National Internal Revenue Code

THE made, or in determining the liability of any person for any internal revenue
NATIONAL INTERNAL REVENUE CODE tax, or in collecting any such liability, or in evaluating tax compliance, the
OF THE PHILIPPINES Commissioner is authorized:
[Tax Reform Act of 1997]
(A) To examine any book, paper, record, or other data which may be
Republic Act No. 8424 relevant or material to such inquiry;
AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, (B) To obtain on a regular basis from any person other than the person
AS AMENDED, AND FOR OTHER PURPOSES 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
SECTION 1. Short Title - This Act shall be cited as the "Tax Reform Act
ng Pilipinas and government-owned or -controlled corporations, any
of 1997"
information such as, but not limited to, costs and volume of production,
receipts or sales and gross incomes of taxpayers, and the names,
SEC. 2. State Policy. It is hereby declared the policy of the State to addresses, and financial statements of corporations, mutual fund
promote sustainable economic growth through the rationalization of the companies, insurance companies, regional operating headquarters of
Philippine internal revenue tax system, including tax administration; to multinational companies, joint accounts, associations, joint ventures of
provide, as much as possible, an equitable relief to a greater number of consortia and registered partnerships, and their members;
taxpayers in order to improve levels of disposable income and increase
economic activity; and to create a robust environment for business to
(C) To summon the person liable for tax or required to file a return, or any
enable firms to compete better in the regional as well as the global
officer or employee of such person, or any person having possession,
market, at the same time that the State ensures that Government is able
custody, or care of the books of accounts and other accounting records
to provide for the needs of those under its jurisdiction and care.
containing entries relating to the business of the person liable for tax, or
any other person, to appear before the Commissioner or his duly
SEC. 3. Presidential Decree No. 1158, as amended by, among others, authorized representative at a time and place specified in the summons
Presidential Decree No. 1994 and Executive Order No. 273, otherwise and to produce such books, papers, records, or other data, and to give
known as the National Internal Revenue Code, is hereby further amended. testimony;
TITLE I (D) To take such testimony of the person concerned, under oath, as may
ORGANIZATION AND FUNCTION OF be relevant or material to such inquiry; and
THE BUREAU OF INTERNAL REVENUE
(E) To cause revenue officers and employees to make a canvass from time
SECTION 1. Title of the Code - This Code shall be known as the to time of any revenue district or region and inquire after and concerning
National Internal Revenue Code of 1997. 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
SEC. 2. Powers and Duties of the Bureau of Internal Revenue - object with respect to which a tax is imposed.
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 provisions of the foregoing paragraphs notwithstanding, nothing in
the assessment and collection of all national internal revenue taxes, fees, this Section shall be construed as granting the Commissioner the authority
and charges, and the enforcement of all forfeitures, penalties, and fines to inquire into bank deposits other than as provided for in Section 6(F) of
connected therewith, including the execution of judgments in all cases this Code.
decided in its favor by the Court of Tax Appeals and the ordinary courts.
SEC. 6. Power of the Commissioner to Make assessments and
The Bureau shall give effect to and administer the supervisory and police Prescribe additional Requirements for Tax Administration and
powers conferred to it by this Code or other laws. Enforcement. - (A) Examination of Returns and Determination of Tax
Due - After a return has been filed as required under the provisions of this
SEC. 3. Chief Officials of the Bureau of Internal Revenue - The Code, the Commissioner or his duly authorized representative may
Bureau of Internal Revenue shall have a chief to be known as authorize the examination of any taxpayer and the assessment of the
Commissioner of Internal Revenue, hereinafter referred to as the correct amount of tax: Provided, however; That failure to file a return shall
Commissioner and four (4) assistant chiefs to be known as Deputy not prevent the Commissioner from authorizing the examination of any
Commissioners. taxpayer.
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Any return, statement of declaration filed in any office authorized to
Decide Tax Cases - The power to interpret the provisions of this Code receive the same shall not be withdrawn: Provided, That within three (3)
and other tax laws shall be under the exclusive and original jurisdiction of years from the date of such filing, the same may be modified, changed, or
the Commissioner, subject to review by the Secretary of Finance. amended: Provided, further, That no notice for audit or investigation of
such return, statement or declaration has in the meantime been actually
served upon the taxpayer.
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 (B) Failure to Submit Required Returns, Statements, Reports and other
administered by the Bureau of Internal Revenue is vested in the Documents - When a report required by law as a basis for the assessment
Commissioner, subject to the exclusive appellate jurisdiction of the Court of any national internal revenue tax shall not be forthcoming within the
of Tax Appeals. time fixed by laws or rules and regulations or when there is reason to
believe that any such report is false, incomplete or erroneous, the
Commissioner shall assess the proper tax on the best evidence obtainable.
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 In case a person fails to file a required return or other document at the
time prescribed by law, or willfully or otherwise files a false or fraudulent
NATIONAL INTERNAL REVENUE CODE 1 | P a g e
return or other document, the Commissioner shall make or amend the (1) a decedent to determine his gross estate; and (2) any taxpayer who
return from his own knowledge and from such information as he can has filed an application for compromise of his tax liability under Sec. 204
obtain through testimony or otherwise, which shall be prima facie correct (A) (2) of this Code by reason of financial incapacity to pay his tax liability.
and sufficient for all legal purposes.
In case a taxpayer files an application to compromise the payment of his
(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe tax liabilities on his claim that his financial position demonstrates a clear
Presumptive Gross Sales and Receipts - The Commissioner may, at any inability to pay the tax assessed, his application shall not be considered
time during the taxable year, order inventory-taking of goods of any unless and until he waives in writing his privilege under Republic Act No.
taxpayer as a basis for determining his internal revenue tax liabilities, or 1405 or under other general or special laws, and such waiver shall
may place the business operations of any person, natural or juridical, constitute the authority of the Commissioner to inquire into the bank
under observation or surveillance if there is reason to believe that such deposits of the taxpayer.
person is not declaring his correct income, sales or receipts for internal
revenue tax purposes.
(G) Authority to Accredit and Register Tax Agents - The Commissioner
shall accredit and register, based on their professional competence,
The findings may be used as the basis for assessing the taxes for the integrity and moral fitness, individuals and general professional
other months or quarters of the same or different taxable years and such partnerships and their representatives who prepare and file tax returns,
assessment shall be deemed prima facie correct. statements, reports, protests, and other papers with or who appear
before, the Bureau for taxpayers.
When it is found that a person has failed to issue receipts and invoices in
violation of the requirements of Sections 113 and 237 of this Code, or Within one hundred twenty (120) days from January 1, 1998, the
when there is reason to believe that the books of accounts or other Commissioner shall create national and regional accreditation boards, the
records do not correctly reflect the declarations made or to be made in a members of which shall serve for three (3) years, and shall designate from
return required to be filed under the provisions of this Code, the among the senior officials of the Bureau, one (1) chairman and two (2)
Commissioner, after taking into account the sales, receipts, income or members for each board, subject to such rules and regulations as the
other taxable base of other persons engaged in similar businesses under Secretary of Finance shall promulgate upon the recommendation of the
similar situations or circumstances or after considering other relevant Commissioner.
information may prescribe a minimum amount of such gross receipts,
sales and taxable base, and such amount so prescribed shall be prima
Individuals and general professional partnerships and their representatives
facie correct for purposes of determining the internal revenue tax liabilities
who are denied accreditation by the Commissioner and/or the national and
of such person.
regional accreditation boards may appeal such denial to the Secretary of
Finance, who shall rule on the appeal within sixty (60) days from receipt of
(D) Authority to Terminate Taxable Period - When it shall come to the such appeal.
knowledge of the Commissioner that a taxpayer is retiring from business
subject to tax, or is intending to leave the Philippines or to remove his
Failure of the Secretary of Finance to rule on the Appeal within the
property therefrom or to hide or conceal his property, or is performing any
prescribed period shall be deemed as approval of the application for
act tending to obstruct the proceedings for the collection of the tax for the
accreditation of the appellant.
past or current quarter or year or to render the same totally or partly
ineffective unless such proceedings are begun immediately, the
Commissioner shall declare the tax period of such taxpayer terminated at (H) Authority of the Commissioner to Prescribe Additional Procedural or
any time and shall send the taxpayer a notice of such decision, together Documentary Requirements - The Commissioner may prescribe the
with a request for the immediate payment of the tax for the period so manner of compliance with any documentary or procedural requirement in
declared terminated and the tax for the preceding year or quarter, or such connection with the submission or preparation of financial statements
portion thereof as may be unpaid, and said taxes shall be due and payable accompanying the tax returns.
immediately and shall be subject to all the penalties hereafter prescribed,
unless paid within the time fixed in the demand made by the SEC. 7. Authority of the Commissioner to Delegate Power - The
Commissioner. Commissioner may delegate the powers vested in him under the pertinent
provisions of this Code to any or such subordinate officials with the rank
(E) Authority of the Commissioner to Prescribe Real Property Values - The equivalent to a division chief or higher, subject to such limitations and
Commissioner is hereby authorized to divide the Philippines into different restrictions as may be imposed under rules and regulations to be
zones or areas and shall, upon consultation with competent appraisers promulgated by the Secretary of finance, upon recommendation of the
both from the private and public sectors, determine the fair market value Commissioner: Provided, however, That the following powers of the
of real properties located in each zone or area. Commissioner shall not be delegated:(a) The power to recommend the
promulgation of rules and regulations by the Secretary of Finance;(b) The
power to issue rulings of first impression or to reverse, revoke or modify
For purposes of computing any internal revenue tax, the value of the
any existing ruling of the Bureau;(c) The power to compromise or abate,
property shall be, whichever is the higher of:
under Sec. 204 (A) and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional offices involving basic
(1) the fair market value as determined by the Commissioner, or deficiency taxes of Five hundred thousand pesos (P500,000) or less, and
minor criminal violations, as may be determined by rules and regulations
to be promulgated by the Secretary of finance, upon recommendation of
(2) the fair market value as shown in the schedule of values of the
the Commissioner, discovered by regional and district officials, may be
Provincial and City Assessors.
compromised by a regional evaluation board which shall be composed of
the Regional Director as Chairman, the Assistant Regional Director, the
(F) Authority of the Commissioner to inquire into Bank Deposit Accounts - heads of the Legal, Assessment and Collection Divisions and the Revenue
Notwithstanding any contrary provision of Republic Act No. 1405 and other District Officer having jurisdiction over the taxpayer, as members; and(d)
general or special laws, the Commissioner is hereby authorized to inquire The power to assign or reassign internal revenue officers to
into the bank deposits of: establishments where articles subject to excise tax are produced or kept.
SEC. 8. Duty of the Commissioner to Ensure the Provision and

Distribution of forms, Receipts, Certificates, and Appliances, and
the Acknowledgment of Payment of Taxes. - (A) Provision and Commissioner:(a) The Commissioner of Customs and his subordinates with
Distribution to Proper Officials. - It shall be the duty of the Commissioner, respect to the collection of national internal revenue taxes on imported
among other things, to prescribe, provide, and distribute to the proper goods;(b) The head of the appropriate government office and his
officials the requisite licenses internal revenue stamps, labels all other subordinates with respect to the collection of energy tax; and(c) Banks
forms, certificates, bonds, records, invoices, books, receipts, instruments, duly accredited by the Commissioner with respect to receipt of payments
appliances and apparatus used in administering the laws falling within the internal revenue taxes authorized to be made thru bank.Any officer or
jurisdiction of the Bureau. employee of an authorized agent bank assigned to receive internal
revenue tax payments and transmit tax returns or documents to the
Bureau of Internal Revenue shall be subject to the same sanctions and
For this purpose, internal revenue stamps, strip stamps and labels shall be
penalties prescribed in Sections 269 and 270 of this Code.
caused by the Commissioner to be printed with adequate security
features.
SEC. 13. Authority of a Revenue Offices. - subject to the rules and
regulations to be prescribed by the Secretary of Finance, upon
Internal revenue stamps, whether of a bar code or fusion design, shall be
recommendation of the Commissioner, a Revenue Officer assigned to
firmly and conspicuously affixed on each pack of cigars and cigarettes
perform assessment functions in any district may, pursuant to a Letter of
subject to excise tax in the manner and form as prescribed by the
Authority issued by the Revenue Regional Director, examine taxpayers
Commissioner, upon approval of the Secretary of Finance.
within the jurisdiction of the district in order to collect the correct amount
of tax, or to recommend the assessment of any deficiency tax due in the
(B) Receipts for Payment Made - It shall be the duty of the Commissioner same manner that the said acts could have been performed by the
or his duly authorized representative or an authorized agent bank to Revenue Regional Director himself.
whom any payment of any tax is made under the provision of this Code to
acknowledge the payment of such tax, expressing the amount paid and
SEC. 14. Authority of Officers to Administer Oaths and Take
the particular account for which such payment was made in a form and
Testimony. - The Commissioner, Deputy Commissioners, Service Chiefs,
manner prescribed therefor by the Commissioner.
Assistant Service Chiefs, Revenue Regional Directors, Assistant Revenue
Regional Directors, Chiefs and Assistant Chiefs of Divisions, Revenue
SEC. 9. Internal Revenue Districts - With the approval of the District Officers, special deputies of the Commissioner, internal revenue
Secretary of Finance, the Commissioner shall divide the Philippines into officers and any other employee of the Bureau thereunto especially
such number of revenue districts as may form time to time be required for deputized by the Commissioner shall have the power to administer oaths
administrative purposes. Each of these districts shall be under the and to take testimony in any official matter or investigation conducted by
supervision of a Revenue District Officer. them regarding matters within the jurisdiction of the Bureau.
SEC. 10. Revenue Regional Director. - Under rules and regulations, SEC. 15. Authority of Internal Revenue Officers to Make Arrests
policies and standards formulated by the Commissioner, with the approval and Seizures. - The Commissioner, the Deputy Commissioners, the
of the Secretary of Finance, the Revenue Regional director shall, within Revenue Regional Directors, the Revenue District Officers and other
the region and district offices under his jurisdiction, among others: internal revenue officers shall have authority to make arrests and seizures
for the violation of any penal law, rule or regulation administered by the
(a) Implement laws, policies, plans, programs, rules and regulations of the Bureau of Internal Revenue.
department or agencies in the regional area;
Any person so arrested shall be forthwith brought before a court, there to
(b) Administer and enforce internal revenue laws, and rules and be dealt with according to law.
regulations, including the assessment and collection of all internal revenue
taxes, charges and fees. SEC. 16. Assignment of Internal Revenue Officers Involved in
Excise Tax Functions to Establishments Where Articles subject to
(c) Issue Letters of authority for the examination of taxpayers within the Excise Tax are Produced or Kept. - The Commissioner shall employ,
region;(d) Provide economical, efficient and effective service to the people assign, or reassign internal revenue officers involved in excise tax
in the area;(e) Coordinate with regional offices or other departments, functions, as often as the exigencies of the revenue service may require,
bureaus and agencies in the area;(f) Coordinate with local government to establishments or places where articles subject to excise tax are
units in the area;(g) Exercise control and supervision over the officers and produced or kept: Provided, That an internal revenue officer assigned to
employees within the region; and(h) Perform such other functions as may any such establishment shall in no case stay in his assignment for more
be provided by law and as may be delegated by the Commissioner. than two (2) years, subject to rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation of the Commissioner.
SEC. 11. Duties of Revenue District Officers and Other Internal

Revenue Officers - It shall be the duty of every Revenue District Officer SEC. 17. Assignment of Internal Revenue Officers and Other
or other internal revenue officers and employees to ensure that all laws, Employees to Other Duties. - The Commissioner may, subject to the
and rules and regulations affecting national internal revenue are faithfully provisions of Section 16 and the laws on civil service, as well as the rules
executed and complied with, and to aid in the prevention, detection and and regulations to be prescribed by the Secretary of Finance upon the
punishment of frauds of delinquencies in connection therewith. recommendation of the Commissioner, 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
It shall be the duty of every Revenue District Officer to examine the the enforcement or administration of the revenue laws as the exigencies
efficiency of all officers and employees of the Bureau of Internal Revenue of the service may require: Provided, That internal revenue officers
under his supervision, and to report in writing to the Commissioner, assigned to perform assessment or collection function shall not remain in
through the Regional Director, any neglect of duty, incompetency, the same assignment for more than three (3) years; Provided, further,
delinquency, or malfeasance in office of any internal revenue officer of That assignment of internal revenue officers and employees of the Bureau
which he may obtain knowledge, with a statement of all the facts and any to special duties shall not exceed one (1) year.
evidence sustaining each case.
SEC. 18. Reports of Violation of Laws. - When an internal revenue
SEC. 12. Agents and Deputies for Collection of National Internal officer discovers evidence of a violation of this Code or of any law, rule or
Revenue Taxes - The following are hereby constituted agents of the regulations administered by the Bureau of Internal Revenue of such

character as to warrant the institution of criminal proceedings, he shall Government "General professional partnerships" are partnerships formed
immediately report the facts to the Commissioner through his immediate by persons for the sole purpose of exercising their common profession, no
superior, giving the name and address of the offender and the names of part of the income of which is derived from engaging in any trade or
the witnesses if possible: Provided, That in urgent cases, the Revenue business
Regional director or Revenue District Officer, as the case may be, may
send the report to the corresponding prosecuting officer in the latter case,
(C) The term "domestic", when applied to a corporation, means created or
a copy of his report shall be sent to the Commissioner.
organized in the Philippines or under its laws
SEC. 19. Contents of Commissioner's Annual Report. - The Annual

(D) The term "foreign", when applied to a corporation, means a
Report of the Commissioner shall contain detailed statements of the
corporation which is not domestic
collections of the Bureau with specifications of the sources of revenue by
type of tax, by manner of payment, by revenue region and by industry
group and its disbursements by classes of expenditures. (E) The term "non-resident citizen" means:
In case the actual collection exceeds or falls short of target as set in the (1) A citizen of the Philippines who establishes to the satisfaction of the
annual national budget by fifteen percent (15%) or more, the Commissioner the fact of his physical presence abroad with a definite
Commissioner shall explain the reason for such excess or shortfall. intention to reside therein.
SEC. 20. Submission of Report and Pertinent Information by the (2) A citizen of the Philippines who leaves the Philippines during the
Commissioner - (A) Submission of Pertinent Information to Congress. - taxable year to reside abroad, either as an immigrant or for employment
The provision of Section 270 of this Code to the contrary notwithstanding, on a permanent basis.
the Commissioner shall, upon request of Congress and in aid of legislation,
furnish its appropriate Committee pertinent information including but not (3) A citizen of the Philippines who works and derives income from abroad
limited to: industry audits, collection performance data, status reports in and whose employment thereat requires him to be physically present
criminal actions initiated against persons and taxpayer's returns: Provided, abroad most of the time during the taxable year.
however, That any return or return information which can be associated
with, or otherwise identify, directly or indirectly, a particular taxpayer shall
be furnished the appropriate Committee of Congress only when sitting in (4) A citizen who has been previously considered as nonresident citizen
Executive Session Unless such taxpayer otherwise consents in writing to and who arrives in the Philippines at any time during the taxable year to
such disclosure. reside permanently in the Philippines shall likewise be treated as a
nonresident citizen for the taxable year in which he arrives in the
Philippines with respect to his income derived from sources abroad until
(B) Report to Oversight Committee. - The Commissioner shall, with the date of his arrival in the Philippines.
reference to Section 204 of this Code, 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 (5) The taxpayer shall submit proof to the Commissioner to show his
on the exercise of his powers pursuant to the said section, every six (6) intention of leaving the Philippines to reside permanently abroad or to
months of each calendar year. return to and reside in the Philippines as the case may be for purpose of
this Section.
SEC. 21. Sources of Revenue - The following taxes, fees and charges
are deemed to be national internal revenue taxes: (F) The term "resident alien" means an individual whose residence is
within the Philippines and who is not a citizen thereof.
(a) Income tax;
(b) Estate and donor's taxes; (G) The term "nonresident alien" means an individual whose residence is
(c) Value-added tax; not within the Philippines and who is not a citizen thereof.
(d) Other percentage taxes;
(e) Excise taxes; (H) The term "resident foreign corporation" applies to a foreign
(f) Documentary stamp taxes; and corporation engaged in trade or business within the Philippines.
(g) Such other taxes as are or hereafter may be imposed and collected by
the Bureau of Internal Revenue.
(I) The term 'nonresident foreign corporation' applies to a foreign
corporation not engaged in trade or business within the Philippines.
TITLE II
TAX ON INCOME (J) The term "fiduciary" means a guardian, trustee, executor,
administrator, receiver, conservator or any person acting in any fiduciary
CHAPTER I capacity for any person.
DEFINITIONS
(K) The term "withholding agent" means any person required to deduct
SEC. 22 Definitions - When used in this Title: and withhold any tax under the provisions of Section 57.
(A) The term "person" means an individual, a trust, estate or corporation (L) The term "shares of stock" shall include shares of stock of a
corporation, warrants and/or options to purchase shares of stock, as well
as units of participation in a partnership (except general professional
(B) The term "corporation" shall include partnerships, no matter how partnerships), joint stock companies, joint accounts, joint ventures taxable
created or organized, joint-stock companies, joint accounts (cuentas en as corporations, associations and recreation or amusement clubs (such as
participacion), association, or insurance companies, but does not include golf, polo or similar clubs), and mutual fund certificates.
general professional partnerships and a joint venture or consortium
formed for the purpose of undertaking construction projects or engaging
in petroleum, coal, geothermal and other energy operations pursuant to (M) The term "shareholder" shall include holders of a share/s of stock,
an operating consortium agreement under a service contract with the warrant/s and/or option/s to purchase shares of stock of a corporation, as

well as a holder of a unit of participation in a partnership (except general purchasing receivables and other similar obligations: Provided, however,
professional partnerships) in a joint stock company, a joint account, a That commercial, industrial and other non-financial companies, which
taxable joint venture, a member of an association, recreation or borrow funds through any of these means for the limited purpose of
amusement club (such as golf, polo or similar clubs) and a holder of a financing their own needs or the needs of their agents or dealers, shall not
mutual fund certificate, a member in an association, joint-stock company, be considered as performing quasi-banking functions.
or insurance company.
(Y) The term "deposit substitutes" shall mean an alternative from of
(N) The term "taxpayer" means any person subject to tax imposed by this obtaining funds from the public (the term 'public' means borrowing from
Title. twenty (20) or more individual or corporate lenders at any one time) other
than deposits, through the issuance, endorsement, or acceptance of debt
instruments for the borrowers own account, for the purpose of relending
(O) The terms "including" and "includes", when used in a definition
or purchasing of receivables and other obligations, or financing their own
contained in this Title, shall not be deemed to exclude other things
needs or the needs of their agent or dealer.
otherwise within the meaning of the term defined.
These instruments may include, but need not be limited to bankers'

(P) The term "taxable year" means the calendar year, or the fiscal year
acceptances, promissory notes, repurchase agreements, including reverse
ending during such calendar year, upon the basis of which the net income
repurchase agreements entered into by and between the Bangko Sentral
is computed under this Title.
ng Pilipinas (BSP) and any authorized agent bank, certificates of
assignment or participation and similar instruments with recourse:
'Taxable year' includes, in the case of a return made for a fractional part Provided, however, That debt instruments issued for interbank call loans
of a year under the provisions of this Title or under rules and regulations with maturity of not more than five (5) days to cover deficiency in
prescribed by the Secretary of Finance, upon recommendation of the reserves against deposit liabilities, including those between or among
commissioner, the period for which such return is made. banks and quasi-banks, shall not be considered as deposit substitute debt
instruments.
(Q) The term "fiscal year" means an accounting period of twelve (12)
months ending on the last day of any month other than December. (Z) The term "ordinary income" includes any gain from the sale or
exchange of property which is not a capital asset or property described in
(R) The terms "paid or incurred" and 'paid or accrued' shall be construed Section 39(A)(1).
according to the method of accounting upon the basis of which the net
income is computed under this Title. Any gain from the sale or exchange of property which is treated or
considered, under other provisions of this Title, as 'ordinary income' shall
(S) The term "trade or business" includes the performance of the functions be treated as gain from the sale or exchange of property which is not a
of a public office. capital asset as defined in Section 39(A)(1).
(T) The term "securities" means shares of stock in a corporation and rights The term 'ordinary loss' includes any loss from the sale or exchange of
to subscribe for or to receive such shares. property which is not a capital asset.
The term includes bonds, debentures, notes or certificates, or other Any loss from the sale or exchange of property which is treated or
evidence or indebtedness, issued by any corporation, including those considered, under other provisions of this Title, as 'ordinary loss' shall be
issued by a government or political subdivision thereof, with interest treated as loss from the sale or exchange of property which is not a capital
coupons or in registered form. asset.
(U) The term "dealer in securities" means a merchant of stocks or (AA) The term "rank and file employees" shall mean all employees who
securities, whether an individual, partnership or corporation, with an are holding neither managerial nor supervisory position as defined under
established place of business, regularly engaged in the purchase of existing provisions of the Labor Code of the Philippines, as amended.
securities and the resale thereof to customers; that is, one who, as a
merchant, buys securities and re-sells them to customers with a view to (BB) The term "mutual fund company" shall mean an open-end and close-
the gains and profits that may be derived therefrom. end investment company as defined under the Investment Company Act.
(V) The term "bank" means every banking institution, as defined in Section (CC) The term "trade, business or profession" shall not include
2 of Republic Act No. 337, as amended, otherwise known as the General performance of services by the taxpayer as an employee.
banking Act.
(DD) The term "regional or area headquarters" shall mean a branch
A bank may either be a commercial bank, a thrift bank, a development established in the Philippines by multinational companies and which
bank, a rural bank or specialized government bank. headquarters do not earn or derive income from the Philippines and which
act as supervisory, communications and coordinating center for their
(W) The term "non-bank financial intermediary" means a financial affiliates, subsidiaries, or branches in the Asia-Pacific Region and other
intermediary, as defined in Section 2(D)(C) of Republic Act No. 337, as foreign markets.
amended, otherwise known as the General Banking Act, authorized by the
Bangko Sentral ng Pilipinas (BSP) to perform quasi-banking activities. (EE) The term "regional operating headquarters" shall mean a branch
established in the Philippines by multinational companies which are
(X) The term "quasi-banking activities" means borrowing funds from engaged in any of the following services: general administration and
twenty (20) or more personal or corporate lenders at any one time, planning; business planning and coordination; sourcing and procurement
through the issuance, endorsement, or acceptance of debt instruments of of raw materials and components; corporate finance advisory services;
any kind other than deposits for the borrower's own account, or through marketing control and sales promotion; training and personnel
the issuance of certificates of assignment or similar instruments, with management; logistic services; research and development services and
recourse, or of repurchase agreements for purposes of relending or
product development; technical support and maintenance; data processing Over P140,000 but not over P22,500+25% of the excess over
and communications; and business development. P250,000. P140,000
Over P250,000 but not over P50,000+30% of the excess over
(FF) The term "long-term deposit or investment certificates" shall refer to P500,000. P250,000
certificate of time deposit or investment in the form of savings, common Over P500,000 ..... P125,000+34% of the excess over
or individual trust funds, deposit substitutes, investment management P500,000 in 1998.
accounts and other investments with a maturity period of not less than
five (5) years, the form of which shall be prescribed by the Bangko Sentral
ng Pilipinas (BSP) and issued by banks only (not by nonbank financial Provided, That effective January 1, 1999, the top marginal rate shall be
intermediaries and finance companies) to individuals in denominations of thirty-three percent (33%) and effective January 1, 2000, the said rate
Ten thousand pesos (P10,000) and other denominations as may be shall be thirty-two percent (32%)
prescribed by the BS.
For married individuals, the husband and wife, subject to the provision of
CHAPTER II Section 51 (D) hereof, shall compute separately their individual income tax
GENERAL PRINCIPLES based on their respective total taxable income: Provided, That if any
income cannot be definitely attributed to or identified as income
SEC. 23. General Principles of Income Taxation in the Philippines- exclusively earned or realized by either of the spouses, the same shall be
Except when otherwise provided in this Code:(A) A citizen of the divided equally between the spouses for the purpose of determining their
Philippines residing therein is taxable on all income derived from sources respective taxable income.
within and without the Philippines;(B) A nonresident citizen is taxable only
on income derived from sources within the Philippines;(C) An individual
(B) Rate of Tax on Certain Passive Income (1) Interests, Royalties, Prizes,
citizen of the Philippines who is working and deriving income from abroad
and Other Winnings. - A final tax at the rate of twenty percent (20%) is
as an overseas contract worker is taxable only on income derived from
hereby imposed upon the amount of interest from any currency bank
sources within the Philippines: Provided, That a seaman who is a citizen of
deposit and yield or any other monetary benefit from deposit substitutes
the Philippines and who receives compensation for services rendered
and from trust funds and similar arrangements; royalties, except on books,
abroad as a member of the complement of a vessel engaged exclusively in
as well as other literary works and musical compositions, which shall be
international trade shall be treated as an overseas contract worker;(D) An
imposed a final tax of ten percent (10%); prizes (except prizes amounting
alien individual, whether a resident or not of the Philippines, is taxable
to Ten thousand pesos (P10,000) or less which shall be subject to tax
only on income derived from sources within the Philippines;(E) A domestic
under Subsection (A) of Section 24; and other winnings (except Philippine
corporation is taxable on all income derived from sources within and
Charity Sweepstakes and Lotto winnings), derived from sources within the
without the Philippines; and (F) A foreign corporation, whether engaged or
Philippines: Provided, however, That interest income received by an
not in trade or business in the Philippines, is taxable only on income
individual taxpayer (except a nonresident individual) from a depository
derived from sources within the Philippines.
bank under the expanded foreign currency deposit system shall be subject
to a final income tax at the rate of seven and one-half percent (7 1/2%) of
CHAPTER III
such interest income: Provided, further, That interest income from long-
TAX ON INDIVIDUALS
term deposit or investment in the form of savings, common or individual
trust funds, deposit substitutes, investment management accounts and
SEC. 24. Income Tax Rates - other investments evidenced by certificates in such form prescribed by the
Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed
under this Subsection: Provided, finally, That should the holder of the
(A) Rates of Income Tax on Individual Citizen and Individual Resident
certificate pre-terminate the deposit or investment before the fifth (5 th)
Alien of the Philippines.
year, a final tax shall be imposed on the entire income and shall be
deducted and withheld by the depository bank from the proceeds of the
(1) An income tax is hereby imposed: (a) On the taxable income defined long-term deposit or investment certificate based on the remaining
in Section 31 of this Code, other than income subject to tax under maturity thereof:
Subsections (B), (C) and (D) of this Section, derived for each taxable year
from all sources within and without the Philippines be every individual
Four (4) years to less than five (5) years - 5%;
citizen of the Philippines residing therein; (b) On the taxable income
defined in Section 31 of this Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived for each taxable year Three (3) years to less than (4) years - 12%;
from all sources within the Philippines by an individual citizen of the
Philippines who is residing outside of the Philippines including overseas
and Less than three (3) years - 20%
contract workers referred to in Subsection(C) of Section 23 hereof; and (c)
On the taxable income defined in Section 31 of this Code, other than
income subject to tax under Subsections (b), (C) and (D) of this Section, (2) Cash and/or Property Dividends - A final tax at the following rates shall
derived for each taxable year from all sources within the Philippines by an be imposed upon the cash and/or property dividends actually or
individual alien who is a resident of the Philippines. constructively received by an individual from a domestic corporation or
from a joint stock company, insurance or mutual fund companies and
regional operating headquarters of multinational companies, or on the
The tax shall be computed in accordance with and at the rates established
share of an individual in the distributable net income after tax of a
in the following schedule:
partnership (except a general professional partnership) of which he is a
partner, or on the share of an individual in the net income after tax of an
Not over P10,000........ 5% association, a joint account, or a joint venture or consortium taxable as a
corporation of which he is a member or co-venturer:
Over P10,000 but not over P500+10% of the excess over P10,000
P30,000..
Over P30,000 but not over P2,500+15% of the excess over Six percent (6%) beginning January 1, 1998;
P70,000.. P30,000
Over P70,000 but not over P8,500+20% of the excess over Eight percent (8%) beginning January 1, 1999; and
P140,000. P70,000
Ten percent (10% beginning January 1, 2000
Provided, however, That the tax on dividends shall apply only on income (2) Cash and/or Property Dividends from a Domestic Corporation or Joint
earned on or after January 1, 1998. Stock Company, or Insurance or Mutual Fund Company or Regional
Operating Headquarters or Multinational Company, or Share in the
Distributable Net Income of a Partnership (Except a General Professional
Income forming part of retained earnings as of December 31, 1997 shall
Partnership), Joint Account, Joint Venture Taxable as a Corporation or
not, even if declared or distributed on or after January 1, 1998, be subject
Association., Interests, Royalties, Prizes, and Other Winnings. - Cash
to this tax.
and/or property dividends from a domestic corporation, or from a joint
stock company, or from an insurance or mutual fund company or from a
(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock regional operating headquarters of multinational company, or the share of
Exchange - The provisions of Section 39(B) notwithstanding, a final tax at a nonresident alien individual in the distributable net income after tax of a
the rates prescribed below is hereby imposed upon the net capital gains partnership (except a general professional partnership) of which he is a
realized during the taxable year from the sale, barter, exchange or other partner, or the share of a nonresident alien individual in the net income
disposition of shares of stock in a domestic corporation, except shares after tax of an association, a joint account, or a joint venture taxable as a
sold, or disposed of through the stock exchange corporation of which he is a member or a co-venturer; interests; royalties
(in any form); and prizes (except prizes amounting to Ten thousand pesos
Not over P100,000. 5% (P10,000) or less which shall be subject to tax under Subsection (B)(1) of
Section 24) and other winnings (except Philippine Charity Sweepstakes
and Lotto winnings); shall be subject to an income tax of twenty percent
On any amount in excess of P100,000 10% (20%) on the total amount thereof: Provided, however, that royalties on
books as well as other literary works, and royalties on musical
(D) Capital Gains from Sale of Real Property. - (1) In General. - The compositions shall be subject to a final tax of ten percent (10%) on the
provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) total amount thereof: Provided, further, That cinematographic films and
based on the gross selling price or current fair market value as determined similar works shall be subject to the tax provided under Section 28 of this
in accordance with Section 6(E) of this Code, whichever is higher, is Code: Provided, furthermore, That interest income from long-term deposit
hereby imposed upon capital gains presumed to have been realized from or investment in the form of savings, common or individual trust funds,
the sale, exchange, or other disposition of real property located in the deposit substitutes, investment management accounts and other
Philippines, classified as capital assets, including pacto de retro sales and investments evidenced by certificates in such form prescribed by the
other forms of conditional sales, by individuals, including estates and Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed
trusts: Provided, That the tax liability, if any, on gains from sales or other under this Subsection: Provided, finally, that should the holder of the
dispositions of real property to the government or any of its political certificate pre-terminate the deposit or investment before the fifth (5th)
subdivisions or agencies or to government-owned or controlled year, a final tax shall be imposed on the entire income and shall be
corporations shall be determined either under Section 24 (A) or under this deducted and withheld by the depository bank from the proceeds of the
Subsection, at the option of the taxpayer. long-term deposit or investment certificate based on the remaining
maturity thereof:
(2) Exception - The provisions of paragraph (1) of this Subsection to the

