax.

Safari, Inc filed its return and paid on time tax amounting to P100,000. BIR disallowed
its deductions, so their taxable income went back up. They were sent a PAN stating that
the correct amount due was P170,000. They failed to protest. BIR sent them a formal
demand telling them to pay by June 30. They did.
Penalties: 20% deficiency interest imposed on deficiency tax from date due up to time
paid
No surcharge (No statutory basis for imposition of the 25% surcharge)

4.3 Paid on time, but return found to be false and fraudulent resulting to deficiency
tax.
McJonalds, Inc filed its return on time in April 15 and paid P175,000 for its income tax
(it declared a P500,000 net taxable income). However, the BIR discovered that it did not
report a taxable income of another P500,000 a clear case of false and fraudulent
return. This amounted to a deficiency income tax of another P175,000. They were
informed by a PAN, but they failed to protest. A formal letter of demand and assessment
notice was issued to them on May 31 demanding them to pay by June 30. They paid.
Penalties: 50% surcharge (deficiency tax is the base)
20% deficiency interest imposed on deficiency tax from date due up to time
paid

5. Late payment of deficiency tax assessed

In general, the deficiency tax assessed shall be paid by the taxpayer within the time
prescribed in the notice and demand, otherwise, such payer shall be liable for the civil
penalties incident to the late payment.

Based on 4.3, the amount due (the deficiency assessed plus the penalties) imposed on
McJonalds was P304,771.67. The corporation did not pay on June 30, the deadline for
the payment of the assessment. As such, the corporation shall be considered late in
payment of the said assessment. They pay on July 31.
Penalties: 25% surcharge on the P304,771.67 (i.e unpaid amount supposed to be
paid on June 30)
20% delinquency interest imposed on the P304, 771.67 (i.e. total unpaid
amount due on June 30), from the day after the payment was due until
time of actual payment

In a case like this, he feels the full force of the law.

First, a 50% surcharge was imposed on him for his fraudulent return, to be computed
from the deficiency assessed by the BIR.
Second, 20% deficiency interest was also imposed on the deficiency assessed by the
BIR.
Third, because of his late payment of the deficiency tax and the corresponding penalties,
a 25% surcharge is now imposed on him based on the total unpaid amount he was
supposed to pay. (Statutory basis? Sec 248 (A)3)
Fourth, 20% delinquency interest is imposed on the total unpaid amount he was
supposed to pay on June 30.
(Note the difference of the base of the two interest impositions:
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The deficiency interest imposition, computed from April 15 to June 30, is computed
based on the deficiency tax.
The delinquency interest imposition, computed from July 1 to July 31, is computed
based on the total unpaid amount assessed in the May 31 demand, i.e. the deficiency
tax plus the penalties)

6. Computation of 20% interest per annum in case of partial or installment payment of a

tax liability. (Based on Sec 249)
If a taxpayer requests to pay his income tax liability in installment and the request is
approved, no 25% surcharge shall be imposed for the late payment of the tax since its
deadline for payment has been duly extended.
However, 20% interest per annum for the extended payment shall be imposed, computed
based on the diminishing balance of the unpaid amount, pursuant to Section 249 (D).
If the taxpayers request for extension of the period within which to pay is made on or
before the deadline prescribed for payment of the tax due, no 25% surcharge.
But if the request is made after the deadline prescribed for payment, the taxpayer is already
late in payment, in which case, the 25% surcharge shall be imposed, even if payment of
the delinquency be allowed in partial amortization.

Analysis
Actual Liability: A Basis B Basis
P10m
On April 15 , 5m 0
paid:
1. Late, but No surcharge Filed on time, 25% surcharge Late filing, late
unilaterally pays 20% interest but error in 20% interest payment, no
the balance computation, BIR demand.
no BIR
demand.
2. BIR demands No surcharge Still filed on 25% surcharge Late filing, late
to pay on June 20% deficiency time and error 20% deficiency payment. BIR
30, paid on June interest in interest demands, but
30 computation. paid on time
BIR demands, required by
but paid on BIR, so 248
time required (A3) no
by BIR, so application.
248(A3) no
application.
3. BIR demands 25% surcharge BIR demands 25% surcharge BIR demands
to pay on June on unpaid but does NOT on unpaid but does NOT
30, but paid on amount pay on time amount pay on time
July 31 20% delinquency required by 20% delinquency required by
interest on BIR, 248 (A3) interest on BIR, 248 (A3)
unpaid amount applies. unpaid amount applies.

Analyzing the chart, if you compare situation 1 and situation 2, they are identical, there
is no additional violation. Why?
o Because surcharge is imposed on deficiency tax (plus penalties), only when it is
NOT paid by the date indicated on the demand period.
o So, if you pay within the period in the demand letter, you will not incur the
additional 25% surcharge on the unpaid deficiency tax (plus penalties).
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Atty. Montero said the 50% surcharge is a matter of substance.
Also note that there is no 25% surcharge when you file and pay on time but its
subsequently discovered that there was an error. Only the interest will be imposed in
that case (Situation 1 above)

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