contrary notwithstanding, capital gains presumed to have been realized Four (4) years to less than five (5) years - 5%;
from the sale or disposition of their principal residence by natural persons,
the proceeds of which is fully utilized in acquiring or constructing a new Three (3) years to less than four (4) years - 12%; and
principal residence within eighteen (18) calendar months from the date of
sale or disposition, shall be exempt from the capital gains tax imposed
under this Subsection: Provided, That the historical cost or adjusted basis Less than three (3) years - 20%.
of the real property sold or disposed shall be carried over to the new
principal residence built or acquired: Provided, further, That the (3) Capital Gains. - Capital gains realized from sale, barter or exchange of
Commissioner shall have been duly notified by the taxpayer within thirty shares of stock in domestic corporations not traded through the local stock
(30) days from the date of sale or disposition through a prescribed return exchange, and real properties shall be subject to the tax prescribed under
of his intention to avail of the tax exemption herein mentioned: Provided, Subsections (C) and (D) of Section 24.
still further, That the said tax exemption can only be availed of once every
ten (10) years: Provided, finally, that if there is no full utilization of the
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within
proceeds of sale or disposition, the portion of the gain presumed to have
the Philippines. - There shall be levied, collected and paid for each taxable
been realized from the sale or disposition shall be subject to capital gains
year upon the entire income received from all sources within the
tax.
Philippines by every nonresident alien individual not engaged in trade or
business within the Philippines as interest, cash and/or property dividends,
For this purpose, the gross selling price or fair market value at the time of rents, salaries, wages, premiums, annuities, compensation, remuneration,
sale, whichever is higher, shall be multiplied by a fraction which the emoluments, or other fixed or determinable annual or periodic or casual
unutilized amount bears to the gross selling price in order to determine gains, profits, and income, and capital gains, a tax equal to twenty-five
the taxable portion and the tax prescribed under paragraph (1) of this percent (25%) of such income.
Subsection shall be imposed thereon.
Capital gains realized by a nonresident alien individual not engaged in
SEC. 25. Tax on Nonresident Alien Individual- trade or business in the Philippines from the sale of shares of stock in any
domestic corporation and real property shall be subject to the income tax
(A) Nonresident Alien Engaged in trade or Business Within the Philippines. prescribed under Subsections (C) and (D) of Section 24.
- (1) In General. - A nonresident alien individual engaged in trade or
business in the Philippines shall be subject to an income tax in the same (C) Alien Individual Employed by Regional or Area Headquarters and
manner as an individual citizen and a resident alien individual, on taxable Regional Operating Headquarters of Multinational Companies. - There shall
income received from all sources within the Philippines. be levied, collected and paid for each taxable year upon the gross income
received by every alien individual employed by regional or area
A nonresident alien individual who shall come to the Philippines and stay headquarters and regional operating headquarters established in the
therein for an aggregate period of more than one hundred eighty (180) Philippines by multinational companies as salaries, wages, annuities,
days during any calendar year shall be deemed a 'nonresident alien doing compensation, remuneration and other emoluments, such as honoraria
business in the Philippines'. Section 22 (G) of this Code notwithstanding. and allowances, from such regional or area headquarters and regional

operating headquarters, a tax equal to fifteen percent (15%) of such gross In the case of corporations adopting the fiscal-year accounting period, the
income: Provided, however, That the same tax treatment shall apply to taxable income shall be computed without regard to the specific date
Filipinos employed and occupying the same position as those of aliens when specific sales, purchases and other transactions occur.
employed by these multinational companies.
Their income and expenses for the fiscal year shall be deemed to have
For purposes of this Chapter, the term 'multinational company' means a been earned and spent equally for each month of the period.
foreign firm or entity engaged in international trade with affiliates or
subsidiaries or branch offices in the Asia-Pacific Region and other foreign
The reduced corporate income tax rates shall be applied on the amount
markets.
computed by multiplying the number of months covered by the new rates
within the fiscal year by the taxable income of the corporation for the
(D) Alien Individual Employed by Offshore Banking Units. - There shall be period, divided by twelve Provided, further, That the President, upon the
levied, collected and paid for each taxable year upon the gross income recommendation of the Secretary of Finance, may effective January 1,
received by every alien individual employed by offshore banking units 2000, allow corporations the option to be taxed at fifteen percent (15%)
established in the Philippines as salaries, wages, annuities, compensation, of gross income as defined herein, after the following conditions have
remuneration and other emoluments, such as honoraria and allowances, been satisfied:
from such off-shore banking units, a tax equal to fifteen percent (15%) of
such gross income: Provided, however, That the same tax treatment shall
(1) A tax effort ratio of twenty percent (20%) of Gross National Product
apply to Filipinos employed and occupying the same positions as those of
(GNP);
aliens employed by these offshore banking units.
(2) A ratio of forty percent (40%) of income tax collection to total tax
revenues;
(E) Alien Individual Employed by Petroleum Service Contractor and (3) A VAT tax effort of four percent (4%) of GNP; and
Subcontractor - An Alien individual who is a permanent resident of a (4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial
foreign country but who is employed and assigned in the Philippines by a Position (CPSFP) to GNP.
foreign service contractor or by a foreign service subcontractor engaged in
petroleum operations in the Philippines shall be liable to a tax of fifteen
The option to be taxed based on gross income shall be available only to
percent (15%) of the salaries, wages, annuities, compensation,
firms whose ratio of cost of sales to gross sales or receipts from all
remuneration and other emoluments, such as honoraria and allowances,
sources does not exceed fifty-five percent (55%).
received from such contractor or subcontractor: Provided, however, That
the same tax treatment shall apply to a Filipino employed and occupying
the same position as an alien employed by petroleum service contractor The election of the gross income tax option by the corporation shall be
and subcontractor. irrevocable for three (3) consecutive taxable years during which the
corporation is qualified under the scheme.
Any income earned from all other sources within the Philippines by the
alien employees referred to under Subsections (C), (D) and (E) hereof For purposes of this Section, the term 'gross income' derived from
shall be subject to the pertinent income tax, as the case may be, imposed business shall be equivalent to gross sales less sales returns, discounts
under this Code. and allowances and cost of goods sold "Cost of goods sold" shall include
all business expenses directly incurred to produce the merchandise to
bring them to their present location and use.
SEC. 26. Tax Liability of Members of General Professional
Partnerships. - A general professional partnership as such shall not be
subject to the income tax imposed under this Chapter. For a trading or merchandising concern, "cost of goods" sold shall include
the invoice cost of the goods sold, plus import duties, freight in
transporting the goods to the place where the goods are actually sold,
Persons engaging in business as partners in a general professional
including insurance while the goods are in transit.
partnership shall be liable for income tax only in their separate and
individual capacities.
For a manufacturing concern, "cost of goods manufactured and sold" shall
include all costs of production of finished goods, such as raw materials
For purposes of computing the distributive share of the partners, the net
used, direct labor and manufacturing overhead, freight cost, insurance
income of the partnership shall be computed in the same manner as a
premiums and other costs incurred to bring the raw materials to the
corporation.
factory or warehouse. c
Each partner shall report as gross income his distributive share, actually or
In the case of taxpayers engaged in the sale of service, 'gross income'
constructively received, in the net income of the partnership.
means gross receipts less sales returns, allowances and discounts.
CHAPTER IV
TAX ON CORPORATIONS (B) Proprietary Educational Institutions and Hospitals. -
Proprietary educational institutions and hospitals which are nonprofit shall
pay a tax of ten percent (10%) on their taxable income except those
SEC. 27. Rates of Income tax on Domestic Corporations. -
covered by Subsection (D) hereof: Provided, that if the gross income from
unrelated trade, business or other activity exceeds fifty percent (50%) of
(A) In General. - Except as otherwise provided in this Code, an income the total gross income derived by such educational institutions or hospitals
tax of thirty-five percent (35%) is hereby imposed upon the taxable from all sources, the tax prescribed in Subsection (A) hereof shall be
income derived during each taxable year from all sources within and imposed on the entire taxable income.
without the Philippines by every corporation, as defined in Section 22(B) of
this Code and taxable under this Title as a corporation, organized in, or
For purposes of this Subsection, the term 'unrelated trade, business or
existing under the laws of the Philippines: Provided, That effective January
other activity' means any trade, business or other activity, the conduct of
1, 1998, the rate of income tax shall be thirty-four percent (34%);
which is not substantially related to the exercise or performance by such
effective January 1, 1999, the rate shall be thirty-three percent (33%);
educational institution or hospital of its primary purpose or function.
and effective January 1, 2000 and thereafter, the rate shall be thirty-two
percent (32%).

A "Proprietary educational institution" is any private school maintained and (E) Minimum Corporate Income Tax on Domestic Corporations. -
administered by private individuals or groups with an issued permit to (1) Imposition of Tax - A minimum corporate income tax of two
operate from the Department of Education, Culture and Sports (DECS), or percent (2%0 of the gross income as of the end of the taxable year, as
the Commission on Higher Education (CHED), or the Technical Education defined herein, is hereby imposed on a corporation taxable under this
and Skills Development Authority (TESDA), as the case may be, in Title, beginning on the fourth taxable year immediately following the year
accordance with existing laws and regulations. in which such corporation commenced its business operations, when the
minimum income tax is greater than the tax computed under Subsection
(A) of this Section for the taxable year.
(C) Government-owned or Controlled-Corporations, Agencies or
Instrumentalities - The provisions of existing special or general laws to
the contrary notwithstanding, all corporations, agencies, or (2) Carry Forward of Excess Minimum Tax. - Any excess of the
instrumentalities owned or controlled by the Government, except the minimum corporate income tax over the normal income tax as computed
Government Service Insurance System (GSIS), the Social Security System under Subsection (A) of this Section shall be carried forward and credited
(SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine against the normal income tax for the three
Charity Sweepstakes Office (PCSO) and the Philippine Amusement and
Gaming Corporation (PAGCOR), shall pay such rate of tax upon their
(3) immediately succeeding taxable years.
taxable income as are imposed by this Section upon corporations or
associations engaged in s similar business, industry, or activity.
(3) Relief from the Minimum Corporate Income Tax Under Certain
Conditions. - The Secretary of Finance is hereby authorized to suspend
(D) Rates of Tax on Certain Passive Incomes. - (1) Interest from
the imposition of the minimum corporate income tax on any corporation
Deposits and Yield or any other Monetary Benefit from Deposit Substitutes
which suffers losses on account of prolonged labor dispute, or because of
and from Trust Funds and Similar Arrangements, and Royalties - A final
force majeure, or because of legitimate business reverses.
tax at the rate of twenty percent (20%) is hereby imposed upon the
amount of interest on currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar The Secretary of Finance is hereby authorized to promulgate, upon
arrangements received by domestic corporations, and royalties, derived recommendation of the Commissioner, the necessary rules and regulation
from sources within the Philippines: Provided, however, That interest that shall define the terms and conditions under which he may suspend
income derived by a domestic corporation from a depository bank under the imposition of the minimum corporate income tax in a meritorious case.
the expanded foreign currency deposit system shall be subject to a final
income tax at the rate of seven and one-half percent (7 1/2%) of such (4) Gross Income Defined - For purposes of applying the minimum
interest income. corporate income tax provided under Subsection (E) hereof, the term
'gross income' shall mean gross sales less sales returns, discounts and
(2) Capital Gains from the Sale of Shares of Stock Not Traded in allowances and cost of goods sold"Cost of goods sold' shall include all
the Stock Exchange. - A final tax at the rates prescribed below shall be business expenses directly incurred to produce the merchandise to bring
imposed on net capital gains realized during the taxable year from the them to their present location and use.
sale, exchange or other disposition of shares of stock in a domestic
corporation except shares sold or disposed of through the stock exchange: For a trading or merchandising concern, "cost of goods sold' shall include
the invoice cost of the goods sold, plus import duties, freight in
Not over P100,000 . 5% transporting the goods to the place where the goods are actually sold
Amount in excess of P100,000 . 10% including insurance while the goods are in transit.
(3) Tax on Income Derived under the Expanded Foreign Currency For a manufacturing concern, cost of "goods manufactured and sold" shall
Deposit System. - Income derived by a depository bank under the include all costs of production of finished goods, such as raw materials
expanded foreign currency deposit system from foreign currency used, direct labor and manufacturing overhead, freight cost, insurance
transactions with local commercial banks, including branches of foreign premiums and other costs incurred to bring the raw materials to the
banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to factory or warehouse.
transact business with foreign currency depository system units and other
depository banks under the expanded foreign currency deposit system, In the case of taxpayers engaged in the sale of service, 'gross income'
including interest income from foreign currency loans granted by such means gross receipts less sales returns, allowances, discounts and cost of
depository banks under said expanded foreign currency deposit system to services "Cost of services" shall mean all direct costs and expenses
residents, shall be subject to a final income tax at the rate of ten percent necessarily incurred to provide the services required by the customers and
(10%) of such income. clients including (A) salaries and employee benefits of personnel,
consultants and specialists directly rendering the service and (B) cost of
Any income of nonresidents, whether individuals or corporations, from facilities directly utilized in providing the service such as depreciation or
transactions with depository banks under the expanded system shall be rental of equipment used and cost of supplies: Provided, however, That in
exempt from income tax. the case of banks, "cost of services" shall include interest expense.
(4) Intercorporate Dividends. - Dividends received by a domestic SEC. 28. Rates of Income Tax on Foreign Corporations. -
corporation from another domestic corporation shall not be subject to tax.
(A) Tax on Resident Foreign Corporations. - (1) In General. - Except
(5) Capital Gains Realized from the Sale, Exchange or Disposition as otherwise provided in this Code, a corporation organized, authorized, or
of Lands and/or Buildings. - A final tax of six percent (6%) is hereby existing under the laws of any foreign country, engaged in trade or
imposed on the gain presumed to have been realized on the sale, business within the Philippines, shall be subject to an income tax
exchange or disposition of lands and/or buildings which are not actually equivalent to thirty-five percent (35%) of the taxable income derived in
used in the business of a corporation and are treated as capital assets, the preceding taxable year from all sources within the Philippines:
based on the gross selling price of fair market value as determined in Provided, That effective January 1, 1998, the rate of income tax shall be
accordance with Section 6(E) of this Code, whichever is higher, of such thirty-four percent (34%); effective January 1, 1999, the rate shall be
lands and/or buildings. thirty-three percent (33%), and effective January 1, 2000 and thereafter,
the rate shall be thirty-two percent (32%).

In the case of corporations adopting the fiscal-year accounting period, the effectively connected with the conduct of its trade or business in the
taxable income shall be computed without regard to the specific date Philippines.
when sales, purchases and other transactions occur.
(6) Regional or Area Headquarters and Regional Operating
Their income and expenses for the fiscal year shall be deemed to have Headquarters of Multinational Companies.
been earned and spent equally for each month of the period.
(a) Regional or area headquarters as defined in Section 22(DD) shall not
The reduced corporate income tax rates shall be applied on the amount be subject to income tax.
computed by multiplying the number of months covered by the new rates
within the fiscal year by the taxable income of the corporation for the
(b) Regional operating headquarters as defined in Section 22(EE) shall pay
period, divided by twelveProvided, however, That a resident foreign
a tax of ten percent (10%) of their taxable income.
corporation shall be granted the option to be taxed at fifteen percent
(15%) on gross income under the same conditions, as provided in Section
27 (A). (7) Tax on Certain Incomes Received by a Resident Foreign
Corporation.
(2) Minimum Corporate Income Tax on Resident Foreign
Corporations. - A minimum corporate income tax of two percent (2%) of (a) Interest from Deposits and Yield or any other Monetary
gross income, as prescribed under Section 27 (E) of this Code, shall be Benefit from Deposit Substitutes, Trust Funds and Similar
imposed, under the same conditions, on a resident foreign corporation Arrangements and Royalties - Interest from any currency bank deposit
taxable under paragraph (1) of this Subsection. and yield or any other monetary benefit from deposit substitutes and from
trust funds and similar arrangements and royalties derived from sources
within the Philippines shall be subject to a final income tax at the rate of
(3) International Carrier. - An international carrier doing business in
twenty percent (20%) of such interest: Provided, however, That interest
the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its
income derived by a resident foreign corporation from a depository bank
"Gross Philippine Billings" as defined hereunder: (a) International Air
under the expanded foreign currency deposit system shall be subject to a
Carrier. - "Gross Philippine Billings" refers to the amount of gross revenue
final income tax at the rate of seven and one-half percent (7 1/2%) of
derived from carriage of persons, excess baggage, cargo and mail
such interest income.
originating from the Philippines in a continuous and uninterrupted flight,
irrespective of the place of sale or issue and the place of payment of the
ticket or passage document: Provided, That tickets revalidated, exchanged (b) Income Derived under the Expanded Foreign Currency
and/or indorsed to another international airline form part of the Gross Deposit System - Income derived by a depository bank under the
Philippine Billings if the passenger boards a plane in a port or point in the expanded foreign currency deposit system from foreign currency
Philippines: Provided, further, That for a flight which originates from the transactions with local commercial banks including branches of foreign
Philippines, but transshipment of passenger takes place at any port banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to
outside the Philippines on another airline, only the aliquot portion of the transact business with foreign currency deposit system units, including
cost of the ticket corresponding to the leg flown from the Philippines to interest income from foreign currency loans granted by such depository
the point of transshipment shall form part of Gross Philippine Billings. banks under said expanded foreign currency deposit system to residents,
shall be subject to a final income tax at the rate of ten percent (10%) of
such income.
(b) International Shipping. - "Gross Philippine Billings" means gross
revenue whether for passenger, cargo or mail originating from the
Philippines up to final destination, regardless of the place of sale or Any income of nonresidents, whether individuals or corporations, from
payments of the passage or freight documents. transactions with depository banks under the expanded system shall be
exempt from income tax.
(4) Offshore Banking Units - The provisions of any law to the contrary
notwithstanding, income derived by offshore banking units authorized by (c) Capital Gains from Sale of Shares of Stock Not Traded in the
the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore Stock Exchange. - A final tax at the rates prescribed below is hereby
banking units, including any interest income derived from foreign currency imposed upon the net capital gains realized during the taxable year from
loans granted to residents, shall be subject to a final income tax at the the sale, barter, exchange or other disposition of shares of stock in a
rate of ten percent (10%) of such income. domestic corporation except shares sold or disposed of through the stock
exchange:
Any income of nonresidents, whether individuals or corporations, from
transactions with said offshore banking units shall be exempt from income Not over P100,000 . 5%
tax. On any amount in excess of P100,000 ...10%
(5) Tax on Branch Profits Remittances. - Any profit remitted by a (d) Intercorporate Dividends. - Dividends received by a resident
branch to its head office shall be subject to a tax of fifteen (15%) which foreign corporation from a domestic corporation liable to tax under this
shall be based on the total profits applied or earmarked for remittance Code shall not be subject to tax under this Title.
without any deduction for the tax component thereof (except those
activities which are registered with the Philippine Economic Zone (B) Tax on Nonresident Foreign Corporation.
Authority).
(1) In General. - Except as otherwise provided in this Code, a foreign

The tax shall be collected and paid in the same manner as provided in corporation not engaged in trade or business in the Philippines shall pay a
Sections 57 and 58 of this Code: provided, that interests, dividends, rents, tax equal to thirty-five percent (35%) of the gross income received during
royalties, including remuneration for technical services, salaries, wages each taxable year from all sources within the Philippines, such as interests,
premiums, annuities, emoluments or other fixed or determinable annual, dividends, rents, royalties, salaries, premiums (except reinsurance
periodic or casual gains, profits, income and capital gains received by a premiums), annuities, emoluments or other fixed or determinable annual,
foreign corporation during each taxable year from all sources within the periodic or casual gains, profits and income, and capital gains, except
Philippines shall not be treated as branch profits unless the same are capital gains subject to tax under subparagraphs (C) and (d): Provided,
That effective 1, 1998, the rate of income tax shall be thirty-four percent
(34%); effective January 1, 1999, the rate shall be thirty-three percent (a) Publicly-held corporations;
(33%); and, effective January 1, 2000 and thereafter, the rate shall be (b) Banks and other nonbank financial intermediaries; and
thirty-two percent (32%). (c) Insurance companies.
(2) Nonresident Cinematographic Film Owner, Lessor or (C) Evidence of Purpose to Avoid Income Tax.
Distributor. - A cinematographic film owner, lessor, or distributor shall
pay a tax of twenty-five percent (25%) of its gross income from all
(1) Prima Facie Evidence. - the fact that any corporation is a mere
sources within the Philippines.
holding company or investment company shall be prima facie evidence of
a purpose to avoid the tax upon its shareholders or members.
(3) Nonresident Owner or Lessor of Vessels Chartered by
Philippine Nationals. - A nonresident owner or lessor of vessels shall be
(2) Evidence Determinative of Purpose. - The fact that the earnings
subject to a tax of four and one-half percent (4 1/2%) of gross rentals,
or profits of a corporation are permitted to accumulate beyond the
lease or charter fees from leases or charters to Filipino citizens or
reasonable needs of the business shall be determinative of the purpose to
corporations, as approved by the Maritime Industry Authority.
avoid the tax upon its shareholders or members unless the corporation, by
the clear preponderance of evidence, shall prove to the contrary.
(4) Nonresident Owner or Lessor of Aircraft, Machineries and
Other Equipment. - Rentals, charters and other fees derived by a
(D) Improperly Accumulated Taxable Income - For purposes of this
nonresident lessor of aircraft, machineries and other equipment shall be
Section, the term 'improperly accumulated taxable income' means taxable
subject to a tax of seven and one-half percent (7 1/2%) of gross rentals or
income' adjusted by:
fees.
(1) Income exempt from tax;

(5) Tax on Certain Incomes Received by a Nonresident Foreign
(2) Income excluded from gross income;
Corporation. - (a) Interest on Foreign Loans. - A final withholding tax at
(3) Income subject to final tax; and
the rate of twenty percent (20%) is hereby imposed on the amount of
(4) The amount of net operating loss carry-over deducted; And reduced by
interest on foreign loans contracted on or after August 1, 1986; (b)
the sum of:
Intercorporate Dividends - A final withholding tax at the rate of fifteen
percent (15%) is hereby imposed on the amount of cash and/or property
dividends received from a domestic corporation, which shall be collected (1) Dividends actually or constructively paid; and
and paid as provided in Section 57 (A) of this Code, subject to the (2) Income tax paid for the taxable yearProvided, however, That for
condition that the country in which the nonresident foreign corporation is corporations using the calendar year basis, the accumulated earnings
domiciled, shall allow a credit against the tax due from the nonresident under tax shall not apply on improperly accumulated income as of
foreign corporation taxes deemed to have been paid in the Philippines December 31, 1997.
equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for
1998, eighteen percent (18%) for 1999, and seventeen percent (17%) In the case of corporations adopting the fiscal year accounting period, the
thereafter, which represents the difference between the regular income improperly accumulated income not subject to this tax, shall be reckoned,
tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in as of the end of the month comprising the twelve (12)-month period of
1998, and thirty-three percent (33%) in 1999, and thirty-two percent fiscal year 1997-1998.
(32%) thereafter on corporations and the fifteen percent (15%) tax on
dividends as provided in this subparagraph; (c) Capital Gains from Sale of
Shares of Stock not Traded in the Stock Exchange. - A final tax at the (E) Reasonable Needs of the Business - For purposes of this Section, the
rates prescribed below is hereby imposed upon the net capital gains term 'reasonable needs of the business' includes the reasonably
realized during the taxable year from the sale, barter, exchange or other anticipated needs of the business.
disposition of shares of stock in a domestic corporation, except shares
sold, or disposed of through the stock exchange: SEC. 30Exemptions from Tax on Corporations - The following
organizations shall not be taxed under this Title in respect to income
Not over P100,000 ..5% received by them as such:
On any amount in excess of P100,000 . 10%
(A) Labor, agricultural or horticultural organization not organized
SEC. 29. Imposition of Improperly Accumulated Earnings Tax - principally for profit;
(A) In General. - In addition to other taxes imposed by this Title, there (B) Mutual savings bank not having a capital stock represented by shares,
is hereby imposed for each taxable year on the improperly accumulated and cooperative bank without capital stock organized and operated for
taxable income of each corporation described in Subsection B hereof, an mutual purposes and without profit;
improperly accumulated earnings tax equal to ten percent (10%) of the
improperly accumulated taxable income. (C) A beneficiary society, order or association, operating fort he exclusive
benefit of the members such as a fraternal organization operating under
(B) Tax on Corporations Subject to Improperly Accumulated the lodge system, or mutual aid association or a nonstock corporation
Earnings Tax. - organized by employees providing for the payment of life, sickness,
accident, or other benefits exclusively to the members of such society,
order, or association, or nonstock corporation or their dependents;
(1) In General - The improperly accumulated earnings tax imposed in the
preceding Section shall apply to every corporation formed or availed for
the purpose of avoiding the income tax with respect to its shareholders or (D) Cemetery company owned and operated exclusively for the benefit of
the shareholders of any other corporation, by permitting earnings and its members;
profits to accumulate instead of being divided or distributed.
(E) Nonstock corporation or association organized and operated
(2) Exceptions - The improperly accumulated earnings tax as provided for exclusively for religious, charitable, scientific, athletic, or cultural purposes,
under this Section shall not apply to:. 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 (B) Exclusions from Gross Income. - The following items shall not be
specific person; included in gross income and shall be exempt from taxation under this
title:
(F) Business league chamber of commerce, or board of trade, not
organized for profit and no part of the net income of which inures to the (1) Life Insurance - The proceeds of life insurance policies paid to the
benefit of any private stock-holder, or individual; heirs or beneficiaries upon the death of the insured, whether in a single
sum or otherwise, but if such amounts are held by the insurer under an
agreement to pay interest thereon, the interest payments shall be included
(G) Civic league or organization not organized for profit but operated
in gross income.
exclusively for the promotion of social welfare;
(2) Amount Received by Insured as Return of Premium - The amount

(H) A nonstock and nonprofit educational institution;
received by the insured, as a return of premiums paid by him under life
insurance, endowment, or annuity contracts, either during the term or at
(I) Government educational institution; the maturity of the term mentioned in the contract or upon surrender of
the contract.
(J) Farmers' or other mutual typhoon or fire insurance company, mutual
ditch or irrigation company, mutual or cooperative telephone company, or (3) Gifts, Bequests, and Devises. - The value of property acquired by gift,
like organization of a purely local character, the income of which consists bequest, devise, or descent: Provided, however, That income from such
solely of assessments, dues, and fees collected from members for the sole property, as well as gift, bequest, devise or descent of income from any
purpose of meeting its expenses; and property, in cases of transfers of divided interest, shall be included in
gross income.
(K) Farmers', fruit growers', or like association organized and operated as
a sales agent for the purpose of marketing the products of its members (4) Compensation for Injuries or Sickness - amounts received, through
and turning back to them the proceeds of sales, less the necessary selling Accident or Health Insurance or under Workmen's Compensation Acts, as
expenses on the basis of the quantity of produce finished by them; compensation for personal injuries or sickness, plus the amounts of any
damages received, whether by suit or agreement, on account of such
Notwithstanding the provisions in the preceding paragraphs, the income of injuries or sickness.
whatever kind and character of the foregoing organizations from any of
their properties, real or personal, or from any of their activities conducted (5) Income Exempt under Treaty. - Income of any kind, to the extent
for profit regardless of the disposition made of such income, shall be required by any treaty obligation binding upon the Government of the
subject to tax imposed under this Code. Philippines.
CHAPTER V (6) Retirement Benefits, Pensions, Gratuities, etc. -

COMPUTATION OF TAXABLE INCOME
(a) Retirement benefits received under Republic Act No. 7641 and those
SEC. 31Taxable Income Defined - The term taxable income means the received by officials and employees of private firms, whether individual or
pertinent items of gross income specified in this Code, less the deductions corporate, in accordance with a reasonable private benefit plan maintained
and/or personal and additional exemptions, if any, authorized for such by the employer: Provided, That the retiring official or employee has been
types of income by this Code or other special laws. in the service of the same employer for at least ten (10) years and is not
less than fifty (50) years of age at the time of his retirement: Provided,
CHAPTER VI further, That the benefits granted under this subparagraph shall be availed
COMPUTATION OF GROSS INCOME of by an official or employee only once.
SEC. 32Gross Income. - For purposes of this Subsection, the term 'reasonable private benefit plan'
means a pension, gratuity, stock bonus or profit-sharing plan maintained
by an employer for the benefit of some or all of his officials or employees,
(A) General Definition. - Except when otherwise provided in this Title, wherein contributions are made by such employer for the officials or
gross income means all income derived from whatever source, including employees, or both, for the purpose of distributing to such officials and
(but not limited to) the following items: employees the earnings and principal of the fund thus accumulated, and
wherein its is provided in said plan that at no time shall any part of the
(1) Compensation for services in whatever form paid, including, but not corpus or income of the fund be used for, or be diverted to, any purpose
limited to fees, salaries, wages, commissions, and similar items; other than for the exclusive benefit of the said officials and employees.
(2) Gross income derived from the conduct of trade or business or the
exercise of a profession; (b) Any amount received by an official or employee or by his heirs from
(3) Gains derived from dealings in property; the employer as a consequence of separation of such official or employee
from the service of the employer because of death sickness or other
(4) Interests;
physical disability or for any cause beyond the control of the said official or
(5) Rents; employee.
(6) Royalties;
(7) Dividends;
(c) The provisions of any existing law to the contrary notwithstanding,
(8) Annuities; social security benefits, retirement gratuities, pensions and other similar
(9) Prizes and winnings; benefits received by resident or nonresident citizens of the Philippines or
(10) Pensions; and aliens who come to reside permanently in the Philippines from foreign
(11) Partner's distributive share from the net income of the general government agencies and other institutions, private or public.
professional partnership.

(d) Payments of benefits due or to become due to any person residing in and thirty-two percent (32%) effective January 1, 2000 and thereafter, is
the Philippines under the laws of the United States administered by the hereby imposed on the grossed-up monetary value of fringe benefit
United States Veterans Administration. furnished or granted to the employee (except rank and file employees as
defined herein) by the employer, whether an individual or a corporation
(unless the fringe benefit is required by the nature of, or necessary to the
(e) Benefits received from or enjoyed under the Social Security System in
trade, business or profession of the employer, or when the fringe benefit
accordance with the provisions of Republic Act No. 8282.
is for the convenience or advantage of the employer).
(f) Benefits received from the GSIS under Republic Act No. 8291, including
The tax herein imposed is payable by the employer which tax shall be paid
retirement gratuity received by government officials and employees.
in the same manner as provided for under Section 57 (A) of this Code.
(7) Miscellaneous Items. - (a) Income Derived by Foreign Government -

The grossed-up monetary value of the fringe benefit shall be determined
Income derived from investments in the Philippines in loans, stocks, bonds
by dividing the actual monetary value of the fringe benefit by sixty-six
or other domestic securities, or from interest on deposits in banks in the
percent (66%) effective January 1, 1998; sixty-seven percent (67%)
Philippines by (i) foreign governments, (ii) financing institutions owned,
effective January 1, 1999; and sixty-eight percent (68%) effective January
controlled, or enjoying refinancing from foreign governments, and (iii)
1, 2000 and thereafter: Provided, however, That fringe benefit furnished
international or regional financial institutions established by foreign
to employees and taxable under Subsections (B), (C), (D) and (E) of
governments.
Section 25 shall be taxed at the applicable rates imposed thereat:
Provided, further, That the grossed -Up value of the fringe benefit shall be
(b) Income Derived by the Government or its Political Subdivisions. - determined by dividing the actual monetary value of the fringe benefit by
Income derived from any public utility or from the exercise of any the difference between one hundred percent (100%) and the applicable
essential governmental function accruing to the Government of the rates of income tax under Subsections (B), (C), (D), and (E) of Section 25.
Philippines or to any political subdivision thereof.
(B) Fringe Benefit defined. - For purposes of this Section, the term
(c) Prizes and Awards - Prizes and awards made primarily in recognition of "fringe benefit" means any good, service or other benefit furnished or
religious, charitable, scientific, educational, artistic, literary, or civic granted in cash or in kind by an employer to an individual employee
achievement but only if: (i) The recipient was selected without any action (except rank and file employees as defined herein) such as, but not limited
on his part to enter the contest or proceeding; and (ii) The recipient is not to, the following:.
required to render substantial future services as a condition to receiving
the prize or award.
(1) Housing;
(2) Expense account;
(d) Prizes and Awards in Sports Competition. - All prizes and awards (3) Vehicle of any kind;
granted to athletes in local and international sports competitions and (4) Household personnel, such as maid, driver and others;
tournaments whether held in the Philippines or abroad and sanctioned by (5) Interest on loan at less than market rate to the extent of the difference
their national sports associations. between the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for
(e) 13th Month Pay and Other Benefits. - Gross benefits received by the employee in social and athletic clubs or other similar organizations;
officials and employees of public and private entities: Provided, however, (7) Expenses for foreign travel;
That the total exclusion under this subparagraph shall not exceed Thirty (8) Holiday and vacation expenses;
thousand pesos (P30,000) which shall cover: (i) Benefits received by (9) Educational assistance to the employee or his dependents; and
officials and employees of the national and local government pursuant to (10) Life or health insurance and other non-life insurance premiums or
Republic Act No. 6686; (ii) Benefits received by employees pursuant to similar amounts in excess of what the law allows.
Presidential Decree No. 851, as amended by Memorandum Order No. 28,
dated August 13, 1986; (iii) Benefits received by officials and employees (C) Fringe Benefits Not Taxable. - The following fringe benefits are
not covered by Presidential decree No. 851, as amended by Memorandum not taxable under this Section:
Order No. 28, dated August 13, 1986; and (iv) Other benefits such as
productivity incentives and Christmas bonus: Provided, further, That the
(1) fringe benefits which are authorized and exempted from tax under
ceiling of Thirty thousand pesos (P30,000) may be increased through rules
special laws;
and regulations issued by the Secretary of Finance, upon recommendation
(2) Contributions of the employer for the benefit of the employee to
of the Commissioner, after considering among others, the effect on the
retirement, insurance and hospitalization benefit plans;
same of the inflation rate at the end of the taxable year.
(3) Benefits given to the rank and file employees, whether granted under
a collective bargaining agreement or not; and
(f) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare (4) De minimis benefits as defined in the rules and regulations to be
and Pag-ibig contributions, and union dues of individuals. promulgated by the Secretary of Finance, upon recommendation of the
Commissioner.
(g) Gains from the Sale of Bonds, Debentures or other Certificate of
Indebtedness. - Gains realized from the same or exchange or retirement The Secretary of Finance is hereby authorized to promulgate, upon
of bonds, debentures or other certificate of indebtedness with a maturity recommendation of the Commissioner, such rules and regulations as are
of more than five (5) years. necessary to carry out efficiently and fairly the provisions of this Section,
taking into account the peculiar nature and special need of the trade,
(h) Gains from Redemption of Shares in Mutual Fund. - Gains realized by business or profession of the employer.
the investor upon redemption of shares of stock in a mutual fund company
as defined in Section 22 (BB) of this Code. CHAPTER VII
ALLOWABLE DEDUCTIONS
SEC. 33. Special Treatment of Fringe Benefit. -
SEC. 34. Deductions from Gross Income. - Except for taxpayers
(A) Imposition of Tax.- A final tax of thirty-four percent (34%) effective earning compensation income arising from personal services rendered
January 1, 1998; thirty-three percent (33%) effective January 1, 1999; under an employer-employee relationship where no deductions shall be

allowed under this Section other than under subsection (M) hereof, in beginning January 1, 1999; and Thirty-eight percent (38%) beginning
computing taxable income subject to income tax under Sections 24 (A); 25 January 1, 2000;
(A); 26; 27 (A), (B) and (C); and 28 (A) (1), there shall be allowed the
following deductions from gross income;
(2) Exceptions. - No deduction shall be allowed in respect of interest
under the succeeding subparagraphs: (a) If within the taxable year an
(A) Expenses. - individual taxpayer reporting income on the cash basis incurs an
indebtedness on which an interest is paid in advance through discount or
otherwise: Provided, That such interest shall be allowed a a deduction in
(1) Ordinary and Necessary Trade, Business or Professional
the year the indebtedness is paid: Provided, further, That if the
Expenses. - (a) In General. - There shall be allowed as deduction from
indebtedness is payable in periodic amortizations, the amount of interest
gross income all the ordinary and necessary expenses paid or incurred
which corresponds to the amount of the principal amortized or paid during
during the taxable year in carrying on or which are directly attributable to,
the year shall be allowed as deduction in such taxable year; (b) If both the
the development, management, operation and/or conduct of the trade,
taxpayer and the person to whom the payment has been made or is to be
business or exercise of a profession, including: (i) A reasonable allowance
made are persons specified under Section 36 (B); or (c)If the
for salaries, wages, and other forms of compensation for personal services
indebtedness is incurred to finance petroleum exploration.
actually rendered, including the grossed-up monetary value of fringe
benefit furnished or granted by the employer to the employee: Provided,
That the final tax imposed under Section 33 hereof has been paid; (ii) A (3) Optional Treatment of Interest Expense. - At the option of the
reasonable allowance for travel expenses, here and abroad, while away taxpayer, interest incurred to acquire property used in trade business or
from home in the pursuit of trade, business or profession; (iii) A exercise of a profession may be allowed as a deduction or treated as a
reasonable allowance for rentals and/or other payments which are capital expenditure.
required as a condition for the continued use or possession, for purposes
of the trade, business or profession, of property to which the taxpayer has
(C) Taxes. - (1) In General. - Taxes paid or incurred within the taxable
not taken or is not taking title or in which he has no equity other than that
year in connection with the taxpayer's profession, trade or business, shall
of a lessee, user or possessor; (iv) A reasonable allowance for
be allowed as deduction, except
entertainment, amusement and recreation expenses during the taxable
year, that are directly connected to the development, management and
operation of the trade, business or profession of the taxpayer, or that are (a) The income tax provided for under this Title; (b) Income taxes
directly related to or in furtherance of the conduct of his or its trade, imposed by authority of any foreign country; but this deduction shall be
business or exercise of a profession not to exceed such ceilings as the allowed in the case of a taxpayer who does not signify in his return his
Secretary of Finance may, by rules and regulations prescribe, upon desire to have to any extent the benefits of paragraph (3) of this
recommendation of the Commissioner, taking into account the needs as subsection (relating to credits for taxes of foreign countries); (c) Estate
well as the special circumstances, nature and character of the industry, and donor's taxes; and (d) Taxes assessed against local benefits of a kind
trade, business, or profession of the taxpayer: Provided, That any expense tending to increase the value of the property assessed. Provided, That
incurred for entertainment, amusement or recreation that is contrary to taxes allowed under this Subsection, when refunded or credited, shall be
law, morals public policy or public order shall in no case be allowed as a included as part of gross income in the year of receipt to the extent of the
deduction. income tax benefit of said deduction.
(b) Substantiation Requirements. - No deduction from gross income shall (2) Limitations on Deductions. - In the case of a nonresident alien
be allowed under Subsection (A) hereof unless the taxpayer shall individual engaged in trade or business in the Philippines and a resident
substantiate with sufficient evidence, such as official receipts or other foreign corporation, the deductions for taxes provided in paragraph (1) of
adequate records: (i) the amount of the expense being deducted, and (ii) this Subsection (C) shall be allowed only if and to the extent that they are
the direct connection or relation of the expense being deducted to the connected with income from sources within the Philippines.
development, management, operation and/or conduct of the trade,
business or profession of the taxpayer. (3) Credit Against Tax for Taxes of Foreign Countries. - If the
taxpayer signifies in his return his desire to have the benefits of this
(c) Bribes, Kickbacks and Other Similar Payments. - No deduction from paragraph, the tax imposed by this Title shall be credited with: (a) Citizen
gross income shall be allowed under Subsection (A) hereof for any and Domestic Corporation. - In the case of a citizen of the Philippines and
payment made, directly or indirectly, to an official or employee of the of a domestic corporation, the amount of income taxes paid or incurred
national government, or to an official or employee of any local government during the taxable year to any foreign country; and (b) Partnerships and
unit, or to an official or employee of a government-owned or -controlled Estates. - In the case of any such individual who is a member of a general
corporation, or to an official or employee or representative of a foreign professional partnership or a beneficiary of an estate or trust, his
government, or to a private corporation, general professional partnership, proportionate share of such taxes of the general professional partnership
or a similar entity, if the payment constitutes a bribe or kickback. or the estate or trust paid or incurred during the taxable year to a foreign
country, if his distributive share of the income of such partnership or trust
is reported for taxation under this Title.
(2) Expenses Allowable to Private Educational Institutions. - In
addition to the expenses allowable as deductions under this Chapter, a
private educational institution, referred to under Section 27 (B) of this An alien individual and a foreign corporation shall not be allowed the
Code, may at its option elect either: (a) to deduct expenditures otherwise credits against the tax for the taxes of foreign countries allowed under this
considered as capital outlays of depreciable assets incurred during the paragraph.
taxable year for the expansion of school facilities or (b) to deduct
allowance for depreciation thereof under Subsection (F) hereof. (4) Limitations on Credit. - The amount of the credit taken under this
Section shall be subject to each of the following limitations: (a) The
(B) Interest.- (1) In General. - The amount of interest paid or incurred amount of the credit in respect to the tax paid or incurred to any country
within a taxable year on indebtedness in connection with the taxpayer's shall not exceed the same proportion of the tax against which such credit
profession, trade or business shall be allowed as deduction from gross is taken, which the taxpayer's taxable income from sources within such
income: Provided, however, That the taxpayer's otherwise allowable country under this Title bears to his entire taxable income for the same
deduction for interest expense shall be reduced by an amount equal to the taxable year; and (b) The total amount of the credit shall not exceed the
following percentages of the interest income subjected to final tax: Forty- same proportion of the tax against which such credit is taken, which the
one percent (41%) beginning January 1, 1998; Thirty-nine percent (39%) taxpayer's taxable income from sources without the Philippines taxable

under this Title bears to his entire taxable income for the same taxable The Secretary of Finance, upon recommendation of the Commissioner, is
year. hereby authorized to promulgate rules and regulations prescribing, among
other things, the time and manner by which the taxpayer shall submit a
declaration of loss sustained from casualty or from robbery, theft or
(5) Adjustments on Payment of Incurred Taxes. - If accrued taxes
embezzlement during the taxable year: Provided, That the time to be so
when paid differ from the amounts claimed as credits by the taxpayer, or
prescribed in the rules and regulations shall not be less than thirty (30)
if any tax paid is refunded in whole or in part, the taxpayer shall notify the
days nor more than ninety (90) days from the date of discovery of the
Commissioner; who shall redetermine the amount of the tax for the year
casualty or robbery, theft or embezzlement giving rise to the loss; and
or years affected, and the amount of tax due upon such redetermination,
if any, shall be paid by the taxpayer upon notice and demand by the
Commissioner, or the amount of tax overpaid, if any, shall be credited or (3) Net Operating Loss Carry-Over. - The net operating loss of the
refunded to the taxpayer. business or enterprise for any taxable year immediately preceding the
current taxable year, which had not been previously offset as deduction
from gross income shall be carried over as a deduction from gross income
In the case of such a tax incurred but not paid, the Commissioner as a
for the next three (3) consecutive taxable years immediately following the
condition precedent to the allowance of this credit may require the
year of such loss: Provided, however, That any net loss incurred in a
taxpayer to give a bond with sureties satisfactory to and to be approved
taxable year during which the taxpayer was exempt from income tax shall
by the Commissioner in such sum as he may require, conditioned upon the
not be allowed as a deduction under this Subsection: Provided, further,
payment by the taxpayer of any amount of tax found due upon any such
That a net operating loss carry-over shall be allowed only if there has been
redetermination.
no substantial change in the ownership of the business or enterprise in
that - (i) Not less than seventy-five percent (75%) in nominal value of
The bond herein prescribed shall contain such further conditions as the outstanding issued shares, if the business is in the name of a corporation,
Commissioner may require. is held by or on behalf of the same persons; or (ii) Not less than seventy-
five percent (75%) of the paid up capital of the corporation, if the
(6) Year in Which Credit Taken. - The credits provided for in business is in the name of a corporation, is held by or on behalf of the
Subsection (C)(3) of this Section may, at the option of the taxpayer and same persons.
irrespective of the method of accounting employed in keeping his books,
be taken in the year which the taxes of the foreign country were incurred, For purposes of this subsection, the term "not operating loss" shall mean
subject, however, to the conditions prescribed in Subsection (C)(5) of this the excess of allowable deduction over gross income of the business in a
Section. taxable year. Provided, That for mines other than oil and gas wells, a net
operating loss without the benefit of incentives provided for under
If the taxpayer elects to take such credits in the year in which the taxes of Executive Order No. 226, as amended, otherwise known as the Omnibus
the foreign country accrued, the credits for all subsequent years shall be Investments Code of 1987, incurred in any of the first ten (10) years of
taken upon the same basis and no portion of any such taxes shall be operation may be carried over as a deduction from taxable income for the
allowed as a deduction in the same or any succeeding year. next five (5) years immediately following the year of such loss.
(7) Proof of Credits. - The credits provided in Subsection (C)(3) hereof The entire amount of the loss shall be carried over to the first of the five
shall be allowed only if the taxpayer establishes to the satisfaction of the (5) taxable years following the loss, and any portion of such loss which
Commissioner the following: (a) The total amount of income derived from exceeds, the taxable income of such first year shall be deducted in like
sources without the Philippines; (b) The amount of income derived from manner form the taxable income of the next remaining four (4) years.
each country, the tax paid or incurred to which is claimed as a credit
under said paragraph, such amount to be determined under rules and (4) Capital Losses. -
regulations prescribed by the Secretary of Finance; and (c) All other
information necessary for the verification and computation of such credits.
(a) Limitation. - Loss from sales or Exchanges of capital assets shall be
allowed only to the extent provided in Section 39.
(D) Losses. - (1) In General. - Losses actually sustained during the
taxable year and not compensated for by insurance or other forms of
(b) Securities Becoming Worthless. - If securities as defined in Section 22
indemnity shall be allowed as deductions: (a) If incurred in trade,
(T) become worthless during the taxable year and are capital assets, the
profession or business; (b) Of property connected with the trade, business
loss resulting therefrom shall, for purposes of this Title, be considered as a
or profession, if the loss arises from fires, storms, shipwreck, or other
loss from the sale or exchange, on the last day of such taxable year, of
casualties, or from robbery, theft or embezzlement.
capital assets.
The Secretary of Finance, upon recommendation of the Commissioner, is

(5) Losses From Wash Sales of Stock or Securities. - Losses from
hereby authorized to promulgate rules and regulations prescribing, among
"wash sales" of stock or securities as provided in Section 38.
other things, the time and manner by which the taxpayer shall submit a
declaration of loss sustained from casualty or from robbery, theft or
embezzlement during the taxable year: Provided, however, That the time (6) Wagering Losses. - Losses from wagering transactions shall b
limit to be so prescribed in the rules and regulations shall not be less than allowed only to the extent of the gains from such transactions.
thirty (30) days nor more than ninety (90) days from the date of discovery
of the casualty or robbery, theft or embezzlement giving rise to the loss.
(7) Abandonment Losses. - (a) In the event a contract area where
petroleum operations are undertaken is partially or wholly abandoned, all
(c) No loss shall be allowed as a deduction under this Subsection if at the accumulated exploration and development expenditures pertaining thereto
time of the filing of the return, such loss has been claimed as a deduction shall be allowed as a deduction: Provided, That accumulated expenditures
for estate tax purposes in the estate tax return. incurred in that area prior to January 1, 1979 shall be allowed as a
deduction only from any income derived from the same contract area.
(2) Proof of Loss. - In the case of a nonresident alien individual or
foreign corporation, the losses deductible shall be those actually sustained In all cases, notices of abandonment shall be filed with the Commissioner.
during the year incurred in business, trade or exercise of a profession
conducted within the Philippines, when such losses are not compensated
for by insurance or other forms of indemnity.
(b) In case a producing well is subsequently abandoned, the unamortized Any change in the agreed rate and useful life of the depreciable property
costs thereof, as well as the undepreciated costs of equipment directly as specified in the agreement shall not be effective for taxable years prior
used therein, shall be allowed as a deduction in the year such well, to the taxable year in which notice in writing by certified mail or registered
equipment or facility is abandoned by the contractor: Provided, That if mail is served by the party initiating such change to the other party to the
such abandoned well is reentered and production is resumed, or if such agreement: Provided, however, that where the taxpayer has adopted such
equipment or facility is restored into service, the said costs shall be useful life and depreciation rate for any depreciable and claimed the
included as part of gross income in the year of resumption or restoration depreciation expenses as deduction from his gross income, without any
and shall be amortized or depreciated, as the case may be. written objection on the part of the Commissioner or his duly authorized
representatives, the aforesaid useful life and depreciation rate so adopted
by the taxpayer for the aforesaid depreciable asset shall be considered
(E) Bad Debts. - (1) In General. - Debts due to the taxpayer actually
binding for purposes of this Subsection.
ascertained to be worthless and charged off within the taxable year except
those not connected with profession, trade or business and those
sustained in a transaction entered into between parties mentioned under (4) Depreciation of Properties Used in Petroleum Operations. - An
Section 36 (B) of this Code: Provided, That recovery of bad debts allowance for depreciation in respect of all properties directly related to
previously allowed as deduction in the preceding years shall be included as production of petroleum initially placed in service in a taxable year shall be
part of the gross income in the year of recovery to the extent of the allowed under the straight-line or declining-balance method of
income tax benefit of said deduction. depreciation at the option of the service contractor.
(2) Securities Becoming Worthless. - If securities, as defined in However, if the service contractor initially elects the declining-balance
Section 22 (T), are ascertained to be worthless and charged off within the method, it may at any subsequent date, shift to the straight-line method.
taxable year and are capital assets, the loss resulting therefrom shall, in
the case of a taxpayer other than a bank or trust company incorporated
The useful life of properties used in or related to production of petroleum
under the laws of the Philippines a substantial part of whose business is
shall be ten (10) years of such shorter life as may be permitted by the
the receipt of deposits, for the purpose of this Title, be considered as a
Commissioner.
loss from the sale or exchange, on the last day of such taxable year, of
capital assets.
Properties not used directly in the production of petroleum shall be
depreciated under the straight-line method on the basis of an estimated
(F) Depreciation. - (1) General Rule. - There shall be allowed as a
useful life of five (5) years.
depreciation deduction a reasonable allowance for the exhaustion, wear
and tear (including reasonable allowance for obsolescence) of property
used in the trade or business. (5) Depreciation of Properties Used in Mining Operations. - an
allowance for depreciation in respect of all properties used in mining
operations other than petroleum operations, shall be computed as follows:
In the case of property held by one person for life with remainder to
(a) At the normal rate of depreciation if the expected life is ten (10) years
another person, the deduction shall be computed as if the life tenant were
or less; or (b) Depreciated over any number of years between five (5)
the absolute owner of the property and shall be allowed to the life tenant.
years and the expected life if the latter is more than ten (10) years, and
the depreciation thereon allowed as deduction from taxable income:
In the case of property held in trust, the allowable deduction shall be Provided, That the contractor notifies the Commissioner at the beginning
apportioned between the income beneficiaries and the trustees in of the depreciation period which depreciation rate allowed by this Section
accordance with the pertinent provisions of the instrument creating the will be used.
trust, or in the absence of such provisions, on the basis of the trust
income allowable to each.
(6) Depreciation Deductible by Nonresident Aliens Engaged in
Trade or Business or Resident Foreign Corporations. - In the case
(2) Use of Certain Methods and Rates. - The term "reasonable of a nonresident alien individual engaged in trade or business or resident
allowance" as used in the preceding paragraph shall include, but not foreign corporation, a reasonable allowance for the deterioration of
limited to, an allowance computed in accordance with rules and Property arising out of its use or employment or its non-use in the
regulations prescribed by the Secretary of Finance, upon recommendation business trade or profession shall be permitted only when such property is
of the Commissioner, under any of the following methods: located in the Philippines.
(a) The straight-line method; (G) Depletion of Oil and Gas Wells and Mines. - (1) In General. -
(b) Declining-balance method, using a rate not exceeding twice the rate In the case of oil and gas wells or mines, a reasonable allowance for
which would have been used had the annual allowance been computed depletion or amortization computed in accordance with the cost-depletion
under the method described in Subsection (F) (1); method shall be granted under rules and regulations to be prescribed by
(c) The sum-of-the-years-digit method; and the Secretary of finance, upon recommendation of the Commissioner.
(d) any other method which may be prescribed by the Secretary of Provided, That when the allowance for depletion shall equal the capital
Finance upon recommendation of the Commissioner. invested no further allowance shall be granted: Provided, further, That
after production in commercial quantities has commenced, certain
intangible exploration and development drilling costs: (a) shall be
(3) Agreement as to Useful Life on Which Depreciation Rate is
deductible in the year incurred if such expenditures are incurred for non-
Based. - Where under rules and regulations prescribed by the Secretary
producing wells and/or mines, or (b) shall be deductible in full in the year
of Finance upon recommendation of the Commissioner, the taxpayer and
paid or incurred or at the election of the taxpayer, may be capitalized and
the Commissioner have entered into an agreement in writing specifically
amortized if such expenditures incurred are for producing wells and/or
dealing with the useful life and rate of depreciation of any property, the
mines in the same contract area. "Intangible costs in petroleum
rate so agreed upon shall be binding on both the taxpayer and the
operations" refers to any cost incurred in petroleum operations which in
national Government in the absence of facts and circumstances not taken
itself has no salvage value and which is incidental to and necessary for the
into consideration during the adoption of such agreement.
drilling of wells and preparation of wells for the production of petroleum:
Provided, That said costs shall not pertain to the acquisition or
The responsibility of establishing the existence of such facts and improvement of property of a character subject to the allowance for
circumstances shall rest with the party initiating the modification. depreciation except that the allowances for depreciation on such property
shall be deductible under this Subsection.

Any intangible exploration, drilling and development expenses allowed as a promulgated by the Secretary of finance, upon recommendation of the
deduction in computing taxable income during the year shall not be taken Commissioner, no part of the net income of which inures to the benefit of
into consideration in computing the adjusted cost basis for the purpose of any private stockholder or individual in an amount not in excess of ten
computing allowable cost depletion. percent (10%) in the case of an individual, and five percent (%) in the
case of a corporation, of the taxpayer's taxable income derived from trade,
business or profession as computed without the benefit of this and the
(2) Election to Deduct Exploration and Development
following subparagraphs.
Expenditures. - In computing taxable income from mining operations,
the taxpayer may at his option, deduct exploration and development
expenditures accumulated as cost or adjusted basis for cost depletion as (2) Contributions Deductible in Full. - Notwithstanding the provisions
of date of prospecting, as well as exploration and development of the preceding subparagraph, donations to the following institutions or
expenditures paid or incurred during the taxable year: Provided, That the entities shall be deductible in full;
amount deductible for exploration and development expenditures shall not
exceed twenty-five percent (25%) of the net income from mining
(a) Donations to the Government. - Donations to the Government of the
operations computed without the benefit of any tax incentives under
Philippines or to any of its agencies or political subdivisions, including fully-
existing laws.
owned government corporations, exclusively to finance, to provide for, or
to be used in undertaking priority activities in education, health, youth and
The actual exploration and development expenditures minus twenty-five sports development, human settlements, science and culture, and in
percent (25%) of the net income from mining shall be carried forward to economic development according to a National Priority Plan determined by
the succeeding years until fully deducted. the National Economic and Development Authority (NEDA), In consultation
with appropriate government agencies, including its regional development
councils and private philantrophic persons and institutions: Provided, That
The election by the taxpayer to deduct the exploration and development
any donation which is made to the Government or to any of its agencies or
expenditures is irrevocable and shall be binding in succeeding taxable
political subdivisions not in accordance with the said annual priority plan
years. "Net income from mining operations", as used in this Subsection,
shall be subject to the limitations prescribed in paragraph (1) of this
shall mean gross income from operations less "allowable deductions"
Subsection;
which are necessary or related to mining operations. "Allowable
deductions" shall include mining, milling and marketing expenses, and
depreciation of properties directly used in the mining operations. (b) Donations to Certain Foreign Institutions or International
Organizations. - Donations to foreign institutions or international
organizations which are fully deductible in pursuance of or in compliance
This paragraph shall not apply to expenditures for the acquisition or
with agreements, treaties, or commitments entered into by the
improvement of property of a character which is subject to the allowance
Government of the Philippines and the foreign institutions or international
for depreciation.
organizations or in pursuance of special laws;
In no case shall this paragraph apply with respect to amounts paid or

(c) Donations to Accredited Nongovernment Organizations. - The term
incurred for the exploration and development of oil and gas.
"nongovernment organization" means a non-profit domestic corporation:
The term "exploration expenditures" means expenditures paid or incurred

(1) Organized and operated exclusively for scientific, research,
for the purpose of ascertaining the existence, location, extent or quality of
educational, character-building and youth and sports development, health,
any deposit of ore or other mineral, and paid or incurred before the
social welfare, cultural or charitable purposes, or a combination thereof,
beginning of the development stage of the mine or deposit.
no part of the net income of which inures to the benefit of any private
individual;
The term "development expenditures" means expenditures paid or
incurred during the development stage of the mine or other natural
(2) Which, not later than the 15th day of the third month after the close of
deposits.
the accredited nongovernment organizations taxable year in which
contributions are received, makes utilization directly for the active conduct
The development stage of a mine or other natural deposit shall begin at of the activities constituting the purpose or function for which it is
the time when deposits of ore or other minerals are shown to exist in organized and operated, unless an extended period is granted by the
sufficient commercial quantity and quality and shall end upon Secretary of Finance in accordance with the rules and regulations to be
commencement of actual commercial extraction. promulgated, upon recommendation of the Commissioner;
(3) Depletion of Oil and Gas Wells and Mines Deductible by a (3) The level of administrative expense of which shall, on an annual basis,
Nonresident Alien individual or Foreign Corporation. - In the case conform with the rules and regulations to be prescribed by the Secretary
of a nonresident alien individual engaged in trade or business in the of Finance, upon recommendation of the Commissioner, but in no case to
Philippines or a resident foreign corporation, allowance for depletion of oil exceed thirty percent (30%) of the total expenses; and
and gas wells or mines under paragraph (1) of this Subsection shall be
authorized only in respect to oil and gas wells or mines located within the
(4) The assets of which, in the event of dissolution, would be distributed
Philippines.
to another nonprofit domestic corporation organized for similar purpose or
purposes, or to the state for public purpose, or would be distributed by a
(H) Charitable and Other Contributions. court to another organization to be used in such manner as in the
judgment of said court shall best accomplish the general purpose for
(1) In General. - Contributions or gifts actually paid or made within the which the dissolved organization was organized.
taxable year to, or for the use of the Government of the Philippines or any
of its agencies or any political subdivision thereof exclusively for public Subject to such terms and conditions as may be prescribed by the
purposes, or to accredited domestic corporation or associations organized Secretary of Finance, the term "utilization" means:
and operated exclusively for religious, charitable, scientific, youth and
sports development, cultural or educational purposes or for the
(i) Any amount in cash or in kind (including administrative expenses) paid
rehabilitation of veterans, or to social welfare institutions, or to non-
or utilized to accomplish one or more purposes for which the accredited
government organizations, in accordance with rules and regulations
nongovernment organization was created or organized.
(ii) Any amount paid to acquire an asset used (or held for use) directly in the existence, location, extent, or quality of any deposit of ore or other
carrying out one or more purposes for which the accredited mineral, including oil or gas.
nongovernment organization was created or organized.
(J) Pension Trusts. - An employer establishing or maintaining a pension
An amount set aside for a specific project which comes within one or more trust to provide for the payment of reasonable pensions to his employees
purposes of the accredited nongovernment organization may be treated as shall be allowed as a deduction (in addition to the contributions to such
a utilization, but only if at the time such amount is set aside, the trust during the taxable year to cover the pension liability accruing during
accredited nongovernment organization has established to the satisfaction the year, allowed as a deduction under Subsection (A) (1) of this Section )
of the Commissioner that the amount will be paid for the specific project a reasonable amount transferred or paid into such trust during the taxable
within a period to be prescribed in rules and regulations to be promulgated year in excess of such contributions, but only if such amount (1) has not
by the Secretary of Finance, upon recommendation of the Commissioner, theretofore been allowed as a deduction, and (2) is apportioned in equal
but not to exceed five (5) years, and the project is one which can be parts over a period of ten (10) consecutive years beginning with the year
better accomplished by setting aside such amount than by immediate in which the transfer or payment is made.
payment of funds.
(K) Additional Requirements for Deductibility of Certain
(3) Valuation. - The amount of any charitable contribution of property Payments. - Any amount paid or payable which is otherwise deductible
other than money shall be based on the acquisition cost of said property. from, or taken into account in computing gross income or for which
depreciation or amortization may be allowed under this Section, shall be
allowed as a deduction only if it is shown that the tax required to be
(4) Proof of Deductions. - Contributions or gifts shall be allowable as
deducted and withheld therefrom has been paid to the Bureau of Internal
deductions only if verified under the rules and regulations prescribed by
Revenue in accordance with this Section 58 and 81 of this Code.
(L) Optional Standard Deduction. - In lieu of the deductions allowed

(I) Research and Development. - (1) In General. - a taxpayer may
under the preceding Subsections, an individual subject to tax under
treat research or development expenditures which are paid or incurred by
Section 24, other than a nonresident alien, may elect a standard deduction
him during the taxable year in connection with his trade, business or
in an amount not exceeding ten percent (10%) of his gross income.
profession as ordinary and necessary expenses which are not chargeable
to capital account.
Unless the taxpayer signifies in his return his intention to elect the optional
standard deduction, he shall be considered as having availed himself of
The expenditures so treated shall be allowed as deduction during the
the deductions allowed in the preceding Subsections.
taxable year when paid or incurred.
Such election when made in the return shall be irrevocable for the taxable
(2) Amortization of Certain Research and Development
year for which the return is made: Provided, That an individual who is
Expenditures. - At the election of the taxpayer and in accordance with
entitled to and claimed for the optional standard deduction shall not be
the rules and regulations to be prescribed by the Secretary of Finance,
required to submit with his tax return such financial statements otherwise
upon recommendation of the Commissioner, the following research and
required under this Code: Provided, further, That except when the
development expenditures may be treated as deferred expenses: (a) Paid
Commissioner otherwise permits, the said individual shall keep such
or incurred by the taxpayer in connection with his trade, business or
records pertaining to his gross income during the taxable year, as may be
profession;
required by the rules and regulations promulgated by the Secretary of
(b) Not treated as expenses under paragraph 91) hereof; and
Finance, upon recommendation of the Commissioner.
(c) Chargeable to capital account but not chargeable to property of a
character which is subject to depreciation or depletion.
(M) Premium Payments on Health and/or Hospitalization
Insurance of an Individual Taxpayer. - The amount of premiums not
In computing taxable income, such deferred expenses shall be allowed as
to exceed Two thousand four hundred pesos (P2,400) per family or Two
deduction ratably distributed over a period of not less than sixty (60)
hundred pesos (P200) a month paid during the taxable year for health
months as may be elected by the taxpayer (beginning with the month in
and/or hospitalization insurance taken by the taxpayer for himself,
which the taxpayer first realizes benefits from such expenditures).
including his family, shall be allowed as a deduction from his gross
income: Provided, That said family has a gross income of not more than
The election provided by paragraph (2) hereof may be made for any Two hundred fifty thousand pesos (P250,000) for the taxable year:
taxable year beginning after the effectivity of this Code, but only if made Provided, finally, That in the case of married taxpayers, only the spouse
not later than the time prescribed by law for filing the return for such claiming the additional exemption for dependents shall be entitled to this
taxable year. deduction.
The method so elected, and the period selected by the taxpayer, shall be Notwithstanding the provision of the preceding Subsections, The Secretary
adhered to in computing taxable income for the taxable year for which the of Finance, upon recommendation of the Commissioner, after a public
election is made and for all subsequent taxable years unless with the hearing shall have been held for this purpose, may prescribe by rules and
approval of the Commissioner, a change to a different method is regulations, limitations or ceilings for any of the itemized deductions under
authorized with respect to a part or all of such expenditures. Subsections (A) to (J) of this Section: Provided, That for purposes of
determining such ceilings or limitations, the Secretary of Finance shall
The election shall not apply to any expenditure paid or incurred during any consider the following factors: (1) adequacy of the prescribed limits on the
taxable year for which the taxpayer makes the election. actual expenditure requirements of each particular industry; and (2)
effects of inflation on expenditure levels: Provided, further, That no
ceilings shall further be imposed on items of expense already subject to
(3) Limitations on Deduction. - This Subsection shall not apply to: (a) ceilings under present law.
Any expenditure for the acquisition or improvement of land, or for the
improvement of property to be used in connection with research and
development of a character which is subject to depreciation and depletion; SEC. 35. Allowance of Personal Exemption for Individual
and (b) Any expenditure paid or incurred for the purpose of ascertaining Taxpayer. -

(A) In General. - For purposes of determining the tax provided in Section (A) General Rule. - In computing net income, no deduction shall in any
24 (A) of this Title, there shall be allowed a basic personal exemption as case be allowed in respect to -
follows:
(1) Personal, living or family expenses; (2) Any amount paid out for new
For single individual or married individual judicially decreed as legally buildings or for permanent improvements, or betterments made to
separated with no qualified dependents P20,000 increase the value of any property or estate; This Subsection shall not
For Head of Family P25,000 For each married individual P32,000 In the apply to intangible drilling and development costs incurred in petroleum
case of married individuals where only one of the spouses is deriving gross operations which are deductible under Subsection (G) (1) of Section 34 of
income, only such spouse shall be allowed the personal exemption. this Code.
For purposes of this paragraph, the term "head of family" means an (3) Any amount expended in restoring property or in making good the
unmarried or legally separated man or woman with one or both parents, exhaustion thereof for which an allowance is or has been made; or (4)
or with one or more brothers or sisters, or with one or more legitimate, Premiums paid on any life insurance policy covering the life of any officer
recognized natural or legally adopted children living with and dependent or employee, or of any person financially interested in any trade or
upon him for their chief support, where such brothers or sisters or children business carried on by the taxpayer, individual or corporate, when the
are not more than twenty-one (21) years of age, unmarried and not taxpayer is directly or indirectly a beneficiary under such policy.
gainfully employed or where such children, brothers or sisters, regardless
of age are incapable of self-support because of mental or physical defect.
(B) Losses from Sales or Exchanges of Property. - In computing net
income, no deductions shall in any case be allowed in respect of losses
(B) Additional Exemption for Dependents. - There shall be allowed from sales or exchanges of property directly or indirectly - (1) Between
an additional exemption of Eight thousand pesos (P8,000) for each members of a family.
dependent not exceeding four (4).
For purposes of this paragraph, the family of an individual shall include
The additional exemption for dependent shall be claimed by only one of only his brothers and sisters (whether by the whole or half-blood), spouse,
the spouses in the case of married individuals. ancestors, and lineal descendants; or (2) Except in the case of
distributions in liquidation, between an individual and corporation more
than fifty percent (50%) in value of the outstanding stock of which is
In the case of legally separated spouses, additional exemptions may be
owned, directly or indirectly, by or for such individual; or (3) Except in the
claimed only by the spouse who has custody of the child or children:
case of distributions in liquidation, between two corporations more than
Provided, That the total amount of additional exemptions that may be
fifty percent (50%) in value of the outstanding stock of which is owned,
claimed by both shall not exceed the maximum additional exemptions
directly or indirectly, by or for the same individual if either one of such
herein allowed.
corporations, with respect to the taxable year of the corporation preceding
the date of the sale of exchange was under the law applicable to such
For purposes of this Subsection, a "dependent" means a legitimate, taxable year, a personal holding company or a foreign personal holding
illegitimate or legally adopted child chiefly dependent upon and living with company; (4) Between the grantor and a fiduciary of any trust; or (5)
the taxpayer if such dependent is not more than twenty-one (21) years of Between the fiduciary of and the fiduciary of a trust and the fiduciary of
age, unmarried and not gainfully employed or if such dependent, another trust if the same person is a grantor with respect to each trust; or
regardless of age, is incapable of self-support because of mental or (6) Between a fiduciary of a trust and beneficiary of such trust.
physical defect.
SEC. 37. Special Provisions Regarding Income and Deductions of
(C) Change of Status. - If the taxpayer marries or should have Insurance Companies, Whether Domestic or Foreign. -
additional dependent(s) as defined above during the taxable year, the
taxpayer may claim the corresponding additional exemption, as the case
(A) Special Deduction Allowed to Insurance Companies. - In the
may be, in full for such year.
case of insurance companies, whether domestic or foreign doing business
in the Philippines, the net additions, if any, required by law to be made
If the taxpayer dies during the taxable year, his estate may still claim the within the year to reserve funds and the sums other than dividends paid
personal and additional exemptions for himself and his dependent(s) as if within the year on policy and annuity contracts may be deducted from
he died at the close of such year. their gross income: Provided, however, That the released reserve be
treated as income for the year of release.
If the spouse or any of the dependents dies or if any of such dependents
marries, becomes twenty-one (21) years old or becomes gainfully (B) Mutual Insurance Companies. - In the case of mutual fire and
employed during the taxable year, the taxpayer may still claim the same mutual employers' liability and mutual workmen's compensation and
exemptions as if the spouse or any of the dependents died, or as if such mutual casualty insurance companies requiring their members to make
dependents married, became twenty-one (21) years old or became premium deposits to provide for losses and expenses, said companies shall
gainfully employed at the close of such year. not return as income any portion of the premium deposits returned to
their policyholders, but shall return as taxable income all income received
(D) Personal Exemption Allowable to Nonresident Alien by them from all other sources plus such portion of the premium deposits
Individual. - A nonresident alien individual engaged in trade, business or as are retained by the companies for purposes other than the payment of
in the exercise of a profession in the Philippines shall be entitled to a losses and expenses and reinsurance reserves.
personal exemption in the amount equal to the exemptions allowed in the
income tax law in the country of which he is a subject - or citizen, to (C) Mutual Marine Insurance Companies. - Mutual marine insurance
citizens of the Philippines not residing in such country, not to exceed the companies shall include in their return of gross income, gross premiums
amount fixed in this Section as exemption for citizens or resident of the collected and received by them less amounts paid to policyholders on
Philippines: Provided, That said nonresident alien should file a true and account of premiums previously paid by them and interest paid upon those
accurate return of the total income received by him from all sources in the amounts between the ascertainment and payment thereof.
Philippines, as required by this Title.
(D) Assessment Insurance Companies. - Assessment insurance
SEC. 36. Items Not Deductible. - companies, whether domestic or foreign, may deduct from their gross

income the actual deposit of sums with the officers of the Government of limitation and shall not be included in determining the applicability of such
the Philippines pursuant to law, as additions to guarantee or reserve limitation to other losses.
funds.
(D) Net Capital Loss Carry-over. - If any taxpayer, other than a
SEC. 38. Losses from Wash Sales of Stock or Securities. - corporation, sustains in any taxable year a net capital loss, such loss (in an
amount not in excess of the net income for such year) shall be treated in
the succeeding taxable year as a loss from the sale or exchange of a
(A) In the case of any loss claimed to have been sustained from any sale
capital asset held for not more than twelve (12) months.
or other disposition of shares of stock or securities where it appears that
within a period beginning thirty (30) days before the date of such sale or
disposition and ending thirty (30) days after such date, the taxpayer has (E) Retirement of Bonds, Etc. - For purposes of this Title, amounts
acquired (by purchase or by exchange upon which the entire amount of received by the holder upon the retirement of bonds, debentures, notes or
gain or loss was recognized by law), or has entered into a contact or certificates or other evidences of indebtedness issued by any corporation
option so to acquire, substantially identical stock or securities, then no (including those issued by a government or political subdivision thereof)
deduction for the loss shall be allowed under Section 34 unless the claim is with interest coupons or in registered form, shall be considered as
made by a dealer in stock or securities and with respect to a transaction amounts received in exchange therefor.
made in the ordinary course of the business of such dealer.
(F) Gains or Losses From Short Sales, Etc. - For purposes of this Title
(B) If the amount of stock or securities acquired (or covered by the
contract or option to acquire) is less than the amount of stock or securities
sold or otherwise disposed of, then the particular shares of stock or
(1) Gains or losses from short sales of property shall be considered as
securities, the loss from the sale or other disposition of which is not
gains or losses from sales or exchanges of capital assets; and (2) Gains or
deductible, shall be determined under rules and regulations prescribed by
losses attributable to the failure to exercise privileges or options to buy or
sell property shall be considered as capital gains or losses.
(C) If the amount of stock or securities acquired (or covered by the

SEC. 40. Determination of Amount and Recognition of Gain or
contract or option to acquire which) resulted in the non-deductibility of the
Loss. -
loss, shall be determined under rules and regulations prescribed by the
Secretary of Finance, upon recommendation of the Commissioner.
(A) Computation of Gain or Loss. - The gain from the sale or other
disposition of property shall be the excess of the amount realized
SEC. 39. Capital Gains and Losses. -
therefrom over the basis or adjusted basis for determining gain, and the
loss shall be the excess of the basis or adjusted basis for determining loss
(A) Definitions.- As used in this Title - over the amount realized.
(1) Capital Assets. - The term "capital assets" means property held by The amount realized from the sale or other disposition of property shall be
the taxpayer (whether or not connected with his trade or business), but the sum of money received plus the fair market value of the property
does not include stock in trade of the taxpayer or other property of a kind (other than money) received;
which would properly be included in the inventory of the taxpayer if on
hand at the close of the taxable year, or property held by the taxpayer
(B) Basis for Determining Gain or Loss from Sale or Disposition of
primarily for sale to customers in the ordinary course of his trade or
Property. - The basis of property shall be -
business, or property used in the trade or business, of a character which is
subject to the allowance for depreciation provided in Subsection (F) of
Section 34; or real property used in trade or business of the taxpayer. (1) The cost thereof in the case of property acquired on or after March 1,
1913, if such property was acquired by purchase; or (2) The fair market
price or value as of the date of acquisition, if the same was acquired by
(2) Net Capital Gain. - The term "net capital gain" means the excess of
inheritance; or (3) If the property was acquired by gift, the basis shall be
the gains from sales or exchanges of capital assets over the losses from
the same as if it would be in the hands of the donor or the last preceding
such sales or exchanges.
owner by whom it was not acquired by gift, except that if such basis is
greater than the fair market value of the property at the time of the gift
(3) Net Capital Loss. - The term "net capital loss" means the excess of then, for the purpose of determining loss, the basis shall be such fair
the losses from sales or exchanges of capital assets over the gains from market value; or (4) If the property was acquired for less than an
such sales or exchanges. adequate consideration in money or money's worth, the basis of such
property is the amount paid by the transferee for the property; or (5) The
basis as defined in paragraph (C)(5) of this Section, if the property was
(B) Percentage Taken Into Account. - In the case of a taxpayer, other
acquired in a transaction where gain or loss is not recognized under
than a corporation, only the following percentages of the gain or loss
paragraph (C)(2) of this Section.
recognized upon the sale or exchange of a capital asset shall be taken into
account in computing net capital gain, net capital loss, and net income:
(1) One hundred percent (100%) if the capital asset has been held for not (C) Exchange of Property. - (1) General Rule. - Except as herein
more than twelve (12) months; and (2) Fifty percent (50%) if the capital provided, upon the sale or exchange or property, the entire amount of the
asset has been held for more than twelve (12) months;(C) Limitation on gain or loss, as the case may be, shall be recognized.
Capital Losses. - Losses from sales or exchanges of capital assets shall
be allowed only to the extent of the gains from such sales or exchanges.
(2) Exception. - No gain or loss shall be recognized if in pursuance of a
plan of merger or consolidation
If a bank or trust company incorporated under the laws of the Philippines,
a substantial part of whose business is the receipt of deposits, sells any
(a) A corporation, which is a party to a merger or consolidation, exchanges
bond, debenture, note, or certificate or other evidence of indebtedness
property solely for stock in a corporation, which is a party to the merger or
issued by any corporation (including one issued by a government or
consolidation; or
political subdivision thereof), with interest coupons or in registered form,
any loss resulting from such sale shall not be subject to the foregoing

(b) A shareholder exchanges stock in a corporation, which is a party to the assumes a liability of the transferor or acquires form the latter property
merger or consolidation, solely for the stock of another corporation also a subject to a liability, such assumption or acquisition (in the amount of the
party to the merger or consolidation; or liability) shall, for purposes of this paragraph, be treated as money
received by the transferor on the exchange: Provided, finally, That if the
transferor receives several kinds of stock or securities, the Commissioner
(c) A security holder of a corporation, which is a party to the merger or
is hereby authorized to allocate the basis among the several classes of
consolidation, exchanges his securities in such corporation, solely for stock
stocks or securities.
or securities in such corporation, a party to the merger or consolidation.
(b) The basis of the property transferred in the hands of the transferee
No gain or loss shall also be recognized if property is transferred to a
shall be the same as it would be in the hands of the transferor increased
corporation by a person in exchange for stock or unit of participation in
by the amount of the gain recognized to the transferor on the transfer.
such a corporation of which as a result of such exchange said person,
alone or together with others, not exceeding four (4) persons, gains
control of said corporation: Provided, That stocks issued for services shall (6) Definitions. -
not be considered as issued in return for property.
(a) The term "securities" means bonds and debentures but not "notes" of
(3) Exchange Not Solely in Kind. whatever class or duration.
(a) If, in connection with an exchange described in the above exceptions, (b) The term "merger" or "consolidation", when used in this Section, shall
an individual, a shareholder, a security holder or a corporation receives be understood to mean: (i) the ordinary merger or consolidation, or (ii)
not only stock or securities permitted to be received without the the acquisition by one corporation of all or substantially all the properties
recognition of gain or loss, but also money and/or property, the gain, if of another corporation solely for stock: Provided, That for a transaction to
any, but not the loss, shall be recognized but in an amount not in excess be regarded as a merger or consolidation within the purview of this
of the sum of the money and fair market value of such other property Section, it must be undertaken for a bona fide business purpose and not
received: Provided, That as to the shareholder, if the money and/or other solely for the purpose of escaping the burden of taxation: Provided,
property received has the effect of a distribution of a taxable dividend, further, That in determining whether a bona fide business purpose exists,
there shall be taxed as dividend to the shareholder an amount of the gain each and every step of the transaction shall be considered and the whole
recognized not in excess of his proportionate share of the undistributed transaction or series of transaction shall be treated as a single unit:
earnings and profits of the corporation; the remainder, if any, of the gain Provided, finally , That in determining whether the property transferred
recognized shall be treated as a capital gain. constitutes a substantial portion of the property of the transferor, the term
'property' shall be taken to include the cash assets of the transferor.
(b) If, in connection with the exchange described in the above exceptions,
the transferor corporation receives not only stock permitted to be received (c) The term "control", when used in this Section, shall mean ownership of
without the recognition of gain or loss but also money and/or other stocks in a corporation possessing at least fifty-one percent (51%) of the
property, then (i) if the corporation receiving such money and/or other total voting power of all classes of stocks entitled to vote.
property distributes it in pursuance of the plan of merger or consolidation,
no gain to the corporation shall be recognized from the exchange, but (ii)
(d) The Secretary of Finance, upon recommendation of the Commissioner,
if the corporation receiving such other property and/or money does not
is hereby authorized to issue rules and regulations for the purpose
distribute it in pursuance of the plan of merger or consolidation, the gain,
"substantially all" and for the proper implementation of this Section.
if any, but not the loss to the corporation shall be recognized but in an
amount not in excess of the sum of such money and the fair market value
of such other property so received, which is not distributed. SEC. 41. Inventories. - Whenever in the judgment of the Commissioner,
the use of inventories is necessary in order to determine clearly the
income of any taxpayer, inventories shall be taken by such taxpayer upon
(4) Assumption of Liability.
such basis as the Secretary of Finance, upon recommendation of the
Commissioner, may, by rules and regulations, prescribe as conforming as
(a) If the taxpayer, in connection with the exchanges described in the nearly as may be to the best accounting practice in the trade or business
foregoing exceptions, receives stock or securities which would be and as most clearly reflecting the income.
permitted to be received without the recognition of the gain if it were the
sole consideration, and as part of the consideration, another party to the
If a taxpayer, after having complied with the terms and a conditions
exchange assumes a liability of the taxpayer, or acquires from the
prescribed by the Commissioner, uses a particular method of valuing its
taxpayer property, subject to a liability, then such assumption or
inventory for any taxable year, then such method shall be used in all
acquisition shall not be treated as money and/or other property, and shall
subsequent taxable years unless:
not prevent the exchange from being within the exceptions.
(i) with the approval of the Commissioner, a change to a different method

(b) If the amount of the liabilities assumed plus the amount of the
is authorized; or
liabilities to which the property is subject exceed the total of the adjusted
basis of the property transferred pursuant to such exchange, then such
excess shall be considered as a gain from the sale or exchange of a capital (ii) the Commissioner finds that the nature of the stock on hand (e.g., its
asset or of property which is not a capital asset, as the case may be. scarcity, liquidity, marketability and price movements) is such that
inventory gains should be considered realized for tax purposes and,
therefore, it is necessary to modify the valuation method for purposes of
(5) Basis - (a) The basis of the stock or securities received by the
ascertaining the income, profit, or loss in a more realistic manner:
transferor upon the exchange specified in the above exception shall be the
Provided, however, That the Commissioner shall not exercise his authority
same as the basis of the property, stock or securities exchanged,
to require a change in inventory method more often than once every three
decreased by (1) the money received, and (2) the fair market value of the
(3) years: Provided, further, That any change in an inventory valuation
other property received, and increased by (a) the amount treated as
method must be subject to approval by the Secretary of Finance.
dividend of the shareholder and (b) the amount of any gain that was
recognized on the exchange: Provided, That the property received as
"boot" shall have as basis its fair market value: Provided, further, That if SEC. 42. Income from Sources Within the Philippines. -
as part of the consideration to the transferor, the transferee of property

(A) Gross Income From Sources Within the Philippines. - The (2) Exception. - No deductions for interest paid or incurred abroad shall
following items of gross income shall be treated as gross income from be allowed from the item of gross income specified in subsection (A)
sources within the Philippines: unless indebtedness was actually incurred to provide funds for use in
connection with the conduct or operation of trade or business in the
Philippines.
(1) Interests. - Interests derived from sources within the Philippines, and
interests on bonds, notes or other interest-bearing obligation of residents,
corporate or otherwise; (C) Gross Income From Sources Without the Philippines. - The
following items of gross income shall be treated as income from sources
without the Philippines: (1) Interests other than those derived from
(2) Dividends. - The amount received as dividends:.
sources within the Philippines as provided in paragraph (1) of Subsection
(A) of this Section; (2) Dividends other than those derived from sources
(a) from a domestic corporation; and within the Philippines as provided in paragraph (2) of Subsection (A) of
this Section; (3) Compensation for labor or personal services performed
(b) from a foreign corporation, unless less than fifty percent (50%) of the without the Philippines; (4) Rentals or royalties from property located
gross income of such foreign corporation for the three-year period ending without the Philippines or from any interest in such property including
with the close of its taxable year preceding the declaration of such rentals or royalties for the use of or for the privilege of using without the
dividends or for such part of such period as the corporation has been in Philippines, patents, copyrights, secret processes and formulas, goodwill,
existence) was derived from sources within the Philippines as determined trademarks, trade brands, franchises and other like properties; and (5)
under the provisions of this Section; but only in an amount which bears Gains, profits and income from the sale of real property located without
the same ration to such dividends as the gross income of the corporation the Philippines.
for such period derived from sources within the Philippines bears to its
gross income from all sources. (D) Taxable Income From Sources Without the Philippines. - From
the items of gross income specified in Subsection (C) of this Section there
(3) Services. - Compensation for labor or personal services performed in shall be deducted the expenses, losses, and other deductions properly
the Philippines; (4) Rentals and Royalties. - Rentals and royalties from apportioned or allocated thereto and a ratable part of any expense, loss or
property located in the Philippines or from any interest in such property, other deduction which cannot definitely be allocated to some items or
including rentals or royalties for - (a) The use of or the right or privilege to classes of gross income.
use in the Philippines any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property The remainder, if any, shall be treated in full as taxable income from
or right; (b) The use of, or the right to use in the Philippines any sources without the Philippines.
industrial, commercial or scientific equipment; (c) The supply of scientific,
technical, industrial or commercial knowledge or information; (d) The
(E) Income From Sources Partly Within and Partly Without the
supply of any assistance that is ancillary and subsidiary to, and is
Philippines. - Items of gross income, expenses, losses and deductions,
furnished as a means of enabling the application or enjoyment of, any
other than those specified in Subsections (A) and (C) of this Section, shall
such property or right as is mentioned in paragraph (a), any such
be allocated or apportioned to sources within or without the Philippines,
equipment as is mentioned in paragraph (b) or any such knowledge or
under the rules and regulations prescribed by the Secretary of Finance,
information as is mentioned in paragraph (c); (e) The supply of services
upon recommendation of the Commissioner.
by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any
brand, machinery or other apparatus purchased from such nonresident Where items of gross income are separately allocated to sources within
person; (f) Technical advice, assistance or services rendered in connection the Philippines, there shall be deducted (for the purpose of computing the
with technical management or administration of any scientific, industrial or taxable income therefrom) the expenses, losses and other deductions
commercial undertaking, venture, project or scheme; and (g) The use of properly apportioned or allocated thereto and a ratable part of other
or the right to use: (i) Motion picture films; expenses, losses or other deductions which cannot definitely be allocated
to some items or classes of gross income.
(ii) Films or video tapes for use in connection with television; and
(iii) Tapes for use in connection with radio broadcasting. The remainder, if any, shall be included in full as taxable income from
(5) Sale of Real Property. - Gains, profits and income from the sale of
real property located in the Philippines; and In the case of gross income derived from sources partly within and partly
without the Philippines, the taxable income may first be computed by
deducting the expenses, losses or other deductions apportioned or
(6) Sale of Personal Property. - Gains; profits and income from the
allocated thereto and a ratable part of any expense, loss or other
sale of personal property, as determined in Subsection (E) of this Section.
deduction which cannot definitely be allocated to some items or classes of
gross income; and the portion of such taxable income attributable to
(B) Taxable Income From Sources Within the Philippines. - (1) sources within the Philippines may be determined by processes or
General Rule. - From the items of gross income specified in Subsection formulas of general apportionment prescribed by the Secretary of Finance.
(A) of this Section, there shall be deducted the expenses, losses and other
deductions properly allocated thereto and a ratable part of expenses,
Gains, profits and income from the sale of personal property produced (in
interests, losses and other deductions effectively connected with the
whole or in part) by the taxpayer within and sold without the Philippines,
business or trade conducted exclusively within the Philippines which
or produced (in whole or in part) by the taxpayer without and sold within
cannot definitely be allocated to some items or class of gross income:
the Philippines, shall be treated as derived partly from sources within and
Provided, That such items of deductions shall be allowed only if fully
partly from sources without the Philippines.
substantiated by all the information necessary for its calculation.
Gains, profits and income derived from the purchase of personal property
The remainder, if any, shall be treated in full as taxable income from
within and its sale without the Philippines, or from the purchase of
personal property without and its sale within the Philippines shall be
treated as derived entirely form sources within the country in which sold:
Provided, however, That gain from the sale of shares of stock in a

domestic corporation shall be treated as derived entirely form sources Commissioner, be computed on the basis of such new accounting period,
within the Philippines regardless of where the said shares are sold. subject to the provisions of Section 47.
The transfer by a nonresident alien or a foreign corporation to anyone of SEC. 47. Final or Adjustment Returns for a Period of Less than
any share of stock issued by a domestic corporation shall not be effected Twelve (12) Months. -
or made in its book unless: (1) the transferor has filed with the
Commissioner a bond conditioned upon the future payment by him of any
(A) Returns for Short Period Resulting from Change of Accounting
income tax that may be due on the gains derived from such transfer, or
Period. - If a taxpayer, other than an individual, with the approval of the
(2) the Commissioner has certified that the taxes, if any, imposed in this
Commissioner, changes the basis of computing net income from fiscal year
Title and due on the gain realized from such sale or transfer have been
to calendar year, a separate final or adjustment return shall be made for
paid.
the period between the close of the last fiscal year for which return was
made and the following December 31.
It shall be the duty of the transferor and the corporation the shares of
which are sold or transferred, to advise the transferee of this requirement.
If the change is from calendar year to fiscal year, a separate final or
adjustment return shall be made for the period between the close of the
(F) Definitions. - As used in this Section the words "sale" or "sold" last calendar year for which return was made and the date designated as
include "exchange" or "exchanged"; and the word "produced" includes the close of the fiscal year.
"created", "fabricated", "manufactured", "extracted", "processed", "cured"
or "aged".
If the change is from one fiscal year to another fiscal year, a separate final
or adjustment return shall be made for the period between the close of
CHAPTER VIII the former fiscal year and the date designated as the close of the new
ACCOUNTING PERIODS fiscal year.
AND METHODS OF ACCOUNTING
(B) Income Computed on Basis of Short Period. - Where a separate
SEC. 43. General Rule. - The taxable income shall be computed upon final or adjustment return is made under Subsection (A) on account of a
the basis of the taxpayer's annual accounting period (fiscal year or change in the accounting period, and in all other cases where a separate
calendar year, as the case may be) in accordance with the method of final or adjustment return is required or permitted by rules and regulations
accounting regularly employed in keeping the books of such taxpayer, but prescribed by the Secretary of Finance, upon recommendation of the
if no such method of accounting has been so employed, or if the method Commissioner, to be made for a fractional part of a year, then the income
employed does not clearly reflect the income, the computation shall be shall be computed on the basis of the period for which separate final or
made in accordance with such method as in the opinion of the adjustment return is made.
Commissioner clearly reflects the income.
SEC. 48. Accounting for Long-Term Contracts. - Income from long-
If the taxpayer's annual accounting period is other than a fiscal year, as term contracts shall be reported for tax purposes in the manner as
defined in Section 22(Q), or if the taxpayer has no annual accounting provided in this Section.
period, or does not keep books, or if the taxpayer is an individual, the
taxable income shall be computed on the basis of the calendar year.
As used herein, the term 'long-term contracts' means building, installation
or construction contracts covering a period in excess of one (1) year.
SEC. 44. Period in which Items of Gross Income Included. - The
amount of all items of gross income shall be included in the gross income
Persons whose gross income is derived in whole or in part from such
for the taxable year in which received by the taxpayer, unless, under
contracts shall report such income upon the basis of percentage of
methods of accounting permitted under Section 43, any such amounts are
completion.
to be properly accounted for as of a different period.
The return should be accompanied by a return certificate of architects or

In the case of the death of a taxpayer, there shall be included in
engineers showing the percentage of completion during the taxable year
computing taxable income for the taxable period in which falls the date of
of the entire work performed under contract.
his death, amounts accrued up to the date of his death if not otherwise
properly includible in respect of such period or a prior period.
There should be deducted from such gross income all expenditures made
during the taxable year on account of the contract, account being taken of
SEC. 45. Period for which Deductions and Credits Taken. - The
the material and supplies on hand at the beginning and end of the taxable
deductions provided for in this Title shall be taken for the taxable year in
period for use in connection with the work under the contract but not yet
which "paid or accrued" or "paid or incurred", dependent upon the method
so applied.
of accounting the basis of which the net income is computed, unless in
order to clearly reflect the income, the deductions should be taken as of a
different period. If upon completion of a contract, it is found that the taxable net income
arising thereunder has not been clearly reflected for any year or years, the
Commissioner may permit or require an amended return.
In the case of the death of a taxpayer, there shall be allowed as
deductions for the taxable period in which falls the date of his death,
amounts accrued up to the date of his death if not otherwise properly SEC. 49. Installment Basis. -
allowable in respect of such period or a prior period.
(A) Sales of Dealers in Personal Property. - Under rules and
SEC. 46. Change of Accounting Period. regulations prescribed by the Secretary of Finance, upon recommendation
of the Commissioner, a person who regularly sells or otherwise disposes of
personal property on the installment plan may return as income therefrom
If a taxpayer, other than an individual, changes his accounting period from
in any taxable year that proportion of the installment payments actually
fiscal year to calendar year, from calendar year to fiscal year, or from one
received in that year, which the gross profit realized or to be realized
fiscal year to another, the net income shall, with the approval of the
when payment is completed, bears to the total contract price.

(B) Sales of Realty and Casual Sales of Personality. - In the case (1) Sixty thousand pesos (P60,000) shall also file an income tax return; (c) An
of a casual sale or other casual disposition of personal property (other individual whose sole income has been subjected to final withholding tax
than property of a kind which would properly be included in the inventory pursuant to Section 57(A) of this Code; and (d) An individual who is
of the taxpayer if on hand at the close of the taxable year), for a price exempt from income tax pursuant to the provisions of this Code and other
exceeding One thousand pesos (P1,000), or (2) of a sale or other laws, general or special.
disposition of real property, if in either case the initial payments do not
exceed twenty-five percent (25%) of the selling price, the income may,
(3) The forgoing notwithstanding, any individual not required to file an
under the rules and regulations prescribed by the Secretary of Finance,
income tax return may nevertheless be required to file an information
upon recommendation of the Commissioner, be returned on the basis and
return pursuant to rules and regulations prescribed by the Secretary of
in the manner above prescribed in this Section.
As used in this Section, the term "initial payments" means the payments
(4) The income tax return shall be filed in duplicate by the following
received in cash or property other than evidences of indebtedness of the
persons: (a) A resident citizen - on his income from all sources; (b) A
purchaser during the taxable period in which the sale or other disposition
nonresident citizen - on his income derived from sources within the
is made.
Philippines; (c) A resident alien - on his income derived from sources
within the Philippines; and (d) A nonresident alien engaged in trade or
(C) Sales of Real Property Considered as Capital Asset by business in the Philippines - on his income derived from sources within the
Individuals. - An individual who sells or disposes of real property, Philippines.
considered as capital asset, and is otherwise qualified to report the gain
therefrom under Subsection (B) may pay the capital gains tax in
(B) Where to File. - Except in cases where the Commissioner otherwise
installments under rules and regulations to be promulgated by the
permits, the return shall be filed with an authorized agent bank, Revenue
District Officer, Collection Agent or duly authorized Treasurer of the city or
municipality in which such person has his legal residence or principal place
(D) Change from Accrual to Installment Basis. - If a taxpayer of business in the Philippines, or if there be no legal residence or place of
entitled to the benefits of Subsection (A) elects for any taxable year to business in the Philippines, with the Office of the Commissioner.
report his taxable income on the installment basis, then in computing his
income for the year of change or any subsequent year, amounts actually
(C) When to File. -
received during any such year on account of sales or other dispositions of
property made in any prior year shall not be excluded.
(1) The return of any individual specified above shall be filed on or before
the fifteenth (15th) day of April of each year covering income for the
SEC. 50. Allocation of Income and Deductions. - In the case of two
preceding taxable year.
or more organizations, trades or businesses (whether or not incorporated
and whether or not organized in the Philippines) owned or controlled
directly or indirectly by the same interests, the Commissioner is authorized (2) Individuals subject to tax on capital gains; (a) From the sale or
to distribute, apportion or allocate gross income or deductions between or exchange of shares of stock not traded thru a local stock exchange as
among such organization, trade or business, if he determined that such prescribed under Section 24(c) shall file a return within thirty (30) days
distribution, apportionment or allocation is necessary in order to prevent after each transaction and a final consolidated return on or before April 15
evasion of taxes or clearly to reflect the income of any such organization, of each year covering all stock transactions of the preceding taxable year;
trade or business. and (b) From the sale or disposition of real property under Section 24(D)
shall file a return within thirty (30) days following each sale or other
disposition.
CHAPTER IX
RETURNS AND PAYMENT OF TAX
(D) Husband and Wife. - Married individuals, whether citizens, resident
or nonresident aliens, who do not derive income purely from
SEC. 51. Individual Return. -
compensation, shall file a return for the taxable year to include the income
of both spouses, but where it is impracticable for the spouses to file one
(A) Requirements. - return, each spouse may file a separate return of income but the returns
so filed shall be consolidated by the Bureau for purposes of verification for
the taxable year.
(1) Except as provided in paragraph (2) of this Subsection, the following
individuals are required to file an income tax return: (a) Every Filipino
citizen residing in the Philippines; (b) Every Filipino citizen residing outside (E) Return of Parent to Include Income of Children. - The income of
the Philippines, on his income from sources within the Philippines; (c) unmarried minors derived from properly received from a living parent shall
Every alien residing in the Philippines, on income derived from sources be included in the return of the parent, except (1) when the donor's tax
within the Philippines; and (d) Every nonresident alien engaged in trade or has been paid on such property, or (2) when the transfer of such property
business or in the exercise of profession in the Philippines. is exempt from donor's tax.
(2) The following individuals shall not be required to file an income tax (F) Persons Under Disability. - If the taxpayer is unable to make his
return; (a) An individual whose gross income does not exceed his total own return, the return may be made by his duly authorized agent or
personal and additional exemptions for dependents under Section 35: representative or by the guardian or other person charged with the care of
Provided, That a citizen of the Philippines and any alien individual engaged his person or property, the principal and his representative or guardian
in business or practice of profession within the Philippine shall file an assuming the responsibility of making the return and incurring penalties
income tax return, regardless of the amount of gross income; (b) An provided for erroneous, false or fraudulent returns.
individual with respect to pure compensation income, as defined in Section
32 (A)(1), derived from sources within the Philippines, the income tax on
(G) Signature Presumed Correct. - The fact that an individual's name
which has been correctly withheld under the provisions of Section 79 of
is signed to a filed return shall be prima facie evidence for all purposes
this Code: Provided, That an individual deriving compensation concurrently
that the return was actually signed by him.
from two or more employers at any time during the taxable year shall file
an income tax return: Provided, further, That an individual whose
compensation income derived from sources within the Philippines exceeds SEC. 52. Corporation Returns. -

(A) Requirements. - Every corporation subject to the tax herein SEC. 56. Payment and Assessment of Income Tax for Individuals
imposed, except foreign corporations not engaged in trade or business in and Corporation. -
the Philippines, shall render, in duplicate, a true and accurate quarterly
income tax return and final or adjustment return in accordance with the
(A) Payment of Tax. -
provisions of Chapter XII of this Title.
(1) In General. - The total amount of tax imposed by this Title shall be
The return shall be filed by the president, vice-president or other principal
paid by the person subject thereto at the time the return is filed.
officer, and shall be sworn to by such officer and by the treasurer or
assistant treasurer.
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
(B) Taxable Year of Corporation. - A corporation may employ either
return herein provided and pay the tax due thereon before their
calendar year or fiscal year as a basis for filing its annual income tax
departure.
return: Provided, That the corporation shall not change the accounting
period employed without prior approval from the Commissioner in
accordance with the provisions of Section 47 of this Code. 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
(C) Return of Corporation Contemplating Dissolution or
sufficient bond is filed to answer for the tax due.
Reorganization. - Every corporation shall, within thirty (30) days after
the adoption by the corporation of a resolution or plan for its dissolution,
or for the liquidation of the whole or any part of its capital stock, including (2) Installment of Payment.- When the tax due is in excess of Two
a corporation which has been notified of possible involuntary dissolution thousand pesos (P2,000), the taxpayer other than a corporation may elect
by the Securities and Exchange Commission, or for its reorganization, to pay the tax in two (2) equal installments in which case, the first
render a correct return to the Commissioner, verified under oath, setting installment shall be paid at the time the return is filed and the second
forth the terms of such resolution or plan and such other information as installment, on or before July 15 following the close of the calendar year.
the Secretary of Finance, upon recommendation of the commissioner,
shall, by rules and regulations, prescribe. 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
The dissolving or reorganizing corporation shall, prior to the issuance by with the delinquency penalties.
the Securities and Exchange Commission of the Certificate of Dissolution
or Reorganization, as may be defined by rules and regulations prescribed (3) Payment of Capital Gains Tax. - The total amount of tax imposed
by the Secretary of Finance, upon recommendation of the Commissioner, and prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and
secure a certificate of tax clearance from the Bureau of Internal Revenue 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed
which certificate shall be submitted to the Securities and Exchange by the person liable thereto: Provided, That if the seller submits proof of
Commission. his intention to avail himself of the benefit of exemption of capital gains
under existing special laws, no such payments shall be required :
(D) Return on Capital Gains Realized from Sale of Shares of Stock Provided, further, That in case of failure to qualify for exemption under
not Traded in the Local Stock Exchange. - Every corporation deriving such special laws and implementing rules and regulations, the tax due on
capital gains from the sale or exchange of shares of stock not traded thru the gains realized from the original transaction shall immediately become
a local stock exchange as prescribed under Sections 24 (c), 25 (A)(3), 27 due and payable, subject to the penalties prescribed under applicable
(E)(2), 28(A)(8)(c) and 28 (B)(5)(c), shall file a return within thirty (30) provisions of this Code: Provided, finally, That if the seller, having paid the
days after each transactions and a final consolidated return of all tax, submits such proof of intent within six (6) months from the
transactions during the taxable year on or before the fifteenth (15th) day registration of the document transferring the real property, he shall be
of the fourth (4th) month following the close of the taxable year. entitled to a refund of such tax upon verification of his compliance with
the requirements for such exemption.
SEC. 53. Extension of Time to File Returns. - The Commissioner may,
in meritorious cases, grant a reasonable extension of time for filing returns In case the taxpayer elects and is qualified to report the gain by
of income (or final and adjustment returns in case of corporations), installments under Section 49 of this Code, the tax due from each
subject to the provisions of Section 56 of this Code. installment payment shall be paid within (30) days from the receipt of
such payments.
SEC. 54. Returns of Receivers, Trustees in Bankruptcy or
Assignees. - In cases wherein receivers, trustees in bankruptcy or No registration of any document transferring real property shall be
assignees are operating the property or business of a corporation, subject effected by the Register of Deeds unless the Commissioner or his duly
to the tax imposed by this Title, such receivers, trustees or assignees shall authorized representative has certified that such transfer has been
make returns of net income as and for such corporation, in the same reported, and the tax herein imposed, if any, has been paid.
manner and form as such organization is hereinbefore required to make
returns, and any tax due on the income as returned by receivers, trustees (B) Assessment and Payment of Deficiency Tax. - After the return is
or assignees shall be assessed and collected in the same manner as if filed, the Commissioner shall examine it and assess the correct amount of
assessed directly against the organizations of whose businesses or the tax.
properties they have custody or control.
The tax or deficiency income tax so discovered shall be paid upon notice
SEC. 55. Returns of General Professional Partnerships. - Every and demand from the Commissioner.
general professional partnership shall file, in duplicate, a return of its
income, except income exempt under Section 32 (B) of this Title, setting
forth the items of gross income and of deductions allowed by this Title, As used in this Chapter, in respect of a tax imposed by this Title, the term
and the names, Taxpayer Identification Numbers (TIN), addresses and "deficiency" means:.
shares of each of the partners.
(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 quarter during which withholding was made: Provided, That the
assessed (or collected without assessment) as a deficiency, and decreased Commissioner, with the approval of the Secretary of Finance, may require
by the amount previously abated, credited, returned or otherwise repaid in these withholding agents to pay or deposit the taxes deducted or withheld
respect of such tax; or at more frequent intervals when necessary to protect the interest of the
government.
(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 (B) Statement of Income Payments Made and Taxes Withheld. -
exceeds the amounts previously assessed (or collected without Every withholding agent required to deduct and withhold taxes under
assessment) as a deficiency; but such amounts previously assessed or Section 57 shall furnish each recipient, in respect to his or its receipts
collected without assessment shall first be decreased by the amounts during the calendar quarter or year, a written statement showing the
previously abated, credited returned or otherwise repaid in respect of such income or other payments made by the withholding agent during such
tax. quarter or year, and the amount of the tax deducted and withheld
therefrom, simultaneously upon payment at the request of the payee, but
not late than the twentieth (20th) day following the close of the quarter in
SEC. 57. Withholding of Tax at Source. -
the case of corporate payee, or not later than March 1 of the following
year in the case of individual payee for creditable withholding taxes.
(A) Withholding of Final Tax on Certain Incomes. - Subject to rules
and regulations the Secretary of Finance may promulgate, upon the
For final withholding taxes, the statement should be given to the payee on
recommendation of the Commissioner, requiring the filing of income tax
or before January 31 of the succeeding year.
return by certain income payees, the tax imposed or prescribed by
Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B),
25(C), 25(D), 25(E), 27(D)(!), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), (C) Annual Information Return. - Every withholding agent required to
28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), deduct and withhold taxes under Section 57 shall submit to the
28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of Commissioner an annual information return containing the list of payees
this Code on specified items of income shall be withheld by payor- and income payments, amount of taxes withheld from each payee and
corporation and/or person and paid in the same manner and subject to such other pertinent information as may be required by the Commissioner.
the same conditions as provided in Section 58 of this Code.
In the case of final withholding taxes, the return shall be filed on or before
(B) Withholding of Creditable Tax at Source.- The Secretary of January 31 of the succeeding year, and for creditable withholding taxes,
Finance may, upon the recommendation of the Commissioner, require the not later than March 1 of the year following the year for which the annual
withholding of a tax on the items of income payable to natural or juridical report is being submitted.
persons, residing in the Philippines, by payor-corporation/persons as
provided for by law, at the rate of not less than one percent (1%) but not
This return, if made and filed in accordance with the rules and regulations
more than thirty-two percent (32%) thereof, which shall be credited
approved by the Secretary of Finance, upon recommendation of the
against the income tax liability of the taxpayer for the taxable year.
Commissioner, shall be sufficient compliance with the requirements of
Section 68 of this Title in respect to the income payments.
(C) Tax-free Covenant Bonds. In any case where bonds, mortgages,
deeds of trust or other similar obligations of domestic or resident foreign
The Commissioner may, by rules and regulations, grant to any withholding
corporations, contain a contract or provisions by which the obligor agrees
agent a reasonable extension of time to furnish and submit the return
to pay any portion of the tax imposed in this Title upon the obligee or to
required in this Subsection.
reimburse the obligee for any portion of the tax or to pay the interest
without deduction for any tax which the obligor may be required or
permitted to pay thereon or to retain therefrom under any law of the (D) Income of Recipient. - Income upon which any creditable tax is
Philippines, or any state or country, the obligor shall deduct bonds, required to be withheld at source under Section 57 shall be included in the
mortgages, deeds of trust or other obligations, whether the interest or return of its recipient but the excess of the amount of tax so withheld over
other payments are payable annually or at shorter or longer periods, and the tax due on his return shall be refunded to him subject to the
whether the bonds, securities or obligations had been or will be issued or provisions of Section 204; if the income tax collected at source is less than
marketed, and the interest or other payment thereon paid, within or the tax due on his return, the difference shall be paid in accordance with
without the Philippines, if the interest or other payment is payable to a the provisions of Section 56.
nonresident alien or to a citizen or resident of the Philippines.
All taxes withheld pursuant to the provisions of this Code and its
SEC. 58. Returns and Payment of Taxes Withheld at Source. - implementing rules and regulations are hereby considered trust funds and
shall be maintained in a separate account and not commingled with any
other funds of the withholding agent.
(A) Quarterly Returns and Payments of Taxes Withheld. - Taxes
deducted and withheld under Section 57 by withholding agents shall be
covered by a return and paid to, except in cases where the Commissioner (E) Registration with Register of Deeds. - No registration of any
otherwise permits, an authorized Treasurer of the city or municipality document transferring real property shall be effected by the Register of
where the withholding agent has his legal residence or principal place of Deeds unless the Commissioner or his duly authorized representative has
business, or where the withholding agent is a corporation, where the certified that such transfer has been reported, and the capital gains or
principal office is located. creditable withholding tax, if any, has been paid: Provided, however, That
the information as may be required by rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the
The taxes deducted and withheld by the withholding agent shall be held as
Commissioner, shall be annotated by the Register of Deeds in the Transfer
a special fund in trust for the government until paid to the collecting
Certificate of Title or Condominium Certificate of Title: Provided, further,
officers.
That in cases of transfer of property to a corporation, pursuant to a
merger, consolidation or reorganization, and where the law allows
The return for final withholding tax shall be filed and the payment made deferred recognition of income in accordance with Section 40, the
within twenty-five (25) days from the close of each calendar quarter, while information as may be required by rules and regulations to be prescribed
the return for creditable withholding taxes shall be filed and the payment by the Secretary of Finance, upon recommendation of the Commissioner,
made not later than the last day of the month following the close of the shall be annotated by the Register of Deeds at the back of the Transfer

Certificate of Title or Condominium Certificate of Title of the real property Section computed on such consolidated income, and such proportion of
involved: Provided, finally, That any violation of this provision by the said tax shall be assessed and collected from each trustee which the
Register of Deeds shall be subject to the penalties imposed under Section taxable income of the trust administered by him bears to the consolidated
269 of this Code. income of the several trusts.
SEC. 59. Tax on Profits Collectible from Owner or Other Persons. - SEC. 61. Taxable Income. - The taxable income of the estate or trust
The tax imposed under this Title upon gains, profits, and income not shall be computed in the same manner and on the same basis as in the
falling under the foregoing and not returned and paid by virtue of the case of an individual, except that:
foregoing or as otherwise provided by law shall be assessed by personal
return under rules and regulations to be prescribed by the Secretary of
(A) There shall be allowed as a deduction in computing the taxable income
of the estate or trust the amount of the income of the estate or trust for
the taxable year which is to be distributed currently by the fiduciary to the
The intent and purpose of the Title is that all gains, profits and income of beneficiaries, and the amount of the income collected by a guardian of an
a taxable class, as defined in this Title, shall be charged and assessed with infant which is to be held or distributed as the court may direct, but the
the corresponding tax prescribed by this Title, and said tax shall be paid amount so allowed as a deduction shall be included in computing the
by the owners of such gains, profits and income, or the proper person taxable income of the beneficiaries, whether distributed to them or not.
having the receipt, custody, control or disposal of the same.
Any amount allowed as a deduction under this Subsection shall not be
For purposes of this Title, ownership of such gains, profits and income or allowed as a deduction under Subsection (B) of this Section in the same or
liability to pay the tax shall be determined as of the year for which a any succeeding taxable year.
return is required to be rendered.
(B) In the case of income received by estates of deceased persons during
CHAPTER X the period of administration or settlement of the estate, and in the case of
ESTATES AND TRUSTS income which, in the discretion of the fiduciary, may be either distributed
to the beneficiary or accumulated, there shall be allowed as an additional
deduction in computing the taxable income of the estate or trust the
SEC. 60. Imposition of Tax. -
amount of the income of the estate or trust for its taxable year, which is
properly paid or credited during such year to any legatee, heir or
(A) Application of Tax. - The tax imposed by this Title upon individuals beneficiary but the amount so allowed as a deduction shall be included in
shall apply to the income of estates or of any kind of property held in computing the taxable income of the legatee, heir or beneficiary.
trust, including:.
(C) In the case of a trust administered in a foreign country, the deductions
(1) Income accumulated in trust for the benefit of unborn or mentioned in Subsections (A) and (B) of this Section shall not be allowed:
unascertained person or persons with contingent interests, and income Provided, That the amount of any income included in the return of said
accumulated or held for future distribution under the terms of the will or trust shall not be included in computing the income of the beneficiaries.
trust;
SEC. 62. Exemption Allowed to Estates and Trusts. - For the
(2) Income which is to be distributed currently by the fiduciary to the purpose of the tax provided for in this Title, there shall be allowed an
beneficiaries, and income collected by a guardian of an infant which is to exemption of Twenty thousand pesos (P20,000) from the income of the
be held or distributed as the court may direct; (3) Income received by estate or trust.
estates of deceased persons during the period of administration or
settlement of the estate; and (4) Income which, in the discretion of the
SEC. 63. Revocable Trusts. - Where at any time the power to revest in
fiduciary, may be either distributed to the beneficiaries or accumulated.
the grantor title to any part of the corpus of the trust is vested (1) in the
grantor either alone or in conjunction with any person not having a
(B) Exception. - The tax imposed by this Title shall not apply to substantial adverse interest in the disposition of such part of the corpus or
employee's trust which forms part of a pension, stock bonus or profit- the income therefrom, or (2) in any person not having a substantial
sharing plan of an employer for the benefit of some or all of his employees adverse interest in the disposition of such part of the corpus or the income
(1) if contributions are made to the trust by such employer, or employees, therefrom, the income of such part of the trust shall be included in
or both for the purpose of distributing to such employees the earnings and computing the taxable income of the grantor.
principal of the fund accumulated by the trust in accordance with such
plan, and (2) if under the trust instrument it is impossible, at any time
SEC. 64. Income for Benefit of Grantor. -
prior to the satisfaction of all liabilities with respect to employees under
the trust, for any part of the corpus or income to be (within the taxable
year or thereafter) used for, or diverted to, purposes other than for the (A) Where any part of the income of a trust (1) is, or in the discretion of
exclusive benefit of his employees: Provided, That any amount actually the grantor or of any person not having a substantial adverse interest in
distributed to any employee or distributee shall be taxable to him in the the disposition of such part of the income may be held or accumulated for
year in which so distributed to the extent that it exceeds the amount future distribution to the grantor, or (2) may, or in the discretion of the
contributed by such employee or distributee. grantor or of any person not having a substantial adverse interest in the
disposition of such part of the income, be distributed to the grantor, or (3)
is, or in the discretion of the grantor or of any person not having a
(C) Computation and Payment. - (1) In General. - The tax shall be
substantial adverse interest in the disposition of such part of the income
computed upon the taxable income of the estate or trust and shall be paid
may be applied to the payment of premiums upon policies of insurance on
by the fiduciary, except as provided in Section 63 (relating to revocable
the life of the grantor, such part of the income of the trust shall be
trusts) and Section 64 (relating to income for the benefit of the grantor).
included in computing the taxable income of the grantor.
(2) Consolidation of Income of Two or More Trusts. - Where, in the case

(B) As used in this Section, the term 'in the discretion of the grantor'
of two or more trusts, the creator of the trust in each instance is the same
means in the discretion of the grantor, either alone or in conjunction with
person, and the beneficiary in each instance is the same, the taxable
any person not having a substantial adverse interest in the disposition of
income of all the trusts shall be consolidated and the tax provided in this
the part of the income in question.
SEC. 65. Fiduciary Returns. - Guardians, trustees, executors, return duly verified under oath under such rules and regulations as the
administrators, receivers, conservators and all persons or corporations, Secretary of Finance, upon recommendation of the Commissioner, may
acting in any fiduciary capacity, shall render, in duplicate, a return of the prescribe, showing the names of customers for whom such person,
income of the person, trust or estate for whom or which they act, and be corporation or duly registered general co-partnership (compania colectiva)
subject to all the provisions of this Title, which apply to individuals in case has transacted any business, with such details as to the profits, losses or
such person, estate or trust has a gross income of Twenty thousand pesos other information which the Commissioner, may require as to each of such
(P20,000) or over during the taxable year. customers as will enable the Commissioner to determine whether all
income tax due on profits or gains of such customers has been paid.
Such fiduciary or person filing the return for him or it, shall take oath that
he has sufficient knowledge of the affairs of such person, trust or estate to SEC. 70. Returns of Foreign Corporations. -
enable him to make such return and that the same is, to the best of his
knowledge and belief, true and correct, and be subject to all the provisions
(A) Requirements. - Under rules and regulations prescribed by the
of this Title which apply to individuals: Provided, That a return made by or
Secretary of finance, upon the recommendation of the Commissioner, any
for one or two or more joint fiduciaries filed in the province where such
attorney, accountant, fiduciary, bank, trust company, financial institution
fiduciaries reside; under such rules and regulations as the Secretary of
or other person, who aids, assists, counsels or advises in, o with respect
Finance, upon recommendation of the Commissioner, shall prescribe, shall
to; the formation, organization or reorganization of any foreign
be a sufficient compliance with the requirements of this Section.
corporation, shall, within thirty (30) days thereafter, file with the
Commissioner a return.
SEC. 66. Fiduciaries Indemnified Against Claims for Taxes Paid. -
Trustees, executors, administrators and other fiduciaries are indemnified
(B) Form and Contents of Return. - Such return shall be in such form
against the claims or demands of every beneficiary for all payments of
and shall set forth; under oath, in respect of each such corporation, to the
taxes which they shall be required to make under the provisions of this
full extent of the information within the possession or knowledge or under
Title, and they shall have credit for the amount of such payments against
the control of the person required to file the return, such information as
the beneficiary or principal in any accounting which they make as such
the Secretary of Finance, upon recommendation of the Commissioner,
trustees or other fiduciaries.
shall prescribe by rules and regulations as necessary for carrying out the
provisions of this Title.
CHAPTER XI
OTHER INCOME TAX REQUIREMENTS
Nothing in this Section shall be construed to require the divulging of
privileged communications between attorney and client.
SEC. 67. Collection of Foreign Payments. - All persons, corporations,
duly registered general co-partnerships (companias colectivas)
SEC. 71. Disposition of Income Tax Returns, Publication of Lists
undertaking for profit or otherwise the collection of foreign payments of
of Taxpayers and Filers. - After the assessment shall have been made,
interests or dividends by means of coupons, checks or bills of exchange
as provided in this Title, the returns, together with any corrections thereof
shall obtain a license from the Commissioner, and shall be subject to such
which may have been made by the Commissioner, shall be filed in the
rules and regulations enabling the government to obtain the information
Office of the Commissioner and shall constitute public records and be open
required under this Title, as the Secretary of Finance, upon
to inspection as such upon the order of the President of the Philippines,
recommendation of the Commissioner, shall prescribe.
under rules and regulations to be prescribed by the Secretary of Finance,
SEC. 68. Information at Source as to Income Payments. - all
persons, corporations or duly registered co- partnerships (companias
The Commissioner may, in each year, cause to be prepared and published
colectivas), in whatever capacity acting, including lessees or mortgagors of
in any newspaper the lists containing the names and addresses of persons
real or personal property, trustees, acting in any trust capacity, executors,
who have filed income tax returns.
administrators, receivers, conservators and employees making payment to
another person, corporation or duly registered general co-partnership
(compania colectiva), of interests, rents, salaries, wages, premiums, SEC. 72. Suit to Recover Tax Based on False or Fraudulent
annuities, compensations, remunerations, emoluments or other fixed or Returns.- When an assessment is made in case of any list, statement or
determinable gains, profits and income, other than payment described in return, which in the opinion of the Commissioner was false or fraudulent
Section 69, in any taxable year, or in the case of such payments made by or contained any understatement or undervaluation, no tax collected
the Government of the Philippines, the officers or employees of the under such assessment shall be recovered by any suit, unless it is proved
Government having information as to such payments and required to that the said list, statement or return was not false nor fraudulent and did
make returns in regard thereto, are authorized and required to render a not contain any understatement or undervaluation; but this provision shall
true and accurate return to the Commissioner, under such rules and not apply to statements or returns made or to be made in good faith
regulations, and in such form and manner as may be prescribed by the regarding annual depreciation of oil or gas wells and mines.
Secretary of Finance, upon recommendation of the Commissioner, setting
forth the amount of such gains, profits and income and the name and SEC. 73. Distribution of dividends or Assets by Corporations. -
address of the recipient of such payments: Provided, That such returns
shall be required, in the case of payments of interest upon bonds and
mortgages or deeds of trust or other similar obligations of corporations, (A) Definition of Dividends. - The term "dividends" when used in this
and in the case of collections of items, not payable in the Philippines, of Title means any distribution made by a corporation to its shareholders out
interest upon the bonds of foreign countries and interest from the bonds of its earnings or profits and payable to its shareholders, whether in
and dividends from the stock of foreign corporations by persons, money or in other property.
corporations or duly registered general co-partnerships (companias
colectivas), undertaking as a matter of business or for profit or otherwise Where a corporation distributes all of its assets in complete liquidation or
the collection of foreign payments of such interests or dividends by means dissolution, the gain realized or loss sustained by the stockholder, whether
of coupons or bills of exchange. individual or corporate, is a taxable income or a deductible loss, as the
case may be.
SEC. 69. Return of Information of Brokers.- Every person,
corporation or duly registered general co-partnership (compania colectiva), (B) Stock Dividend. - A stock dividend representing the transfer of
doing business as a broker in any exchange or board or other similar place surplus to capital account shall not be subject to tax.
of business, shall, when required by the Commissioner, render a correct
However, if a corporation cancels or redeems stock issued as a dividend at (C) Definition of Estimated Tax. - In the case of an individual, the
such time and in such manner as to make the distribution and cancellation term "estimated tax" means the amount which the individual declared as
or redemption, in whole or in part, essentially equivalent to the distribution income tax in his final adjusted and annual income tax return for the
of a taxable dividend, the amount so distributed in redemption or preceding taxable year minus the sum of the credits allowed under this
cancellation of the stock shall be considered as taxable income to the Title against the said tax.
extent that it represents a distribution of earnings or profits.
If, during the current taxable year, the taxpayer reasonable expects to pay
(C) Dividends Distributed are Deemed Made from Most Recently a bigger income tax, he shall file an amended declaration during any
Accumulated Profits. - Any distribution made to the shareholders or interval of installment payment dates.
members of a corporation shall be deemed to have been made form the
most recently accumulated profits or surplus, and shall constitute a part of
SEC. 75. Declaration of Quarterly Corporate Income Tax. - Every
the annual income of the distributee for the year in which received.
corporation shall file in duplicate a quarterly summary declaration of its
gross income and deductions on a cumulative basis for the preceding
(D) Net Income of a Partnership Deemed Constructively Received quarter or quarters upon which the income tax, as provided in Title II of
by Partners.- The taxable income declared by a partnership for a taxable this Code, shall be levied, collected and paid.
year which is subject to tax under Section 27 (A) of this Code, after
deducting the corporate income tax imposed therein, shall be deemed to
The tax so computed shall be decreased by the amount of tax previously
have been actually or constructively received by the partners in the same
paid or assessed during the preceding quarters and shall be paid not later
taxable year and shall be taxed to them in their individual capacity,
than sixty (60) days from the close of each of the first three (3) quarters
whether actually distributed or not.
of the taxable year, whether calendar or fiscal year.
CHAPTER XII
SEC. 76. Final Adjustment Return. - Every corporation liable to tax
QUARTERLY CORPORATE INCOME TAX, ANNUAL DECLARATION
under Section 27 shall file a final adjustment return covering the total
AND QUARTERLY PAYMENTS OF INCOME TAXES
taxable income for the preceding calendar or fiscal year.
SEC. 74. Declaration of Income Tax for Individuals. -

If the sum of the quarterly tax payments made during the said taxable
year is not equal to the total tax due on the entire taxable income of that
(A) In General. - Except as otherwise provided in this Section, every year, the corporation shall either:
individual subject to income tax under Sections 24 and 25(A) of this Title,
who is receiving self-employment income, whether it constitutes the sole
(A) Pay the balance of tax still due; or
source of his income or in combination with salaries, wages and other
fixed or determinable income, shall make and file a declaration of his
estimated income for the current taxable year on or before April 15 of the (B) Carry-over the excess credit; or
same taxable year.
(C) Be credited or refunded with the excess amount paid, as the case may
In general, self-employment income consists of the earnings derived by be.
the individual from the practice of profession or conduct of trade or
business carried on by him as a sole proprietor or by a partnership of In case the corporation is entitled to a tax credit or refund of the excess
which he is a member. estimated quarterly income taxes paid, the excess amount shown on its
final adjustment return may be carried over and credited against the
Nonresident Filipino citizens, with respect to income from without the estimated quarterly income tax liabilities for the taxable quarters of the
Philippines, and nonresident aliens not engaged in trade or business in the succeeding taxable years.
Philippines, are not required to render a declaration of estimated income
tax. Once the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable
The declaration shall contain such pertinent information as the Secretary years has been made, such option shall be considered irrevocable for that
of Finance, upon recommendation of the Commissioner, may, by rules and taxable period and no application for cash refund or issuance of a tax
regulations prescribe. credit certificate shall be allowed therefor.
An individual may make amendments of a declaration filed during the SEC. 77. Place and Time of Filing and Payment of Quarterly
taxable year under the rules and regulations prescribed by the Secretary Corporate Income Tax. -
of Finance, upon recommendation of the Commissioner.
(A) Place of Filing.- Except as the Commissioner otherwise permits, the
(B) Return and Payment of Estimated Income Tax by Individuals. quarterly income tax declaration required in Section 75 and the final
- The amount of estimated income as defined in Subsection (C) with adjustment return required in Section 76 shall be filed with the authorized
respect to which a declaration is required under Subsection (A) shall be agent banks or Revenue District Officer or Collection Agent or duly
paid in four (4) installments. authorized Treasurer of the city or municipality having jurisdiction over the
location of the principal office of the corporation filing the return or place
where its main books of accounts and other data from which the return is
The first installment shall be paid at the time of the declaration and the
prepared are kept.
second and third shall be paid on August 15 and November 15 of the
current year, respectively.
(B) Time of Filing the Income Tax Return. - The corporate quarterly
declaration shall be filed within sixty (60) days following the close of each
The fourth installment shall be paid on or before April 15 of the following
of the first three (3) quarters of the taxable year.
calendar year when the final adjusted income tax return is due to be filed.

The final adjustment return shall be filed on or before the fifteenth (15 th) Secretary of Finance, upon recommendation of the Commissioner:
day of April, or on or before the fifteenth (15 th) day of the fourth (4th) Provided, however, That no withholding of a tax shall be required where
month following the close of the fiscal year, as the case may be. the total compensation income of an individual does not exceed the
statutory minimum wage, or five thousand pesos (P5,000.00) per month,
whichever is higher.
(C) Time of Payment of the Income Tax. - The income tax due on the
corporate quarterly returns and the final adjustment income tax returns
computed in accordance with Sections 75 and 76 shall be paid at the time (B) Tax Paid by Recipient. - If the employer, in violation of the
the declaration or return is filed in a manner prescribed by the provisions of this Chapter, fails to deduct and withhold the tax as required
Commissioner. under this Chapter, and thereafter the tax against which such tax may be
credited is paid, the tax so required to be deducted and withheld shall not
be collected from the employer; but this Subsection shall in no case relieve
CHAPTER XIII
the employer from liability for any penalty or addition to the tax otherwise
WITHHOLDING ON WAGES
applicable in respect of such failure to deduct and withhold.
SEC. 78. Definitions. - As used in this Chapter:

(C) Refunds or Credits. -
(A) Wages. - The term 'wages' means all remuneration (other than fees
(1) Employer. - When there has been an overpayment of tax under this
paid to a public official) for services performed by an employee for his
Section, refund or credit shall be made to the employer only to the extent
employer, including the cash value of all remuneration paid in any medium
that the amount of such overpayment was not deducted and withheld
other than cash, except that such term shall not include remuneration
hereunder by the employer.
paid:.
(2) Employees. -The amount deducted and withheld under this Chapter
(1) For agricultural labor paid entirely in products of the farm where the
during any calendar year shall be allowed as a credit to the recipient of
labor is performed, or(2) For domestic service in a private home, or(3) For
such income against the tax imposed under Section 24(A) of this Title.
casual labor not in the course of the employer's trade or business, or(4)
For services by a citizen or resident of the Philippines for a foreign
government or an international organization. Refunds and credits in cases of excessive withholding shall be granted
under rules and regulations promulgated by the Secretary of Finance,
If the remuneration paid by an employer to an employee for services
performed during one-half (1/2) or more of any payroll period of not more
than thirty-one (31) consecutive days constitutes wages, all the Any excess of the taxes withheld over the tax due from the taxpayer shall
remuneration paid by such employer to such employee for such period be returned or credited within three (3) months from the fifteenth (15 th)
shall be deemed to be wages; but if the remuneration paid by an day of April.
employer to an employee for services performed during more than one -
half (1/2) of any such payroll period does not constitute wages, then none
Refunds or credits made after such time shall earn interest at the rate of
of the remuneration paid by such employer to such employee for such
six percent (6%) per annum, starting after the lapse of the three-month
period shall be deemed to be wages.
period to the date the refund of credit is made.
(B) Payroll Period. - The term 'payroll period' means a period for which
Refunds shall be made upon warrants drawn by the Commissioner or by
payment of wages is ordinarily made to the employee by his employer,
his duly authorized representative without the necessity of counter-
and the term "miscellaneous payroll period" means a payroll period other
signature by the Chairman, Commission on Audit or the latter's duly
than, a daily, weekly, biweekly, semi-monthly, monthly, quarterly, semi-
authorized representative as an exception to the requirement prescribed
annual, or annual period.
by Section 49, Chapter 8, Subtitle B, Title 1 of Book V of Executive Order
No. 292, otherwise known as the Administrative Code of 1987.
(C) Employee. - The term 'employee' refers to any individual who is the
recipient of wages and includes an officer, employee or elected official of
(D) Personal Exemptions. -
the Government of the Philippines or any political subdivision, agency or
instrumentality thereof.
(1) In General. - Unless otherwise provided by this Chapter, the personal
and additional exemptions applicable under this Chapter shall be
The term "employee" also includes an officer of a corporation.
determined in accordance with the main provisions of this Title.
(D) Employer. - The term "employer" means the person for whom an
(2) Exemption Certificate. - (a) When to File. - On or before the date
individual performs or performed any service, of whatever nature, as the
of commencement of employment with an employer, the employee shall
employee of such person, except that: (1) If the person for whom the
furnish the employer with a signed withholding exemption certificate
individual performs or performed any service does not have control of the
relating to the personal and additional exemptions to which he is entitled.
payment of the wages for such services, the term "employer" (except for
the purpose of Subsection (A) means the person having control of the
payment of such wages; and(2) In the case of a person paying wages on (b) Change of Status. - In case of change of status of an employee as a
behalf of a nonresident alien individual, foreign partnership or foreign result of which he would be entitled to a lesser or greater amount of
corporation not engaged in trade or business within the Philippines, the exemption, the employee shall, within ten (10) days from such change, file
term "employer" (except for the purpose of Subsection (A) means such with the employer a new withholding exemption certificate reflecting the
person. change.
SEC. 79. Income Tax Collected at Source. - (c) Use of Certificates. - The certificates filed hereunder shall be used by
the employer in the determination of the amount of taxes to be withheld.
(A) Requirement of Withholding. - Every employer making payment of
wages shall deduct and withhold upon such wages a tax determined in (d) Failure to Furnish Certificate. - Where an employee, in violation of this
accordance with the rules and regulations to be prescribed by the Chapter, either fails or refuses to file a withholding exemption certificate,
the employer shall withhold the taxes prescribed under the schedule for SEC. 81. Filing of Return and Payment of Taxes Withheld. - Except
zero exemption of the withholding tax table determined pursuant to as the Commissioner otherwise permits, taxes deducted and withheld by
Subsection (A) hereof. the employer on wages of employees shall be covered by a return and
paid to an authorized agent bank; Collection Agent, or the duly authorized
Treasurer of the city or municipality where the employer has his legal
(E) Withholding on Basis of Average Wages. - The Commissioner
residence or principal place of business, or in case the employer is a
may, under rules and regulations promulgated by the Secretary of
corporation, where the principal office is located.
Finance, authorize employers to: (1) estimate the wages which will be
paid to an employee in any quarter of the calendar year;(2) determine the
amount to be deducted and withheld upon each payment of wages to The return shall be filed and the payment made within twenty-five (25)
such employee during such quarter as if the appropriate average of the days from the close of each calendar quarter: Provided, however, That the
wages so estimated constituted the actual wages paid; and(3) deduct and Commissioner may, with the approval of the Secretary of Finance, require
withhold upon any payment of wages to such employee during ;such the employers to pay or deposit the taxes deducted and withheld at more
quarter such amount as may be required to be deducted and withheld frequent intervals, in cases where such requirement is deemed necessary
during such quarter without regard to this Subsection. to protect the interest of the Government.
(F) Husband and Wife. - When a husband and wife each are recipients The taxes deducted and withheld by employers shall be held in a special
of wages, whether from the same or from different employers, taxes to be fund in trust for the Government until the same are paid to the said
withheld shall be determined on the following bases: (1) The husband collecting officers.
shall be deemed the head of the family and proper claimant of the
additional exemption in respect to any dependent children, unless he
SEC. 82. Return and Payment in Case of Government Employees. -
explicitly waives his right in favor of his wife in the withholding exemption
If the employer is the Government of the Philippines or any political
certificate.
subdivision, agency or instrumentality thereof, the return of the amount
deducted and withheld upon any wage shall be made by the officer or
(2) Taxes shall be withheld from the wages of the wife in accordance with employee having control of the payment of such wage, or by any officer or
the schedule for zero exemption of the withholding tax table prescribed in employee duly designated for the purpose.
Subsection (D)(2)(d) hereof.
SEC. 83. Statements and Returns. -
(G) Nonresident Aliens. - Wages paid to nonresident alien individuals
engaged in trade or business in the Philippines shall be subject to the
(A) Requirements. - Every employer required to deduct and withhold a
provisions of this Chapter.
tax shall furnish to each such employee in respect of his employment
during the calendar year, on or before January thirty-first (31st) of the
(H) Year-End Adjustment. - On or before the end of the calendar year succeeding year, or if his employment is terminated before the close of
but prior to the payment of the compensation for the last payroll period, such calendar year, on the same day of which the last payment of wages
the employer shall determine the tax due from each employee on taxable is made, a written statement confirming the wages paid by the employer
compensation income for the entire taxable year in accordance with to such employee during the calendar year, and the amount of tax
Section 24(A). deducted and withheld under this Chapter in respect of such wages.
The difference between the tax due from the employee for the entire year The statement required to be furnished by this Section in respect of any
and the sum of taxes withheld from January to November shall either be wage shall contain such other information, and shall be furnished at such
withheld from his salary in December of the current calendar year or other time and in such form as the Secretary of Finance, upon the
refunded to the employee not later than January 25 of the succeeding recommendation of the Commissioner, may, by rules and regulation,
year. prescribe.
SEC. 80. Liability for Tax. - (B) Annual Information Returns. - Every employer required to deduct
and withhold the taxes in respect of the wages of his employees shall, on
or before January thirty-first (31st) of the succeeding year, submit to the
(A) Employer. - The employer shall be liable for the withholding and
Commissioner an annual information return containing a list of employees,
remittance of the correct amount of tax required to be deducted and
the total amount of compensation income of each employee, the total
withheld under this Chapter.
amount of taxes withheld therefrom during the year, accompanied by
copies of the statement referred to in the preceding paragraph, and such
If the employer fails to withhold and remit the correct amount of tax as other information as may be deemed necessary.
required to be withheld under the provision of this Chapter, such tax shall
be collected from the employer together with the penalties or additions to
This return, if made and filed in accordance with rules and regulations
the tax otherwise applicable in respect to such failure to withhold and
promulgated by the Secretary of Finance, upon recommendation of the
remit.
Commissioner, shall be sufficient compliance with the requirements of
Section 68 of this Title in respect of such wages.
(B) Employee. - Where an employee fails or refuses to file the
withholding exemption certificate or willfully supplies false or inaccurate
(C) Extension of time. - The Commissioner, under such rules and
information thereunder, the tax otherwise required to be withheld by the
regulations as may be promulgated by the Secretary of Finance, may grant
employer shall be collected from him including penalties or additions to
to any employer a reasonable extension of time to furnish and submit the
the tax from the due date of remittance until the date of payment.
statements and returns required under this Section.
On the other hand, excess taxes withheld made by the employer due to:
TITLE III
(1) failure or refusal to file the withholding exemption certificate; or (2) CHAPTER I
false and inaccurate information shall not be refunded to the employee but ESTATE TAX
shall be forfeited in favor of the Government.

SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, In such cases, proper adjustment shall be made representing the interests
collected and paid upon the transfer of the net estate as determined in which would have been excluded from the power if the decedent had
accordance with Sections 85 and 86 of every decedent, whether resident lived, and for such purpose if the notice has not been given or the power
or nonresident of the Philippines, a tax based on the value of such net has not been exercised on or before the date of his
estate, as computed in accordance with the following schedule: death, such notice shall be considered to have been given, or the power
exercised, on the date of his death.
If the net estate is:
(D) Property Passing Under General Power of Appointment. - To
the extent of any property passing under a general power of appointment
exercised by the decedent: (1) by will, or (2) by deed executed in
BUT NOT THE TAX OF THE EXCESS
contemplation of, or intended to take effect in possession or enjoyment at,
OVER OVER SHALL PLUS OVER
or after his death, or (3) by deed under which he has retained for his life
BE
or any period not ascertainable without reference to his death or for any
period which does not in fact end before his death (a) the possession or
P 200,000 Exempt enjoyment of, or the right to the income from, the property, or (b) the
right, either alone or in conjunction with any person, to designate the
P 200,000 550,000 0 5% P 200,000 persons who shall possess or enjoy the property or the income therefrom;
except in case of a bona fide sale for an adequate and full consideration in
500,000 2,000,000 P 15,000 8% 500,000 money or money's worth.
2,000,000 5,000,000 135,000 11% 2,000,000 (E) Proceeds of Life Insurance. - To the extent of the amount
receivable by the estate of the deceased, his executor, or administrator, as
5,000,000 10,000,000 465,000 15% 5,000,000 insurance under policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the power of
revocation, or to the extent of the amount receivable by any beneficiary
10,000,000 And Over 1,215,000 20% 10,000,000
designated in the policy of insurance, except when it is expressly
SEC. 85. Gross Estate. - the value of the gross estate of the decedent stipulated that the designation of the beneficiary is irrevocable.
shall be determined by including the value at the time of his death of all
property, real or personal, tangible or intangible, wherever situated: (F) Prior Interests. - Except as otherwise specifically provided therein,
Provided, however, that in the case of a nonresident decedent who at the Subsections (B), (C) and (E) of this Section shall apply to the transfers,
time of his death was not a citizen of the Philippines, only that part of the trusts, estates, interests, rights, powers and relinquishment of powers, as
entire gross estate which is situated in the Philippines shall be included in severally enumerated and described therein, whether made, created,
his taxable estate. arising, existing, exercised or relinquished before or after the effectivity of
this Code.
(A) Decedent's Interest. - To the extent of the interest therein of the
decedent at the time of his death; (G) Transfers of Insufficient Consideration. - If any one of the
transfers, trusts, interests, rights or powers enumerated and described in
(B) Transfer in Contemplation of Death. - To the extent of any Subsections (B), (C) and (D) of this Section is made, created, exercised or
interest therein of which the decedent has at any time made a transfer, by relinquished for a consideration in money or money's worth, but is not a
trust or otherwise, in contemplation of or intended to take effect in bona fide sale for an adequate and full consideration in money or money's
possession or enjoyment at or after death, or of which he has at any time worth, there shall be included in the gross estate only the excess of the
made a transfer, by trust or otherwise, under which he has retained for his fair market value, at the time of death, of the property otherwise to be
life or for any period which does not in fact end before his death (1) the included on account of such transaction, over the value of the
possession or enjoyment of, or the right to the income from the property, consideration received therefor by the decedent.
or (2) the right, either alone or in conjunction with any person, to
designate the person who shall possess or enjoy the property or the
income therefrom; except in case of a bonafide sale for an adequate and (H) Capital of the Surviving Spouse. - The capital of the surviving
full consideration in money or money's worth. spouse of a decedent shall not, for the purpose of this Chapter, be
deemed a part of his or her gross estate.
(C) Revocable Transfer. - (1) To the extent of any interest therein, of

which the decedent has at any time made a transfer (except in case of a SEC. 86. Computation of Net Estate. - For the purpose of the tax
bona fide sale for an adequate and full consideration in money or money's imposed in this Chapter, the value of the net estate shall be determined:
worth) by trust or otherwise, where the enjoyment thereof was subject at
the date of his death to any change through the exercise of a power (in (A) Deductions Allowed to the Estate of Citizen or a Resident. - In
whatever capacity exerciseable) by the decedent alone or by the decedent the case of a citizen or resident of the Philippines, by deducting from the
in conjunction with any other person (without regard to when or from value of the gross estate -.
what source the decedent acquired such power), t o alter, amend, revoke,
or terminate, or where any such power is relinquished in contemplation of (1) Expenses, Losses, Indebtedness, and taxes. - Such amounts: (a) For
the decedent's death. actual funeral expenses or in an amount equal to five percent (5%) of the
gross estate, whichever is lower, but in no case to exceed Two hundred
(2) For the purpose of this Subsection, the power to alter, amend or thousand pesos (P200,000); (b) For judicial expenses of the testamentary
revoke shall be considered to exist on the date of the decedent's death or intestate proceedings; (c) For claims against the estate: Provided, That
even though the exercise of the power is subject to a precedent giving of at the time the indebtedness was incurred the debt instrument was duly
notice or even though the alteration, amendment or revocation takes notarized and, if the loan was contracted within three (3) years before the
effect only on the expiration of a stated period after the exercise of the death of the decedent, the administrator or executor shall submit a
power, whether or not on or before the date of the decedent's death statement showing the disposition of the proceeds of the loan; (d) For
notice has been given or the power has been exercised. claims of the deceased against insolvent persons where the value of
decedent's interest therein is included in the value of the gross estate; and
(e) For unpaid mortgages upon, or any indebtedness in respect to,
property where the value of decedent's interest therein, undiminished by

such mortgage or indebtedness, is included in the value of the gross (3) Transfers for Public Use. - The amount of all the bequests, legacies,
estate, but not including any income tax upon income received after the devises or transfers to or for the use of the Government of the Republic of
death of the decedent, or property taxes not accrued before his death, or the Philippines, or any political subdivision thereof, for exclusively public
any estate tax. purposes.
The deduction herein allowed in the case of claims against the estate, (4) The Family Home. - An amount equivalent to the current fair market
unpaid mortgages or any indebtedness shall, when founded upon a value of the decedent's family home: Provided, however, That if the said
promise or agreement, be limited to the extent that they were contracted current fair market value exceeds One million pesos (P1,000,000), the
bona fide and for an adequate and full consideration in money or money's excess shall be subject to estate tax.
worth.
As a sine qua non condition for the exemption or deduction, said family
There shall also be deducted losses incurred during the settlement of the home must have been the decedent's family home as certified by the
estate arising from fires, storms, shipwreck, or other casualties, or from barangay captain of the locality.
robbery, theft or embezzlement, when such losses are not compensated
for by insurance or otherwise, and if at the time of the filing of the return
(5) Standard Deduction. - An amount equivalent to One million pesos
such losses have not been claimed as a deduction for the income tax
(P1,000,000).
purposes in an income tax return, and provided that such losses were
incurred not later than the last day for the payment of the estate tax as
prescribed in Subsection (A) of Section 91. (6) Medical Expenses. - Medical Expenses incurred by the decedent within
one (1) year prior to his death which shall be duly substantiated with
receipts: Provided, That in no case shall the deductible medical expenses
(2) Property Previously Taxed. - An amount equal to the value specified
exceed Five Hundred Thousand Pesos (P500,000).
below of any property forming a part of the gross estate situated in the
Philippines of any person who died within five (5) years prior to the death
of the decedent, or transferred to the decedent by gift within five (5) (7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount
years prior to his death, where such property can be identified as having received by the heirs from the decedent - employee as a consequence of
been received by the decedent from the donor by gift, or from such prior the death of the decedent-employee in accordance with Republic Act No.
decedent by gift, bequest, devise or inheritance, or which can be identified 4917: Provided, That such amount is included in the gross estate of the
as having been acquired in exchange for property so received: One decedent.
hundred percent (100%) of the value, if the prior decedent died within
one (1) year prior to the death of the decedent, or if the property was (B) Deductions Allowed to Nonresident Estates. - In the case of a
transferred to him by gift within the same period prior to his death; Eighty nonresident not a citizen of the Philippines, by deducting from the value of
percent (80%) of the value, if the prior decedent died more than one (1) that part of his gross estate which at the time of his death is situated in
year but not more than two (2) years prior to the death of the decedent, the Philippines: (1) Expenses, Losses, Indebtedness and Taxes. - That
or if the property was transferred to him by gift within the same period proportion of the deductions specified in paragraph (1) of Subsection (A)
prior to his death; Sixty percent (60%) of the value, if the prior decedent of this Section which the value of such part bears to the value of his entire
died more than two (2) years but not more than three (3) years prior to gross estate wherever situated;(2) Property Previously Taxed. - An
the death of the decedent, or if the property was transferred to him by gift amount equal to the value specified below of any property forming part of
within the same period prior to his death; Forty percent (40%) of the the gross estate situated in the Philippines of any person who died within
value, if the prior decedent died more than three (3) years but not more five (5) years prior to the death of the decedent, or transferred to the
than four (4) years prior to the death of the decedent, or if the property decedent by gift within five (5) years prior to his death, where such
was transferred to him by gift within the same period prior to his death; property can be identified as having been received by the decedent from
Twenty percent (20%) of the value, if the prior decedent died more than the donor by gift, or from such prior decedent by gift, bequest, devise or
four (4) years but not more than five (5) years prior to the death of the inheritance, or which can be identified as having been acquired in
decedent, or if the property was transferred to him by gift within the same exchange for property so received: One hundred percent (100%) of the
period prior to his death; These deductions shall be allowed only where a value if the prior decedent died within one (1) year prior to the death of
donor's tax or estate tax imposed under this Title was finally determined the decedent, or if the property was transferred to him by gift, within the
and paid by or on behalf of such donor, or the estate of such prior same period prior to his death; Eighty percent (80%) of the value, if the
decedent, as the case may be, and only in the amount finally determined prior decedent died more than one (1) year but not more than two (2)
as the value of such property in determining the value of the gift, or the years prior to the death of the decedent, or if the property was transferred
gross estate of such prior decedent, and only to the extent that the value to him by gift within the same period prior to his death; Sixty percent
of such property is included in the decedent's gross estate, and only if in (60%) of the value, if the prior decedent died more than two (2) years but
determining the value of the estate of the prior decedent, no deduction not more than three (3) years prior to the death of the decedent, or if the
was allowable under paragraph (2) in respect of the property or properties property was transferred to him by gift within the same period prior to his
given in exchange therefor. death; Forty percent (40%) of the value, if the prior decedent died more
than three (3) years but not more than four (4) years prior to the death of
Where a deduction was allowed of any mortgage or other lien in the decedent, or if the property was transferred to him by gift within the
determining the donor's tax, or the estate tax of the prior decedent, which same period prior to his death; and Twenty percent (20%) of the value, if
was paid in whole or in part prior to the decedent's death, then the the prior decedent died more than four (4) years but not more than five
deduction allowable under said Subsection shall be reduced by the amount (5) years prior to the death of the decedent, or if the property was
so paid. transferred to him by gift within the same period prior to his death. These
deductions shall be allowed only where a donor's tax, or estate tax
imposed under this Title is finally determined and paid by or on behalf of
Such deduction allowable shall be reduced by an amount which bears the
such donor, or the estate of such prior decedent, as the case may be, and
same ratio to the amounts allowed as deductions under paragraphs (1)
only in the amount finally determined as the value of such property in
and (3) of this Subsection as the amount otherwise deductible under said
determining the value of the gift, or the gross estate of such prior
paragraph (2) bears to the value of the decedent's estate.
decedent, and only to the extent that the value of such property is
included in that part of the decedent's gross estate which at the time of
Where the property referred to consists of two or more items, the his death is situated in the Philippines; and only if, in determining the
aggregate value of such items shall be used for the purpose of computing value of the net estate of the prior decedent, no deduction is allowable
the deduction. under paragraph (2) of Subsection (B) of this Section, in respect of the
property or properties given in exchange therefore.
Where a deduction was allowed of any mortgage or other lien in (B) Properties. - The estate shall be appraised at its fair market value as
determining the donor's tax, or the estate tax of the prior decedent, which of the time of death.
was paid in whole or in part prior to the decedent's death, then the
deduction allowable under said paragraph shall be reduced by the amount
However, the appraised value of real property as of the time of death shall
so paid.
be, whichever is higher of:
Such deduction allowable shall be reduced by an amount which bears the

(1) The fair market value as determined by the Commissioner, or
same ratio to the amounts allowed as deductions under paragraphs (1)
and (3) of this Subsection as the amount otherwise deductible under
paragraph (2) bears to the value of that part of the decedent's gross (2) The fair market value as shown in the schedule of values fixed by the
estate which at the time of his death is situated in the Philippines. Provincial and City Assessors.
Where the property referred to consists of two (2) or more items, the SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject
aggregate value of such items shall be used for the purpose of computing to tax, or where, though exempt from tax, the gross value of the estate
the deduction. exceeds Twenty thousand pesos (P20,000), the executor, administrator or
any of the legal heirs, as the case may be, within two (2) months after the
decedent's death, or within a like period after qualifying as such executor
(3) Transfers for Public Use. - The amount of all bequests, legacies,
or administrator, shall give a written notice thereof to the Commissioner.
devises or transfers to or for the use of the Government of the Republic of
the Philippines or any political subdivision thereof, for exclusively public
purposes. SEC. 90. Estate Tax Returns.
(A) Requirements. - In all cases of transfers subject to the tax imposed

(C) Share in the Conjugal Property. - the net share of the surviving
herein, or where, though exempt from tax, the gross value of the estate
spouse in the conjugal partnership property as diminished by the
exceeds Two hundred thousand pesos (P200,000), or regardless of the
obligations properly chargeable to such property shall, for the purpose of
gross value of the estate, where the said estate consists of registered or
this Section, be deducted from the net estate of the decedent.
registrable property such as real property, motor vehicle, shares of stock
or other similar property for which a clearance from the Bureau of Internal
(D) Miscellaneous Provisions. - No deduction shall be allowed in the Revenue is required as a condition precedent for the transfer of ownership
case of a nonresident not a citizen of the Philippines, unless the executor, thereof in the name of the transferee, the executor, or the administrator,
administrator, or anyone of the heirs, as the case may be, includes in the or any of the legal heirs, as the case may be, shall file a return under oath
return required to be filed under Section 90 the value at the time of his in duplicate, setting forth: (1) The value of the gross estate of the
death of that part of the gross estate of the nonresident not situated in decedent at the time of his death, or in case of a nonresident, not a citizen
the Philippines. of the Philippines, of that part of his gross estate situated in the
Philippines;(2) The deductions allowed from gross estate in determining
the estate as defined in Section 86; and(3) Such part of such information
(E) Tax Credit for Estate Taxes paid to a Foreign Country. - (1) In
as may at the time be ascertainable and such supplemental data as may
General. - The tax imposed by this Title shall be credited with the amounts
be necessary to establish the correct taxes. Provided, however, That
of any estate tax imposed by the authority of a foreign country.
estate tax returns showing a gross value exceeding Two million pesos
(P2,000,000) shall be supported with a statement duly certified to by a
(2) Limitations on Credit. - The amount of the credit taken under this Certified Public Accountant containing the following: (a) Itemized assets of
Section shall be subject to each of the following limitations: (a) The the decedent with their corresponding gross value at the time of his death,
amount of the credit in respect to the tax paid to any country shall not or in the case of a nonresident, not a citizen of the Philippines, of that part
exceed the same proportion of the tax against which such credit is taken, of his gross estate situated in the Philippines; (b) Itemized deductions
which the decedent's net estate situated within such country taxable under from gross estate allowed in Section 86; and (c) The amount of tax due
this Title bears to his entire net estate; and (b) The total amount of the whether paid or still due and outstanding.
credit shall not exceed the same proportion of the tax against which such
credit is taken, which the decedent's net estate situated outside the
(B) Time for Filing. - For the purpose of determining the estate tax
Philippines taxable under this Title bears to his entire net estate.
provided for in Section 84 of this Code, the estate tax return required
under the preceding Subsection (A) shall be filed within six (6) months
SEC. 87. Exemption of Certain Acquisitions and Transmissions. - from the decedent's death.
The following shall not be taxed: (A) The merger of usufruct in the owner
of the naked title;(B) The transmission or delivery of the inheritance or
A certified copy of the schedule of partition and the order of the court
legacy by the fiduciary heir or legatee to the fideicommissary;(C) The
approving the same shall be furnished the Commissioner within thirty (30)
transmission from the first heir, legatee or donee in favor of another
after the promulgation of such order.
beneficiary, in accordance with the desire of the predecessor; and(D) All
bequests, devises, legacies or transfers to social welfare, cultural and
charitable institutions, no part of the net income of which insures to the (C) Extension of Time. - The Commissioner shall have authority to
benefit of any individual: Provided, however, That not more than thirty grant, in meritorious cases, a reasonable extension not exceeding thirty
percent (30%) of the said bequests, devises, legacies or transfers shall be (30) days for filing the return.
used by such institutions for administration purposes.
(D) Place of Filing. - Except in cases where the Commissioner otherwise
SEC. 88. Determination of the Value of the Estate. - permits, the return required under Subsection (A) shall be filed with an
authorized agent bank, or Revenue District Officer, Collection Officer, or
duly authorized Treasurer of the city or municipality in which the decedent
(A) Usufruct. - To determine the value of the right of usufruct, use or
was domiciled at the time of his death or if there be no legal residence in
habitation, as well as that of annuity, there shall be taken into account the
the Philippines, with the Office of the Commissioner.
probable life of the beneficiary in accordance with the latest Basic
Standard Mortality Table, to be approved by the Secretary of Finance,
upon recommendation of the Insurance Commissioner. SEC. 91. Payment of Tax. -
(A) Time of Payment. - The estate tax imposed by Section 84 shall be

paid at the time the return is filed by the executor, administrator or the administrator, or any heir, then the amount by which the tax exceeds the
heirs. 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,
(B) Extension of Time. - When the Commissioner finds that the
refunded or otherwise repaid in respect of such tax.
payment on the due date of the estate tax or of any part thereof would
impose undue hardship upon the estate or any of the heirs, he may
extend the time for payment of such tax or any part thereof not to exceed SEC. 94. Payment Before Delivery by Executor or Administrator. -
five (5) years, in case the estate is settled through the courts, or two (2) No judge shall authorize the executor or judicial administrator to deliver a
years in case the estate is settled extrajudicially. distributive share to any party interested in the estate unless a certification
from the Commissioner that the estate tax has been paid is shown.
In such case, the amount in respect of which the extension is granted
shall be paid on or before the date of the expiration of the period of the SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds
extension, and the running of the Statute of Limitations for assessment as shall not register in the Registry of Property any document transferring
provided in Section 203 of this Code shall be suspended for the period of real property or real rights therein or any chattel mortgage, by way of gifts
any such extension. inter vivos or mortis causa, legacy or inheritance, unless a certification
from the Commissioner that the tax fixed in this Title and actually due
thereon had been paid is show, and they shall immediately notify the
Where the taxes are assessed by reason of negligence, intentional
Commissioner, Regional Director, Revenue District Officer, or Revenue
disregard of rules and regulations, or fraud on the part of the taxpayer, no
Collection Officer or Treasurer of the city or municipality where their
extension will be granted by the Commissioner.
offices are located, of the non payment of the tax discovered by them.
If an extension is granted, the Commissioner may require the executor, or

Any lawyer, notary public, or any government officer who, by reason of his
administrator, or beneficiary, as the case may be, to furnish a bond in
official duties, intervenes in the preparation or acknowledgment of
such amount, not exceeding double the amount of the tax and with such
documents regarding partition or disposal of donation inter vivos or mortis
sureties as the Commissioner deems necessary, conditioned upon the
causa, legacy or inheritance, shall have the duty of furnishing the
payment of the said tax in accordance with the terms of the extension.
Commissioner, Regional Director, Revenue District Officer or Revenue
Collection Officer of the place where he may have his principal office, with
(C) Liability for Payment.- The estate tax imposed by Section 84 shall copies of such documents and any information whatsoever which may
be paid by the executor or administrator before delivery to any beneficiary facilitate the collection of the aforementioned tax.
of his distributive share of the estate.
Neither shall a debtor of the deceased pay his debts to the heirs, legatee,
Such beneficiary shall to the extent of his distributive share of the estate, executor or administrator of his creditor, unless the certification of the
be subsidiarily liable for the payment of such portion of the estate tax as Commissioner that the tax fixed in this Chapter had been paid is shown;
his distributive share bears to the value of the total net estate. but he may pay the executor or judicial administrator without said
certification if the credit is included in the inventory of the estate of the
For the purpose of this Chapter, the term "executor" or "administrator" deceased.
means the executor or administrator of the decedent, or if there is no
executor or administrator appointed, qualified, and acting within the SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding
Philippines, then any person in actual or constructive possession of any Obligations. - If after the payment of the estate tax, new obligations of
property of the decedent. the decedent shall appear, and the persons interested shall have satisfied
them by order of the court, they shall have a right to the restitution of the
SEC. 92. Discharge of Executor or Administrator from Personal proportional part of the tax paid.
Liability. - If the executor or administrator makes a written application to
the Commissioner for determination of the amount of the estate tax and SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
discharge from personal liability therefore, the Commissioner (as soon as Bonds or Rights.- There shall not be transferred to any new owner in
possible, and in any event within one (1) year after the making of such the books of any corporation, sociedad anonima, partnership, business, or
application, or if the application is made before the return is filed, then industry organized or established in the Philippines any share, obligation,
within one (1) year after the return is filed, but not after the expiration of bond or right by way of gift inter vivos or mortis causa, legacy or
the period prescribed for the assessment of the tax in Section 203 shall inheritance, unless a certification from the Commissioner that the taxes
not notify the executor or administrator of the amount of the tax. fixed in this Title and due thereon have been paid is shown If a bank has
knowledge of the death of a person, who maintained a bank deposit
The executor or administrator, upon payment of the amount of which he is account alone, or jointly with another, it shall not allow any withdrawal
notified, shall be discharged from personal liability for any deficiency in the from the said deposit account, unless the Commissioner has certified that
tax thereafter found to be due and shall be entitled to a receipt or writing the taxes imposed thereon by this Title have been paid: Provided,
showing such discharge. however, That the administrator of the estate or any one (1) of the heirs
of the decedent may, upon authorization by the Commissioner, withdraw
an amount not exceeding Twenty thousand pesos (P20,000) without the
SEC. 93. Definition of Deficiency. - As used in this Chapter, the term said certification.
"deficiency" means:
For this purpose, all withdrawal slips shall contain a statement to the
(a) The amount by which the tax imposed by this Chapter exceeds the effect that all of the joint depositors are still living at the time of
amount shown as the tax by the executor, administrator or any of the withdrawal by any one of the joint depositors and such statement shall be
heirs upon his return; but the amounts so shown on the return shall first under oath by the said depositors.
be increased by the amounts previously assessed (or collected without
assessment) as a deficiency and decreased by the amount previously
abated, refunded or otherwise repaid in respect of such tax; or CHAPTER II
DONOR'S TAX
(b) If no amount is shown as the tax by the executor, administrator or any

of the heirs upon his return, or if no return is made by the executor,
SEC. 98. Imposition of Tax. - (A) There shall be levied, assessed, (3) Gifts in favor of an educational and/or charitable, religious, cultural or
collected and paid upon the transfer by any person, resident or social welfare corporation, institution, accredited nongovernment
nonresident, of the property by gift, a tax, computed as provided in organization, trust or philanthropic organization or research institution or
Section 99. organization: Provided, however, That not more than thirty percent (30%)
of said gifts shall be used by such donee for administration purposes.
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real or For the purpose of the exemption, a 'non-profit educational and/or
personal, tangible or intangible. charitable corporation, institution, accredited nongovernment organization,
trust or philanthropic organization and/or research institution or
organization' is a school, college or university and/or charitable
SEC. 99. Rates of Tax Payable by Donor. -
corporation, accredited nongovernment organization, trust or philanthropic
organization and/or research institution or organization, incorporated as a
(A) In General. - The tax for each calendar year shall be computed on
nonstock entity, paying no dividends, governed by trustees who receive no
the basis of the total net gifts made during the calendar year in
compensation, and devoting all its income, whether students' fees or gifts,
accordance with the following schedule: If the net gift is:
donation, subsidies or other forms of philanthropy, to the accomplishment
and promotion of the purposes enumerated in its Articles of Incorporation.
OVER BUT NOT THE TAX PLUS OF THE
OVER SHALL EXCESS (B) In the Case of Gifts Made by a Nonresident Not a Citizen of
BE OVER the Philippines. - (1) Gifts made to or for the use of the National
P 100,000 Exempt Government or any entity created by any of its agencies which is not
conducted for profit, or to any political subdivision of the said Government.
P 100,000 200,000 0 2% P100,000
200,000 500,000 2,000 4% 200,000
(2) Gifts in favor of an educational and/or charitable, religious, cultural or
500,000 1,000,000 14,000 6% 500,000 social welfare corporation, institution, foundation, trust or philanthropic
1,000,000 3,000,000 44,000 8% 1,000,000 organization or research institution or organization: Provided, however,
3,000,000 5,000,000 204,000 10% 3,000,000 That not more than thirty percent (30%) of said gifts shall be used by
such donee for administration purposes.
5,000,000 10,000,000 404,000 12% 5,000,000
10,000,000 1,004,000 15% 10,000,000
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. - (1)
In General. - The tax imposed by this Title upon a donor who was a
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee citizen or a resident at the time of donation shall be credited with the
or beneficiary is stranger, the tax payable by the donor shall be thirty amount of any donor's tax of any character and description imposed by
percent (30%) of the net gifts. the authority of a foreign country.
For the purpose of this tax, a "stranger", is a person who is not a: (1) (2) Limitations on Credit. - The amount of the credit taken under this
Brother, sister (whether by whole or half-blood), spouse, ancestor and Section shall be subject to each of the following limitations:
lineal descendant; or (2) Relative by consanguinity in the collateral line
within the fourth degree of relationship. (a) The amount of the credit in respect to the tax paid to any country shall
not exceed the same proportion of the tax against which such credit is
(C) Any contribution in cash or in kind to any candidate, political party or taken, which the net gifts situated within such country taxable under this
coalition of parties for campaign purposes shall be governed by the Title bears to his entire net gifts; and
Election Code, as amended.
(b) The total amount of the credit shall not exceed the same proportion of
SEC. 100. Transfer for Less Than Adequate and Full the tax against which such credit is taken, which the donor's net gifts
Consideration. - Where property, other than real property referred to in situated outside the Philippines taxable under this title bears to his entire
Section 24(D), is transferred for less than an adequate and full net gifts.
consideration in money or money's worth, then the amount by which the
fair market value of the property exceeded the value of the consideration SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in
shall, for the purpose of the tax imposed by this Chapter, be deemed a property, the fair market value thereof at the time of the gift shall be
gift, and shall be included in computing the amount of gifts made during considered the amount of the gift.
the calendar year.
In case of real property, the provisions of Section 88(B) shall apply to the
SEC. 101. Exemption of Certain Gifts. - The following gifts or valuation thereof.
donations shall be exempt from the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident.- SEC. 103. Filing of Return and Payment of Tax. -
(1) Dowries or gifts made on account of marriage and before its (A) Requirements.- any individual who makes any transfer by gift
celebration or within one year thereafter by parents to each of their (except those which, under Section 101, are exempt from the tax provided
legitimate, recognized natural, or adopted children to the extent of the for in this Chapter) shall, for the purpose of the said tax, make a return
first Ten thousand pesos (P10,000): under oath in duplicate.
(2) Gifts made to or for the use of the National Government or any entity The return shall se forth:
created by any of its agencies which is not conducted for profit, or to any
political subdivision of the said Government; and (1) Each gift made during the calendar year which is to be included in
computing net gifts;

(2) The deductions claimed and allowable; SEC. 105. Persons Liable. - Any person who, in the course of trade or
business, sells barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-
(3) Any previous net gifts made during the same calendar year;
added tax (VAT) imposed in Sections 106 to 108 of this Code.
(4) The name of the donee; and

The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
(5) Such further information as may be required by rules and regulations properties or services.
made pursuant to law.
This rule shall likewise apply to existing contracts of sale or lease of goods,
(B) Time and Place of Filing and Payment. - The return of the donor properties or services at the time of the effectivity of Republic Act No.
required in this Section shall be filed within thirty (30) days after the date 7716.
the gift is made and the tax due thereon shall be paid at the time of filing.
The phrase "in the course of trade or business" means the regular conduct
Except in cases where the Commissioner otherwise permits, the return or pursuit of a commercial or an economic activity, including transactions
shall be filed and the tax paid to an authorized agent bank, the Revenue incidental thereto, by any person regardless of whether or not the person
District Officer, Revenue Collection Officer or duly authorized Treasurer of engaged therein is a nonstock, nonprofit private organization (irrespective
the city or municipality where the donor was domiciled at the time of the of the disposition of its net income and whether or not it sells exclusively
transfer, or if there be no legal residence in the Philippines, with the Office to members or their guests), or government entity.
of the Commissioner.
The rule of regularity, to the contrary notwithstanding, services as defined
In the case of gifts made by a nonresident, the return may be filed with in this Code rendered in the Philippines by nonresident foreign persons
the Philippine Embassy or Consulate in the country where he is domiciled shall be considered as being course of trade or business.
at the time of the transfer, or directly with the Office of the Commissioner.
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
SEC. 104. Definitions. - For purposes of this Title, the terms "gross
estate" and "gifts" include real and personal property, whether tangible or
(A) Rate and Base of Tax. - There shall be levied, assessed and
intangible, or mixed, wherever situated: Provided, however, That where
collected on every sale, barter or exchange of goods or properties, value-
the decedent or donor was a nonresident alien at the time of his death or
added tax equivalent to ten percent (10%) of the gross selling price or
donation, as the case may be, his real and personal property so
gross value in money of the goods or properties sold, bartered or
transferred but which are situated outside the Philippines shall not be
exchanged, such tax to be paid by the seller or transferor.
included as part of his "gross estate" or "gross gift": Provided, further,
That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima (1) The term "goods" or "properties" shall mean all tangible and intangible
organized or constituted in the Philippines in accordance with its laws; objects which are capable of pecuniary estimation and shall include: (a)
shares, obligations or bonds by any foreign corporation eighty-five percent Real properties held primarily for sale to customers or held for lease in the
(85%) of the business of which is located in the Philippines; shares, ordinary course of trade or business; (b) The right or the privilege to use
obligations or bonds issued by any foreign corporation if such shares, patent, copyright, design or model, plan, secret formula or process,
obligations or bonds have acquired a business situs in the Philippines; goodwill, trademark, trade brand or other like property or right; (c) The
shares or rights in any partnership, business or industry established in the right or the privilege to use in the Philippines of any industrial, commercial
Philippines, shall be considered as situated in the Philippines: Provided, or scientific equipment; (d) The right or the privilege to use motion picture
still further, that no tax shall be collected under this Title in respect of films, tapes and discs; and (e) Radio, television, satellite transmission and
intangible personal property: (a) if the decedent at the time of his death cable television time.
or the donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not impose
The term "gross selling price" means the total amount of money or its
a transfer tax of any character, in respect of intangible personal property
equivalent which the purchaser pays or is obligated to pay to the seller in
of citizens of the Philippines not residing in that foreign country, or (b) if
consideration of the sale, barter or exchange of the goods or properties,
the laws of the foreign country of which the decedent or donor was a
excluding the value-added tax.
citizen and resident at the time of his death or donation allows a similar
exemption from transfer or death taxes of every character or description in
respect of intangible personal property owned by citizens of the Philippines The excise tax, if any, on such goods or properties shall form part of the
not residing in that foreign country. gross selling price.
The term "deficiency" means: (a) the amount by which tax imposed by (2) The following sales by VAT-registered persons shall be subject to zero
this Chapter exceeds the amount shown as the tax by the donor upon his percent (0%) rate:
return; but the amount so shown on the return shall first be increased by
the amount previously assessed (or collected without assessment) as a (a) Export Sales. - The term "export sales" means:
deficiency, and decreased by the amounts previously abated, refunded or
otherwise repaid in respect of such tax, or (b) if no amount is shown as
the tax by the donor, then the amount by which the tax exceeds the (1) The sale and actual shipment of goods from the Philippines to a
amounts previously assessed, (or collected without assessment) as a foreign country, irrespective of any shipping arrangement that may be
deficiency, but such amounts previously assessed, or collected without agreed upon which may influence or determine the transfer of ownership
assessment, shall first be decreased by the amount previously abated, of the goods so exported and paid for in acceptable foreign currency or its
refunded or otherwise repaid in respect of such tax. equivalent in goods or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
TITLE IV
VALUE-ADDED TAX (2) Sale of raw materials or packaging materials to a nonresident buyer for
CHAPTER I delivery to a resident local export-oriented enterprise to be used in
IMPOSITION OF TAX manufacturing, processing, packing or repacking in the Philippines of the

said buyer's goods and paid for in acceptable foreign currency and importation of goods a value-added tax equivalent to ten percent (10%)
accounted for in accordance with the rules and regulations of the Bangko based on the total value used by the Bureau of Customs in determining
Sentral ng Pilipinas (BSP); tariff and customs duties plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the customs
(3) Sale of raw materials or packaging materials to export-oriented
duties are determined on the basis of the quantity or volume of the goods,
enterprise whose export sales exceed seventy percent (70%) of total
the value-added tax shall be based on the landed cost plus excise taxes, If
annual production;
any.
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(B) Transfer of Goods by Tax-Exempt Persons. - In the case of tax-
free importation of goods into the Philippines by persons, entities or
(5) Those considered export sales under Executive Order No. 226, agencies exempt from tax where such goods are subsequently sold,
otherwise known as the Omnibus Investment Code of 1987, and other transferred or exchanged in the Philippines to non-exempt persons or
special laws. entities, the purchasers, transferees or recipients shall be considered the
importers thereof, who shall be liable for any internal revenue tax on such
(b) Foreign Currency Denominated Sale. - The phrase "foreign importation.
currency denominated sale" means sale to a nonresident of goods, except
those mentioned in Sections 149 and 150, assembled or manufactured in The tax due on such importation shall constitute a lien on the goods
the Philippines for delivery to a resident in the Philippines, paid for in superior to all charges or liens on the goods, irrespective of the possessor
acceptable foreign currency and accounted for in accordance with the thereof.
rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
SEC. 108. Value-added Tax on Sale of Services and Use or Lease
(c) Sales to persons or entities whose exemption under special laws or of Properties. -
international agreements to which the Philippines is a signatory effectively
subjects such sales to zero rate.
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of gross
(B) Transactions Deemed Sale. - The following transactions shall be receipts derived from the sale or exchange of services, including the use
deemed sale: (1) Transfer, use or consumption not in the course of or lease of properties.
business of goods or properties originally intended for sale or for use in
the course of business;(2) Distribution or transfer to: (a) Shareholders or
The phrase "sale or exchange of services" means the performance of all
investors as share in the profits of the VAT-registered persons; or (b)
kinds or services in the Philippines for others for a fee, remuneration or
Creditors in payment of debt; (3) Consignment of goods if actual sale is
consideration, including those performed or rendered by construction and
not made within sixty (60) days following the date such goods were
service contractors; stock, real estate, commercial, customs and
consigned; and(4) Retirement from or cessation of business, with respect
immigration brokers; lessors of property, whether personal or real;
to inventories of taxable goods existing as of such retirement or cessation.
warehousing services; lessors or distributors of cinematographic films;
persons engaged in milling processing, manufacturing or repacking goods
(C) Changes in or Cessation of Status of a VAT-registered Person. for others; proprietors, operators or keepers of hotels, motels, resthouses,
- The tax imposed in Subsection (A) of this Section shall also apply to pension houses, inns, resorts; proprietors or operators of restaurants,
goods disposed of or existing as of a certain date if under circumstances refreshment parlors, cafes and other eating places, including clubs and
to be prescribed in rules and regulations to be promulgated by the caterers; dealers in securities; lending investors; transportation contractors
Secretary of Finance, upon recommendation of the Commissioner, the on their transport of goods or cargoes, including persons who transport
status of a person as a VAT-registered person changes or is terminated. goods or cargoes for hire another domestic common carriers by land, air
and water relative to their transport of goods or cargoes; services of
(D) Determination of the Tax. - (1) The tax shall be computed by franchise grantees of telephone and telegraph, radio and television
multiplying the total amount indicated in the invoice by one-eleventh broadcasting and all other franchise grantees except those under Section
(1/11). 119 of this Code; services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies;
(2) Sales Returns, Allowances and Sales Discounts. - The value of goods and similar services regardless of whether or not the performance thereof
or properties sold and subsequently returned or for which allowances were calls for the exercise or use of the physical or mental faculties.
granted by a VAT-registered person may be deducted from the gross sales
or receipts for the quarter in which a refund is made or a credit
memorandum or refund is issued. The phrase 'sale or exchange of services' shall likewise include:
Sales discount granted and indicated in the invoice at the time of sale and (1) The lease or the use of or the right or privilege to use any copyright,
the grant of which does not depend upon the happening of a future event patent, design or model, plan secret formula or process, goodwill,
may be excluded from the gross sales within the same quarter it was trademark, trade brand or other like property or right;
given.
(2) The lease of the use of, or the right to use of any industrial,
(3) Authority of the Commissioner to Determine the Appropriate Tax Base. commercial or scientific equipment;
- The Commissioner shall, by rules and regulations prescribed by the
Secretary of Finance, determine the appropriate tax base in cases where a (3) The supply of scientific, technical, industrial or commercial knowledge
transaction is deemed a sale, barter or exchange of goods or properties or information;(4) The supply of any assistance that is ancillary and
under Subsection (B) hereof, or where the gross selling price is subsidiary to and is furnished as a means of enabling the application or
unreasonably lower than the actual market value. enjoyment of any such property, or right as is mentioned in subparagraph
(2) or any such knowledge or information as is mentioned in subparagraph
SEC. 107. Value-Added Tax on Importation of Goods. - (3);(5) The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the
(A) In General. - There shall be levied, assessed and collected on every
installation or operation of any brand, machinery or other apparatus produced or imported, used in the manufacture of finished feeds (except
purchased from such nonresident person. specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets);
(6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific, (e) Sale or importation of coal and natural gas, in whatever form or state,
industrial or commercial undertaking, venture, project or scheme;(7) The and petroleum products (except lubricating oil, processed gas, grease, wax
lease of motion picture films, films, tapes and discs; and(8) The lease or and petrolatum) subject to excise tax imposed under Title VI;
the use of or the right to use radio, television, satellite transmission and
cable television time.
(f) Sale or importation of raw materials to be used by the buyer or
importer himself in the manufacture of petroleum products subject to
Lease of properties shall be subject to the tax herein imposed irrespective excise tax, except lubricating oil, processed gas, grease, wax and
of the place where the contract of lease or licensing agreement was petrolatum;
executed if the property is leased or used in the Philippines.
(g) Importation of passenger and/or cargo vessels of more than five
The term "gross receipts" means the total amount of money or its thousand tons (5,000) whether coastwise or ocean-going, including engine
equivalent representing the contract price, compensation, service fee, and spare parts of said vessel to be used by the importer himself as
rental or royalty, including the amount charged for materials supplied with operator thereof;
the services and deposits and advanced payments actually or
constructively received during the taxable quarter for the services
(h) Importation of personal and household effects belonging to the
performed or to be performed for another person, excluding value-added
residents of the Philippines returning from abroad and nonresident citizens
tax.
coming to resettle in the Philippines: Provided, That such goods are
exempt from customs duties under the Tariff and Customs Code of the
(B) Transactions Subject to Zero Percent (0%) Rate.- The following Philippines;
services performed in the Philippines by VAT- registered persons shall be
subject to zero percent (0%) rate.
(i) Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except any
(1) Processing, manufacturing or repacking goods for other persons doing vehicle, vessel, aircraft, machinery other goods for use in the manufacture
business outside the Philippines which goods are subsequently exported, and merchandise of any kind in commercial quantity) belonging to persons
where the services are paid for in acceptable foreign currency and coming to settle in the Philippines, for their own use and not for sale,
accounted for in accordance with the rules and regulations of the Bangko barter or exchange, accompanying such persons, or arriving within ninety
Sentral ng Pilipinas (BSP);(2) Services other than those mentioned in the (90) days before or after their arrival, upon the production of evidence
preceding paragraph, the consideration for which is paid for in acceptable satisfactory to the Commissioner, that such persons are actually coming to
foreign currency and accounted for in accordance with the rules and settle in the Philippines and that the change of residence is bona fide;
regulations of the Bangko Sentral ng Pilipinas (BSP);(3) Services rendered
to persons or entities whose exemption under special laws or international
(j) Services subject to percentage tax under Title V;
agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate;(4) Services rendered to
vessels engaged exclusively in international shipping; and(5) Services (k) Services by agricultural contract growers and milling for others of palay
performed by subcontractors and/or contractors in processing, converting, into rice, corn into grits and sugar cane into raw sugar;
of manufacturing goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production. (l) Medical, dental, hospital and veterinary services subject to the
provisions of Section 17 of Republic Act No. 7716, as amended;
(C) Determination of the Tax. - The tax shall be computed by
multiplying the total amount indicated in the official receipt by one- (m) Educational services rendered by private educational institutions, duly
eleventh (1/11). accredited by the Department of Education, Culture and Sports (DECS)
and the Commission on Higher Education (CHED), and those rendered by
SEC. 109. Exempt Transactions. - The following shall be exempt from government educational institutions;
the value-added tax:
(n) Sale by the artist himself of his works of art, literary works, musical
(a) Sale of nonfood agricultural products; marine and forest products in compositions and similar creations, or his services performed for the
their original state by the primary producer or the owner of the land where production of such works;
the same are produced;
(o) Services rendered by individuals pursuant to an employer-employee
(b) Sale of cotton seeds in their original state; and copra; relationship;
(c) Sale or importation of agricultural and marine food products in their (p) Services rendered by regional or area headquarters established in the
original state, livestock and poultry of or king generally used as, or Philippines by multinational corporations which act as supervisory,
yielding or producing foods for human consumption; and breeding stock communications and coordinating centers for their affiliates, subsidiaries or
and genetic materials therefor. Products classified under this paragraph branches in the Asia-Pacific Region and do not earn or derive income from
and paragraph (a) shall be considered in their original state even if they the Philippines;
have undergone the simple processes of preparation or preservation for
the market, such as freezing, drying, salting, broiling, roasting, smoking or (q) Transactions which are exempt under international agreements to
stripping. Polished and/or husked rice, corn grits, raw cane sugar and which the Philippines is a signatory or under special laws, except those
molasses, and ordinary salt shall be considered in their original state; under Presidential Decree Nos. 66, 529 and 1590;
(d) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, (r) Sales by agricultural cooperatives duly registered with the Cooperative
prawn, livestock and poultry feeds, including ingredients, whether locally Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their (1) Any input tax evidenced by a VAT invoice or official receipt issued in
importation of direct farm inputs, machineries and equipment, including accordance with Section 113 hereof on the following transactions shall be
spare parts thereof, to be used directly and exclusively in the production creditable against the output tax:
and/or processing of their produce;
(a) Purchase or importation of goods:
(s) Sales by electric cooperatives duly registered with the Cooperative
Development authority or National Electrification Administration, relative to
(i) For sale; or
the generation and distribution of electricity as well as their importation of
(ii) For conversion into or intended to form part of a finished product for
machineries and equipment, including spare parts, which shall be directly
sale including packaging materials; or
used in the generation and distribution of electricity;
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(t) Gross receipts from lending activities by credit or multi-purpose (v) For use in trade or business for which deduction for depreciation or
cooperatives duly registered with the Cooperative Development Authority amortization is allowed under this Code, except automobiles, aircraft and
whose lending operation is limited to their members; yachts.
(u) Sales by non-agricultural, non- electric and non-credit cooperatives (b) Purchase of services on which a value-added tax has been actually
duly registered with the Cooperative Development Authority: Provided, paid.
That the share capital contribution of each member does not exceed
Fifteen thousand pesos (P15,000) and regardless of the aggregate capital
(2) The input tax on domestic purchase of goods or properties shall be
and net surplus ratably distributed among the members;
creditable: (a) To the purchaser upon consummation of sale and on
importation of goods or properties; and (b) To the importer upon payment
(v) Export sales by persons who are not VAT-registered; of the value-added tax prior to the release of the goods from the custody
of the Bureau of Customs.
(w) Sale of real properties not primarily held for sale to customers or held
for lease in the ordinary course of trade or business or real property However, in the case of purchase of services, lease or use of properties,
utilized for low-cost and socialized housing as defined by Republic Act No. the input tax shall be creditable to the purchaser, lessee or licensee upon
7279, otherwise known as the Urban Development and Housing Act of payment of the compensation, rental, royalty or fee.
1992, and other related laws, house and lot and other residential dwellings
valued at One million pesos (P1,000,000) and below: Provided, That not
(3) A VAT-registered person who is also engaged in transactions not
later than January 31st of the calendar year subsequent to the effectivity
subject to the value-added tax shall be allowed tax credit as follows: (a)
of this Act and each calendar year thereafter, the amount of One million
Total input tax which can be directly attributed to transactions subject to
pesos (P1,000,000) shall be adjusted to its present value using the
value-added tax; and (b) A ratable portion of any input tax which cannot
Consumer Price Index, as published by the national Statistics Office (NSO);
be directly attributed to either activity.
(x) Lease of a residential unit with a monthly rental not exceeding Eight
The term "input tax" means the value-added tax due from or paid by a
thousand pesos (P8,000); Provided, That not later than January 31st of
VAT-registered person in the course of his trade or business on
the calendar year subsequent to the effectivity of Republic Act No. 8241
importation of goods or local purchase of goods or services, including
and each calendar year thereafter, the amount of Eight thousand pesos
lease or use of property, from a VAT-registered person.
(P8,000) shall be adjusted to its present value using the Consumer Price
Index as published by the National Statistics Office (NS0);
It shall also include the transitional input tax determined in accordance
with Section 111 of this Code. The term "output tax" means the value-
(y) Sale, importation, printing or publication of books and any newspaper,
added tax due on the sale or lease of taxable goods or properties or
magazine review or bulletin which appears at regular intervals with fixed
services by any person registered or required to register under Section
prices for subscription and sale and which is not devoted principally to the
236 of this Code.
publication of paid advertisements; and
(B) Excess Output or Input Tax.- If at the end of any taxable quarter
(z) Sale or lease of goods or properties or the performance of services
the output tax exceeds the input tax, the excess shall be paid by the VAT-
other than the transactions mentioned in the preceding paragraphs, the
registered person.
gross annual sales and/or receipts do not exceed the amount of Five
hundred fifty thousand pesos (P550,000): Provided, That not later than
January 31st of the calendar year subsequent to the effectivity of Republic If the input tax exceeds the output tax, the excess shall be carried over to
Act No. 8241 and each calendar year thereafter, the amount of Five the succeeding quarter or quarters.
hundred fifty thousand pesos (550,000) shall be adjusted to its present
value using the Consumer Price Index, as published by the National any input tax attributable to the purchase of capital goods or to zero-rated
Statistics Office (NSO). sales by a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes, subject to the provisions of
The foregoing exemptions to the contrary notwithstanding, any person Section 112.
whose sale of goods or properties or services which are otherwise not
subject to VAT, but who issues a VAT invoice or receipt therefor shall, in (C) Determination of Creditable Input Tax.- The sum of the excess
addition to his liability to other applicable percentage tax, if any, be liable input tax carried over from the preceding month or quarter and the input
to the tax imposed in Section 106 or 108 without the benefit of input tax tax creditable to a VAT-registered person during the taxable month or
credit, and such tax shall also be recognized as input tax credit to the quarter shall be reduced by the amount of claim for refund or tax credit
purchaser under Section 110, all of this Code. for value-added tax and other adjustments, such as purchase returns or
allowances and input tax attributable to exempt sale.
SEC. 110. Tax Credits. -
The claim for tax credit referred to in the foregoing paragraph shall
(A) Creditable Input Tax. include not only those filed with the Bureau of Internal Revenue but also

those filed with other government agencies, such as the Board of (D) Period Within Which Refund or Tax Credit of Input Taxes
Investments the Bureau of Customs. Shall be Made. - In proper cases, the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of compete
SEC. 111. Transitional/Presumptive Input Tax Credits. -
documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.
(A) Transitional Input Tax Credits.- A person who becomes liable to
value-added tax or any person who elects to be a VAT-registered person
In case of full or partial denial of the claim for tax refund or tax credit, or
shall, subject to the filing of an inventory according to rules and
the failure on the part of the Commissioner to act on the application within
regulations prescribed by the Secretary of finance, upon recommendation
the period prescribed above, the taxpayer affected may, within thirty (30)
of the Commissioner, be allowed input tax on his beginning inventory of
days from the receipt of the decision denying the claim or after the
goods, materials and supplies equivalent for eight percent (8%) of the
expiration of the one hundred twenty day-period, appeal the decision or
value of such inventory or the actual value-added tax paid on such goods,
the unacted claim with the Court of Tax Appeals.
materials and supplies, whichever is higher, which shall be creditable
against the output tax.
(E) Manner of Giving Refund. - Refunds shall be made upon warrants
drawn by the Commissioner or by his duly authorized representative
(B) Presumptive Input Tax Credits. - without the necessity of being countersigned by the Chairman,
Commission on audit, the provisions of the Administrative Code of 1987 to
(1) Persons or firms engaged in the processing of sardines, mackerel and the contrary notwithstanding: Provided, That refunds under this paragraph
milk, and in manufacturing refined sugar and cooking oil, shall be allowed shall be subject to post audit by the Commission on Audit.
a presumptive input tax, creditable against the output tax, equivalent to
one and one-half percent (1 1/2%) of the gross value in money of their CHAPTER II
purchases of primary agricultural products which are used as inputs to COMPLIANCE REQUIREMENTS
their production. As used in this Subsection, the term "processing" shall
mean pasteurization, canning and activities which through physical or
SEC. 113. Invoicing and Accounting Requirements for VAT-
chemical process alter the exterior texture or form or inner substance of a
Registered Persons. -
product in such manner as to prepare it for special use to which it could
not have been put in its original form or condition.
(A) Invoicing Requirements. - A VAT-registered person shall, for every
sale, issue an invoice or receipt.
(2) Public works contractors shall be allowed a presumptive input tax
equivalent to one and one-half percent (1 1/2%) of the contract price with
respect to government contracts only in lieu of actual input taxes In addition to the information required under Section 237, the following
therefrom. information shall be indicated in the invoice or receipt:
SEC. 112. Refunds or Tax Credits of Input Tax. - (1) A statement that the seller is a VAT-registered person, followed by his
taxpayer's identification number (TIN); and(2) The total amount which the
purchaser pays or is obligated to pay to the seller with the indication that
(A) Zero-Rated or Effectively Zero-Rated Sales.- any VAT-registered
such amount includes the value-added tax.
person, whose sales are zero-rated or effectively zero-rated may, within
two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of (B) Accounting Requirements. - Notwithstanding the provisions of
creditable input tax due or paid attributable to such sales, except Section 233, all persons subject to the value-added tax under Sections 106
transitional input tax, to the extent that such input tax has not been and 108 shall, in addition to the regular accounting records required,
applied against output tax: Provided, however, That in the case of zero- maintain a subsidiary sales journal and subsidiary purchase journal on
rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 which the daily sales and purchases are recorded.
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and regulations
The subsidiary journals shall contain such information as may be required
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
by the Secretary of Finance.
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of properties or services, and the amount
of creditable input tax due or paid cannot be directly and entirely SEC. 114. Return and Payment of Value-Added Tax. -
attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales. (A) In General. - Every person liable to pay the value-added tax imposed
under this Title shall file a quarterly return of the amount of his gross sales
(B) Capital Goods.- A VAT-registered person may apply for the issuance or receipts within twenty-five (25) days following the close of each taxable
of a tax credit certificate or refund of input taxes paid on capital goods quarter prescribed for each taxpayer: Provided, however, That VAT-
imported or locally purchased, to the extent that such input taxes have not registered persons shall pay the value-added tax on a monthly basis.
been applied against output taxes.
Any person, whose registration has been cancelled in accordance with
The application may be made only within two (2) years after the close of Section 236, shall file a return and pay the tax due thereon within twenty-
the taxable quarter when the importation or purchase was made. five (25) days from the date of cancellation of registration: Provided, That
only one consolidated return shall be filed by the taxpayer for his principal
place of business or head office and all branches.
(C) Cancellation of VAT Registration. - A person whose registration
has been cancelled due to retirement from or cessation of business, or due
to changes in or cessation of status under Section 106(C) of this Code (B) Where to File the Return and Pay the Tax. - Except as the
may, within two (2) years from the date of cancellation, apply for the Commissioner otherwise permits, the return shall be filed with and the tax
issuance of a tax credit certificate for any unused input tax which may be paid to an authorized agent bank, Revenue Collection Officer or duly
used in payment of his other internal revenue taxes. authorized city or municipal Treasurer in the Philippines located within the
revenue district where the taxpayer is registered or required to register.

(C) Withholding of Creditable Value-Added Tax. - The Government In computing the percentage tax provided in this Section, the following
or any of its political subdivisions, instrumentalities or agencies, including shall be considered the minimum quarterly gross receipts in each
government-owned or -controlled corporations (GOCCs) shall, before particular case:
making payment on account of each purchase of goods from sellers and
services rendered by contractors which are subject to the value-added tax
Jeepney for hire -
imposed in Sections 106 and 108 of this Code, deduct and withhold the
value-added tax due at the rate of three percent (3%) of the gross
payment for the purchase of goods and six percent (6%) on gross receipts 1. Manila and other cities P 2,400
for services rendered by contractors on every sale or installment payment 2. Provincial 1,200
which shall be creditable against the value-added tax liability of the seller
or contractor: Provided, however, That in the case of government public Public utility bus -
works contractors, the withholding rate shall be eight and one-half percent
(8.5%): Provided, further, That the payment for lease or use of properties
or property rights to nonresident owners shall be subject to ten percent Not exceeding 30 passengers 3,600
(10%) withholding tax at the time of payment. Exceeding 30 but not exceeding 50 passengers 6,000
Exceeding 50 passengers 7,200
For this purpose, the payor or person in control of the payment shall be
considered as the withholding agent. Taxis -
The value-added tax withheld under this Section shall be remitted within 1. Manila and other cities P 3,600
ten (10) days following the end of the month the withholding was made.
2. Provincial 2,400
SEC. 115. Power of the Commissioner to Suspend the Business Car for hire (with chauffer) 3,000
Operations of a Taxpayer. - The Commissioner or his authorized Car for hire (without chauffer) 1,800
representative is hereby empowered to suspend the business operations
and temporarily close the business establishment of any person for any of SEC. 118. Percentage Tax on International Carriers. -
the following violations:
(A) International air carriers doing business in the Philippines shall pay a
(a) In the case of a VAT-registered Person. - tax of three percent (3%) of their quarterly gross receipts.
(1) Failure to issue receipts or invoices; (B) International shipping carriers doing business in the Philippines shall
pay a tax equivalent to three percent (3%) of their quarterly gross
(2) Failure to file a value-added tax return as required under Section 114; receipts.
or
SEC. 119. Tax on Franchises. - Any provision of general or special law
(3) Understatement of taxable sales or receipts by thirty percent (30%) or to the contrary notwithstanding, there shall be levied, assessed and
more of his correct taxable sales or receipts for the taxable quarter. collected in respect to all franchises on radio and/or television
broadcasting companies whose annual gross receipts of the preceding
year does not exceed Ten million pesos (P10,000.00), subject to Section
(b) Failure of any Person to Register as Required under Section 236. - The 236 of this Code, a tax of three percent (3%) and on electric, gas and
temporary closure of the establishment shall be for the duration of not less water utilities, a tax of two percent (2%) on the gross receipts derived
than five (5) days and shall be lifted only upon compliance with whatever from the business covered by the law granting the franchise: Provided,
requirements prescribed by the Commissioner in the closure order. however, That radio and television broadcasting companies referred to in
this Section shall have an option to be registered as a value-added
taxpayer and pay the tax due thereon: Provided, further, That once the
TITLE V option is exercised, it shall not be revoked.
OTHER PERCENTAGE TAXES
The grantee shall file the return with, and pay the tax due thereon to the
SEC. 116. Tax on Persons Exempt From Value-Added Tax (VAT). - Commissioner or his duly authorized representative, in accordance with
Any person whose sales or receipts are exempt under Section 109(z) of the provisions of Section 128 of this Code, and the return shall be subject
this Code from the payment of value-added tax and who is not a VAT- to audit by the Bureau of Internal Revenue, any provision of any existing
registered person shall pay a tax equivalent to three percent (3%) of his law to the contrary notwithstanding. cralaw
gross quarterly sales or receipts: Provided, That cooperatives shall be
exempt from the three percent (3%)gross receipts tax herein imposed. SEC. 120. Tax on Overseas Dispatch, Message or Conversation
Originating from the Philippines. -
SEC. 117. Percentage Tax on Domestic Carriers and Keepers of
Garages. - Cars for rent or hire driven by the lessee, transportation (A) Persons Liable. - There shall be collected upon every overseas
contractors, including persons who transport passengers for hire, and dispatch, message or conversation transmitted from the Philippines by
other domestic carriers by land, air or water, for the transport of telephone, telegraph, telewriter exchange, wireless and other
passengers, except owners of bancas and owner of animal-drawn two communication equipment service, a tax of ten percent (10%) on the
wheeled vehicle, and keepers of garages shall pay a tax equivalent to amount paid for such services.
three percent (3%) of their quarterly gross receipts.
The tax imposed in this Section shall be payable by the person paying for
The gross receipts of common carriers derived from their incoming and the services rendered and shall be paid to the person rendering the
outgoing freight shall not be subjected to the local taxes imposed under services who is required to collect and pay the tax within twenty (20) days
Republic Act No. 7160, otherwise known as the Local Government Code of after the end of each quarter.
1991.

(B) Exemptions. - The tax imposed by this Section shall not apply to: Short-term maturity (non in excess of two (2) years) 5% Medium-term
maturity (over two (2) years but not exceeding four (4) years) 3% Long-
term maturity -
(1) Government. - Amounts paid for messages transmitted by the
Government of the Republic of the Philippines or any of its political
subdivisions or instrumentalities; (2) Diplomatic Services. - Amounts paid (1) Over four (4) years but not exceeding seven (7) 1%
for messages transmitted by any embassy and consular offices of a foreign (2) Over seven (7) years 0%
government; (3) International Organizations. - Amounts paid for messages
transmitted by a public international organization or any of its agencies
Provided, however, That in case the maturity period is shortened thru
based in the Philippines enjoying privileges, exemptions and immunities
pretermination, then the maturity period shall be reckoned to end as of
which the Government of the Philippines is committed to recognize
the date of pretermination for purposes of classifying the transaction as
pursuant to an international agreement; and (4) News Services. - Amounts
short, medium or long-term and the correct rate of tax shall be applied
paid for messages from any newspaper, press association, radio or
accordingly.
television newspaper, broadcasting agency, or newstickers services, to any
other newspaper, press association, radio or television newspaper
broadcasting agency, or newsticker service or to a bona fide Nothing in this Code shall preclude the Commissioner from imposing the
correspondent, which messages deal exclusively with the collection of same tax herein provided on persons performing similar financing
news items for, or the dissemination of news item through, public press, activities.
radio or television broadcasting or a newsticker service furnishing a
general news service similar to that of the public press. SEC. 123. Tax on Life Insurance Premiums. - There shall be collected
from every person, company or corporation (except purely cooperative
SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries. - companies or associations) doing life insurance business of any sort in the
There shall be a collected tax on gross receipts derived from sources Philippines a tax of five percent (5%) of the total premium collected,
within the Philippines by all banks and non-bank financial intermediaries in whether such premiums are paid in money, notes, credits or any
accordance with the following schedule: substitute for money; but premiums refunded within six (6) months after
payment on account of rejection of risk or returned for other reason to a
person insured shall not be included in the taxable receipts; nor shall any
(a) On interest, commissions and discounts from lending activities as well
tax be paid upon reinsurance by a company that has already paid the tax;
as income from financial leasing, on the basis of remaining maturities of
nor upon doing business outside the Philippines on account of any life
instruments from which such receipts are derived:
insurance of the insured who is a nonresident, if any tax on such premium
is imposed by the foreign country where the branch is established nor
Short-term maturity (non in excess of two (2) years) 5% upon premiums collected or received on account of any reinsurance , if the
insured, in case of personal insurance, resides outside the Philippines, if
any tax on such premiums is imposed by the foreign country where the
Medium-term maturity (over two (2) years but not exceeding four (4)
original insurance has been issued or perfected; nor upon that portion of
years) 3%
the premiums collected or received by the insurance companies on
variable contracts (as defined in section 232(2) of Presidential Decree No.
Long-term maturity - 612), in excess of the amounts necessary to insure the lives of the variable
contract workers.
(1) Over four (4) years but not exceeding seven (7) years 1%
(2) Over seven (7) years 0%. Cooperative companies or associations are such as are conducted by the
members thereof with the money collected from among themselves and
(b) On dividends 0% solely for their own protection and not for profit.
(c) On royalties, rentals of property, real or personal, profits, from SEC. 124. Tax on Agents of Foreign Insurance Companies. - Every
exchange and all other items treated as gross income under Section 32 of fire, marine or miscellaneous insurance agent authorized under the
this Code 5%. Insurance Code to procure policies of insurance as he may have previously
been legally authorized to transact on risks located in the Philippines for
companies not authorized to transact business in the Philippines shall pay
Provided, however, That in case the maturity period referred to in a tax equal to twice the tax imposed in Section 123: Provided, That the
paragraph (a) is shortened thru pretermination, then the maturity period provision of this Section shall not apply to reinsurance: Provided, however,
shall be reckoned to end as of the date of pretermination for purposes of That the provisions of this Section shall not affect the right of an owner of
classifying the transaction as short, medium or long-term and the correct property to apply for and obtain for himself policies in foreign companies
rate of tax shall be applied accordingly. in cases where said owner does not make use of the services of any
agent, company or corporation residing or doing business in the
Nothing in this Code shall preclude the Commissioner from imposing the Philippines.
same tax herein provided on persons performing similar banking activities.
In all cases where owners of property obtain insurance directly with
SEC. 122. Tax on Finance Companies. - There shall be collected a tax foreign companies, it shall be the duty of said owners to report to the
of five percent (5%) on the gross receipts derived by all finance Insurance Commissioner and to the Commissioner each case where
companies, as well as by other financial intermediaries not performing insurance has been so effected, and shall pay the tax of five percent (5%)
quasi-banking functions dong business in the Philippines, from interest, on premiums paid, in the manner required by Section 123.
discounts and all other items treated as gross income under this Code:
Provided, That interests, commissions and discounts from lending SEC. 125. Amusement Taxes. - There shall be collected from the
activities, as well as income from financial leasing, shall be taxed on the proprietor, lessee or operator of cockpits, cabarets, night or day clubs,
basis of the remaining maturities of the instruments from which such boxing exhibitions, professional basketball games, Jai-Alai and racetracks,
receipts are derived, in accordance with the following schedule: a tax equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;(b) Eighteen percent

(18%) in the case of cabarets, night or day clubs;(c) Ten percent (10%) in

the case of boxing exhibitions: Provided, however, That boxing exhibitions (B) Tax on Shares of Stock Sold or Exchanged Through Initial
wherein World or Oriental Championships in any division is at stake shall Public Offering. - There shall be levied, assessed and collected on every
be exempt from amusement tax: Provided, further, That at least one of sale, barter, exchange or other disposition through initial public offering of
the contenders for World or Oriental Championship is a citizen of the shares of stock in closely held corporations, as defined herein, a tax at the
Philippines and said exhibitions are promoted by a citizen/s of the rates provided hereunder based on the gross selling price or gross value in
Philippines or by a corporation or association at least sixty percent (60%) money of the shares of stock sold, bartered, exchanged or otherwise
of the capital of which is owned by such citizens;(d) Fifteen percent (15%) disposed in accordance with the proportion of shares of stock sold,
in the case of professional basketball games as envisioned in Presidential bartered, exchanged or otherwise disposed to the total outstanding shares
Decree No. 871: Provided, however, That the tax herein shall be in lieu of of stock after the listing in the local stock exchange:
all other percentage taxes of whatever nature and description; and(e)
Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross
Up to twenty-five percent (25%)& 4%
receipts, irrespective, of whether or not any amount is charged for
admission.
Over twenty-five percent (25%) but not over thirty-three and one third
percent (33 1/3%) 2%
For the purpose of the amusement tax, the term "gross receipts"
embraces all the receipts of the proprietor, lessee or operator of the
amusement place. Over thirty-three and one third percent (33 1/3%) 1%
Said gross receipts also include income from television, radio and motion The tax herein imposed shall be paid by the issuing corporation in primary
picture rights, if any. offering or by the seller in secondary offering.
A person or entity or association conducting any activity subject to the tax For purposes of this Section, the term "closely held corporation" means
herein imposed shall be similarly liable for said tax with respect to such any corporation at least fifty percent (50%) in value of outstanding capital
portion of the receipts derived by him or it. stock or at least fifty percent (505) of the total combined voting power of
all classes of stock entitled to vote is owned directly or indirectly by or for
not more than twenty (20) individuals.
The taxes imposed herein shall be payable at the end of each quarter and
it shall be the duty of the proprietor, lessee or operator concerned, as well
as any party liable, within twenty (20) days after the end of each quarter, For purposes of determining whether the corporation is a closely held
to make a true and complete return of the amount of the gross receipts corporation, insofar as such determination is based on stock ownership,
derived during the preceding quarter and pay the tax due thereon. the following rules shall be applied:
SEC. 126. Tax on Winnings. - Every person who wins in horse races (1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by
shall pay a tax equivalent to ten percent (10%) of his winnings or or for a corporation, partnership, estate or trust shall be considered as
'dividends', the tax to be based on the actual amount paid to him for every being owned proportionately by its shareholders, partners or beneficiaries.
winning ticket after deducting the cost of the ticket: Provided, That in the
case of winnings from double, forecast/quinella and trifecta bets, the tax (2) Family and Partnership Ownerships. - An individual shall be considered
shall be four percent (4%). as owning the stock owned, directly or indirectly, by or for his family, or by
or for his partner.
In the case of owners of winning race horses, the tax shall be ten percent
(10%) of the prizes. For purposes of the paragraph, the 'family of an individual' includes only
his brothers and sisters (whether by whole or half-blood), spouse,
The tax herein prescribed shall be deducted from the 'dividends' ancestors and lineal descendants.
corresponding to each winning ticket or the "prize" of each winning race
horse owner and withheld by the operator, manager or person in charge (3) Option. - If any person has an option acquire stock, such stock shall be
of the horse races before paying the dividends or prizes to the persons considered as owned by such person.
entitled thereto.
For purposes of this paragraph, an option to acquire such an option and

The operator, manager or person in charge of horse races shall, within each one of a series of options shall be considered as an option to acquire
twenty (20) days from the date the tax was deducted and withheld in such stock.
accordance with the second paragraph hereof, file a true and correct
return with the Commissioner in the manner or form to be prescribed by
the Secretary of Finance, and pay within the same period the total amount (4) Constructive Ownership as Actual Ownership. - Stock constructively
of tax so deducted and withheld. owned by reason of the application of paragraph (1) or (3) hereof shall,
for purposes of applying paragraph (1) or (2), be treated as actually
owned by such person; but stock constructively owned by the individual by
SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock reason of the application of paragraph (2) hereof shall not be treated as
Listed and Traded Through the Local Stock Exchange or Through owned by him for purposes of again applying such paragraph in order to
Initial Public Offering. - make another the constructive owner of such stock.
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and (C) Return on Capital Gains Realized from Sale of Shares of
Traded Through the Local Stock Exchange. - There shall be levied, Stocks. - (1) Return on Capital Gains Realized from Sale of Shares of
assessed and collected on every sale, barter, exchange, or other Stock Listed and Traded in the Local Stock Exchange. - It shall be the duty
disposition of shares of stock listed and traded through the local stock of every stock broker who effected the sale subject to the tax imposed
exchange other than the sale by a dealer in securities, a tax at the rate of herein to collect the tax and remit the same to the Bureau of Internal
one-half of one percent (1/2 of 1%) of the gross selling price or gross Revenue within five (5) banking days from the date of collection thereof
value in money of the shares of stock sold, bartered, exchanged or and to submit on Mondays of each week to the secretary of the stock
otherwise disposed which shall be paid by the seller or transferor. exchange, of which he is a member, a true and complete return which
shall contain a declaration of all the transactions effected through him

during the preceding week and of taxes collected by him and turned over authorized agent bank, Revenue District Officer, Collection Agent or duly
to the Bureau Of Internal Revenue. authorized Treasurer of the city or municipality where said business or
principal place of business is located, as the case may be.
(2) Return on Public Offerings of Share Stock. - In case of primary
offering, the corporate issuer shall file the return and pay the TITLE VI
corresponding tax within thirty (30) days from the date of listing of the EXCISE TAXES ON CERTAIN GOODS
shares of stock in the local stock exchange. CHAPTER I
GENERAL PROVISIONS
In the case of secondary offering, the provision of Subsection (C)(1) of
this Section shall apply as to the time and manner of the payment of the SEC. 129. Goods Subject to Excise Taxes. - Excise taxes apply to
tax. goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition and to things imported.
(D) Common Provisions. - Any gain derived from the sale, barter,
exchange or other disposition of shares of stock under this Section shall be The excise tax imposed herein shall be in addition to the value-added tax
exempt from the tax imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), imposed under Title IV.
and 28(B)(5)(c) of this Code and from the regular individual or corporate
income tax.
For purposes of this Title, excise taxes herein imposed and based on
weight or volume capacity or any other physical unit or measurement shall
Tax paid under this Section shall not be deductible for income tax be referred to as "specific tax" and an excise tax herein imposed and
purposes. based on selling price or other specified value of the good shall be referred
to as "ad valorem tax".
SEC. 128. Returns and Payment of Percentage Taxes. - (A)
Returns of Gross Sales, Receipts or Earnings and Payment of Tax. SEC. 130. Filing of Return and Payment of Excise Tax on Domestic
(1) Persons Liable to Pay Percentage Taxes. - Every person subject to Products. -
the percentage taxes imposed under this Title shall file a quarterly return
of the amount of his gross sales, receipts or earnings and pay the tax due
(A) Persons Liable to File a Return, Filing of Return on Removal
thereon within twenty-five (25) days after the end of each taxable quarter:
and Payment of Tax. -
Provided, That in the case of a person whose VAT registration is cancelled
and who becomes liable to the tax imposed in Section 116 of this Code,
the tax shall accrue from the date of cancellation and shall be paid in (1) Persons Liable to File a Return. - Every person liable to pay excise tax
accordance with the provisions of this Section. imposed under this Title shall file a separate return for each place of
production setting forth, among others, the description and quantity or
volume of products to be removed, the applicable tax base and the
(2) Person Retiring from Business. - Any person retiring from a business
amount of tax due thereon: Provided, however, That in the case of
subject to percentage tax shall notify the nearest internal revenue officer,
indigenous petroleum, natural gas or liquefied natural gas, the excise tax
file his return and pay the tax due thereon within twenty (20) days after
shall be paid by the first buyer, purchaser or transferee for local sale,
closing his business.
barter or transfer, while the excise tax on exported products shall be paid
by the owner, lessee, concessionaire or operator of the mining
(3) Exceptions. - The Commissioner may, by rules and regulations, claim.Should domestic products be removed from the place of production
prescribe: without the payment of the tax, the owner or person having possession
thereof shall be liable for the tax due thereon.
(a) The time for filing the return at intervals other than the time
prescribed in the preceding paragraphs for a particular class or classes of (2) Time for Filing of Return and Payment of the Tax. - Unless otherwise
taxpayers after considering such factors as volume of sales, financial specifically allowed, the return shall be filed and the excise tax paid by the
condition, adequate measures of security, and such other relevant manufacturer or producer before removal of domestic products form place
information required to be submitted under the pertinent provisions of this of production: Provided, That the excise tax on locally manufactured
Code; and petroleum products and indigenous petroleum levied under Sections 148
and 151(A)(4), respectively, of this Title shall be paid within ten (10) days
from the date of removal of such products for the period from January 1,
(b) The manner and time of payment of percentage taxes other than as
1998 to June 30, 1998; within five (5) days from the date of removal of
hereinabove prescribed, including a scheme of tax prepayment.
such products for the period from July 1, 1998 to December 31, 1998;
and, before removal from the place of production of such products from
(4) Determination of Correct Sales or Receipts. - When it is found that a January 1, 1999 and thereafter: Provided, further, That the excise tax on
person has failed to issue receipts or invoices, or when no return is filed, nonmetallic mineral or mineral products, or quarry resources shall be due
or when there is reason to believe that the books of accounts or other and payable upon removal of such products from the locality where mined
records do not correctly reflect the declarations made or to be made in a or extracted, but with respect to the excise tax on locally produced or
return required to be filed under the provisions of this Code, the extracted metallic mineral or mineral products, the person liable shall file a
Commissioner, after taking into account the sales, receipts or other return and pay the tax within fifteen (15) days after the end of the
taxable base of other persons engaged in similar businesses under similar calendar quarter when such products were removed subject to such
situations or circumstances, or after considering other relevant information conditions as may be prescribed by rules and regulations to be
may prescribe a minimum amount of such gross receipts, sales and promulgated by the Secretary of Finance, upon recommendation of the
taxable base and such amount so prescribed shall be prima facie correct Commissioner.
for purposes of determining the internal revenue tax liabilities of such
person.
For this purpose, the taxpayer shall file a bond in an amount which
approximates the amount of excise tax due on the removals for the said
(B) Where to File. - Except as the Commissioner otherwise permits, quarter.
every person liable to the percentage tax under this Title may, at his
option, file a separate return for each branch or place of business, or a
consolidated return for all branches or places of business with the

The foregoing rules notwithstanding, for imported mineral or mineral SEC. 131. Payment of Excise Taxes on Importer Articles. -
products, whether metallic or nonmetallic, the excise tax due thereon shall
be paid before their removal from customs custody.
(A) Persons Liable.- Excise taxes on imported articles shall be paid by
the owner or importer to the Customs Officers, conformably with the
(3) Place of Filing of Return and Payment of the Tax. - Except as the regulations of the Department of Finance and before the release of such
Commissioner otherwise permits, the return shall be filed with and the tax articles from the customs house, or by the person who is found in
paid to any authorized agent bank or Revenue Collection Officer, or duly possession of articles which are exempt from excise taxes other than
authorized City or Municipal Treasurer in the Philippines. those legally entitled to exemption. In the case of tax-free articles brought
or imported into the Philippines by persons, entitles, or agencies exempt
from tax which are subsequently sold, transferred or exchanged in the
(4) Exceptions. - The Secretary of Finance, upon recommendation of the
Philippines to non-exempt persons or entitles, the purchasers or recipients
Commissioner may, by rules and regulations, prescribe:
shall be considered the importers thereof, and shall be liable for the duty
and internal revenue tax due on such importation. The provision of any
(a) The time for filing the return at intervals other than the time special or general law to the contrary notwithstanding, the importation of
prescribed in the preceding paragraphs for a particular class or classes of cigars and cigarettes, distilled spirits and wines into the Philippines, even if
taxpayers after considering factors such as volume of removals, adequate destined for tax and duty free shops, shall be subject to all applicable
measures of security and such other relevant information required to be taxes, duties, charges, including excise taxes due thereon: Provided,
submitted under the pertinent provisions of this Code; and (b) The however, That this shall not apply to cigars and cigarettes, distilled spirits
manner and time of payment of excise taxes other than as herein and wines brought directly into the duly chartered or legislated freeports
prescribed, under a tax prepayment, advance deposit or similar schemes. of the Subic Special Economic and Freeport Zone, crated under Republic
Act No. 7227; the Cagayan Special Economic Zone and Freeport, created
In the case of locally produced of extracted minerals and mineral products under Republic Act No. 7922; and the Zamboanga City Special Economic
or quarry resources where the mine site or place of extraction is not the Zone, created under Republic Act No. 7903, and are not transshipped to
same as the place of processing or production, the return shall be filed any other port in the Philippines: Provided, further, That importations of
with and the tax paid to the Revenue District Office having jurisdiction cigars and cigarettes, distilled spirits and wines by a government-owned
over the locality where the same are mined, extracted or quarried: and operated duty-free shop, like the Duty-Free Philippines (DFP), shall be
Provided, however, That for metallic minerals processed abroad, the exempted from all applicable taxes, duties, charges, including excise tax
return shall be filed and the tax due thereon paid to the Revenue District due thereon: Provided, still further, That if such articles directly imported
Office having jurisdiction over the locality where the same are mined, by a government-owned and operated duty-free shop like the Duty-Free
extracted or quarried. Philippines, shall be labeled "tax and duty-free" and "not for resale":
Provided, still further, That is such articles brought into the duly chartered
or legislated freeports under Republic Acts No. 7227, 7922 and 7903 are
(B) Determination of Gross Selling Price of Goods Subject to Ad subsequently introduced into the Philippine customs territory, then such
Valorem Tax. - Unless otherwise provided, the price, excluding the value- articles shall, upon such introduction, be deemed imported into the
added tax, at which the goods are sold at wholesale in the place of Philippines and shall be subject to all imposts and excise taxes provided
production or through their sales agents to the public shall constitute the herein and other statutes: Provided, finally, That the removal and transfer
gross selling price. of tax and duty-free goods, products, machinery, equipment and other
similar articles, from one freeport to another freeport, shall not be deemed
If the manufacturer also sells or allows such goods to be sold at wholesale an introduction into the Philippine customs territory.Articles confiscated
in another establishment of which he is the owner or in the profits of shall be disposed of in accordance with the rules and regulations to be
which he has an interest, the wholesale price in such establishment shall promulgated by the Secretary of Finance, upon recommendation of the
constitute the gross selling price. Commissioner of Customs and Internal Revenue, upon consultation with
the Secretary of Tourism and the General manager of the Philippine
Tourism Authority.The tax due on any such goods, products, machinery,
Should such price be less than the cost of manufacture plus expenses equipment or other similar articles shall constitute a lien on the article
incurred until the goods are finally sold, then a proportionate margin of itself, and such lien shall be superior to all other charges or liens,
profit, not less than ten percent (10%) of such manufacturing cost and irrespective of the possessor thereof.
expenses, shall be added to constitute the gross selling price.
(B) Rate and Basis of the Excise Tax on Imported Articles.- Unless
(C) Manufacturer's or Producer's Sworn Statement. - Every otherwise specified imported articles shall be subject to the same rates
manufacturer or producer of goods or products subject to excise taxes and basis of excise taxes applicable to locally manufactured articles.
shall file with the Commissioner on the date or dates designated by the
latter, and as often as may be required, a sworn statement showing,
among other information, the different goods or products manufactured or SEC. 132. Mode of Computing Contents of Cask or Package. -
produced and their corresponding gross selling price or market value, Every fractional part of a proof liter equal to or greater than a half liter in
together with the cost of manufacture or production plus expenses a cask or package containing more than one liter shall be taxed as a liter,
incurred or to be incurred until the goods or products are finally sold. and any smaller fractional part shall be exempt; but any package of spirits,
the total content of which are less than a proof liter, shall be taxed as one
liter.
(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 CHAPTER II
state or as ingredients or parts of any manufactured goods or products, EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN
any excise tax paid thereon shall be credited or refunded upon submission ARTICLES
of the proof of actual exportation and upon receipt of the corresponding
foreign exchange payment: Provided, That the excise tax on mineral SEC. 133. Removal of Wines and Distilled Spirits for Treatment of
products, except coal and coke, imposed under Section 151 shall not be Tobacco Leaf. - Upon issuance of a permit from the Commissioner and
creditable or refundable even if the mineral products are actually exported. 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 Thereafter, the manufacturer of such fermented liquors shall pay the tax
spirits must first be suitably denatured. in the same manner and under the same penalty and liability as when paid
at the brewery.
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 SEC. 139. Removal of Damaged Liquors Free of Tax. - When any
oral intake, be exempt from the excise tax prescribed in Section 141: fermented liquor has become sour or otherwise damaged so as to be unfit
Provided, however, That such denatured alcohol shall be subject to tax for use as such, brewers may sell and after securing a special permit from
under Section 106(A) of this Code: Provided, further, That if such alcohol the Commissioner, under such conditions as may be prescribed in the
is to be used for automotive power, it shall be taxed under Section 148(d) rules and regulations prescribed by the Secretary of Finance, remove the
of this Code: Provided, finally, That any alcohol, previously rendered unfit same without the payment of tax thereon in cask or other packages,
for oral intake after denaturing but subsequently rendered fit for oral distinct from those ordinarily used for fermented liquors, each containing
intake after undergoing fermentation, dilution, purification, mixture or any not less than one hundred seventy-five (175) liters with a note of their
other similar process shall be taxed under Section 141 of this Code and contents permanently affixed thereon.
such tax shall be paid by the person in possession of such reprocessed
spirits.
SEC. 140. Removal of Tobacco Products Without Prepayment of
Tax. - Products of tobacco entirely unfit for chewing or smoking may be
SEC. 135. Petroleum Products Sold to International Carriers and removed free of tax for agricultural or industrial use, under such
Exempt Entities or Agencies. - Petroleum products sold to the conditions as may be prescribed in the rules and regulations prescribed by
following are exempt from excise tax: (a) International carriers of the Secretary of Finance.
Philippine or foreign registry on their use or consumption outside the
Philippines: Provided, That the petroleum products sold to these
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing
international carriers shall be stored in a bonded storage tank and may be
tobacco, scraps, cuttings, clippings, stems, or midribs, and sweepings of
disposed of only in accordance with the rules and regulations to be
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
Commissioner; (b) Exempt entities or agencies covered by tax treaties,
prescribed in the rules and regulations prescribed by the Secretary of
conventions and other international agreements for their use or
Finance.
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; "Stemmed leaf tobacco", as herein used, means leaf tobacco which has
and (c) Entities which are by law exempt from direct and indirect taxes. had the stem or midrib removed.
SEC. 136. Denaturation, Withdrawal and Use of Denatured The term does not include broken leaf tobacco.
Alcohol. - Any person who produces, withdraws, sells, transports or
knowingly uses, or is in possession of denatured alcohol, or articles CHAPTER III
containing denatured alcohol in violation of laws or regulations now or EXCISE TAX ON ALCOHOL PRODUCTS
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. 141. Distilled Spirits. - On distilled spirits, there shall be collected,
subject to the provisions of Section 133 of this Code, excise taxes as
follows:
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 (a) If produced from the sap of nipa, coconut, cassava, camote, or buri
of the excise tax: Provided, That the distiller removing such spirits and the palm or from the juice,syrup or sugar of the cane, provided such materials
rectifier receiving them shall file with the Commissioner their joint bond are produced commercially in the country where they are processed into
conditioned upon the payment by the rectifier of the excise tax due on the distilled spirits, per proof liter, Eight pesos (P8.00): Provided, That if
rectified alcohol: Provided, further, That in cases where alcohol has produced in a pot still or other similar primary distilling apparatus by a
already been rectified either by original and continuous distillation or by distiller producing not more than one hundred (100) liters a day,
redistillation, no loss for rectification and handling shall be allowed and the containing not more than fifty percent (50%) of alcohol by volume, per
rectifier thereof shall pay the excise tax due on such losses: Provided, proof liter, Four pesos (P4.00);
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 (b) If produced from raw materials other than those enumerated in the
otherwise due thereon. preceding paragraph, the tax shall be in accordance with the net retail
price per bottle of seven hundred fifty milliliter (750 ml.) volume capacity
(excluding the excise tax and the value-added tax) as follows:
SEC. 138. Removal of Fermented Liquors to Bonded Warehouse. -
Any brewer may remove or transport from his brewery or other place of (1) Less than Two hundred and fifty pesos (P250) - Seventy-five pesos
manufacture to a bonded warehouse used by him exclusively for the (P75), per proof liter;
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 (2) Two hundred and fifty pesos (P250) up to Six hundred and Seventy-
permit which shall be granted by the Commissioner. Five pesos (P675) - One hundred and fifty pesos (P150), per proof liter;
and
Such permit shall be affixed to every package so removed and shall be

cancelled or destroyed in such manner as the Commissioner may (3) More than Six hundred and seventy-five pesos (P675) - Three hundred
prescribe. pesos (P300), per proof liter.
(c) Medicinal preparations, flavoring extracts, and all other preparations,

except toilet preparations, of which, excluding water, distilled spirits for

the chief ingredient, shall be subject to the same tax as such chief The classification of each brand of wines based on its average net retail
ingredient. price as of October 1, 1996, as set forth in Annex "B", shall remain in force
until revised by Congress.
This tax shall be proportionally increased for any strength of the spirits
taxed over proof spirits, and the tax shall attach to this substance as soon SEC. 143. Fermented Liquor. - There shall be levied, assessed and
as it is in existence as such, whether it be subsequently separated as pure collected an excise tax on beer, lager beer, ale, porter and other
or impure spirits, or transformed into any other substance either in the fermented liquors except tuba, basi, tapuy and similar domestic fermented
process of original production or by any subsequent process"Spirits or liquors in accordance with the following schedule:
distilled spirits" is the substance known as ethyl alcohol, ethanol or spirits
of wine, including all dilutions, purifications and mixtures thereof, from
(a) If the net retail price (excluding the excise tax and value-added tax)
whatever source, by whatever process produced, and shall include whisky,
per liter of volume capacity is less than Fourteen pesos and fifty centavos
brandy, rum, gin and vodka, and other similar products or mixtures.
(P14.50), the tax shall be Six pesos and fifteen centavos (P6.15) per liter;
"Proof spirits" is liquor containing one-half (1/2) of its volume of alcohol of

(b) If the net retail price (excluding the excise tax and the value-added
a specific gravity of seven thousand nine hundred and thirty-nine
tax) the per liter of volume capacity is Fourteen pesos and fifty centavos
thousandths (0.7939) at fifteen degrees centigrade (15O C).
(P14.50) up to Twenty-two pesos (P22.00), the tax shall be Nine pesos
and fifteen centavos (P9.15) per liter;
A "proof liter" means a liter of proof spirits.
(c) If the net retail price (excluding the excise tax and the value-added
The rates of tax imposed under this Section shall be increased by twelve tax) per liter of volume capacity is more than Twenty-two pesos (P22.00),
percent (12%) on January 1, 2000. the tax shall be Twelve pesos and fifteen centavos (P12.15) per liter.
New brands shall be classified according to their current "net retail price". Variants of existing brands which are introduced in the domestic market
after the effectivity of Republic Act No. 8240 shall be taxed under the
highest classification of any variant of that brand.
For the above purpose, "net retail price" shall mean the price at which the
distilled spirit is sold on retail in ten (10) major supermarkets in Metro
Manila, excluding the amount intended to cover the applicable excise tax Fermented liquor which are brewed and sold at micro-breweries or small
and the value-added tax as of October 1, 1996. establishments such as pubs and restaurants shall be subject to the rate in
paragraph (c) hereof.
The classification of each brand of distilled spirits based on the average
net retail price as of October 1, 1996, as set forth in Annex "A", shall The excise tax from any brand of fermented liquor within the next three
remain in force until revised by Congress. (3) years from the effectivity of Republic Act No. 8240 shall not be lower
than the tax which was due from each brand on October 1, 1996.
SEC. 142. Wines. - On wines, there shall be collected per liter of volume
capacity, the following taxes: The rates of excise tax on fermented liquor under paragraphs (a), (b) and
(c) hereof shall be increased by twelve percent (12%) on January 1, 2000.
(a) Sparkling wines/champagnes regardless of proof, if the net retail price
per bottle (excluding the excise tax and value-added tax) is: New brands shall be classified according to their current net retail price.
(1) Five hundred pesos (P500) or less - One hundred pesos (P100); and For the above purpose, "net retail price" shall mean the price at which the
(2) More than Five hundred pesos (P500) - Three hundred pesos (P300). fermented liquor is sold on retail in twenty (20) major supermarkets in
Metro Manila (for brands of fermented liquor marketed nationally)
excluding the amount intended to cover the applicable excise tax and the
(b) Still wines containing fourteen percent (14%) of alcohol by volume or
value-added tax.
less, Twelve pesos (P12.00); and
For brands which are marketed only outside Metro Manila, the "net retail
(c) Still wines containing more than fourteen percent (14%) but not more
price" shall mean the price at the which the fermented liquor is sold in five
than twenty-five percent (25%) of alcohol by volume, Twenty-four pesos
(5) major supermarkets in the region excluding the amount intended to
(P24.00).
cover the applicable excise tax and the value-added tax.
Fortified wines containing more than twenty-five percent of alcohol by

The classification of each brand of fermented liquor based on its average
volume shall be taxed as distilled spirits. "Fortified wines" shall mean
net retail price as of October 1, 1996, as set forth in Annex "C", shall
natural wines to which distilled spirits are added to increase their alcoholic
remain in force until revised by Congress.
strength.
"A variant of brand" shall refer to a brand on which a modifier is prefixed

The rates of tax imposed under this Section shall be increased by twelve
and/or suffixed to the root name of the brand and/or a different brand
percent (12%) on January 1, 2000.
which carries the same logo or design of the existing brand.
New brands shall be classified according to their current net retail price.
Every brewer or importer of fermented liquor shall, within thirty (30) days
from the effectivity of R. A. No. 8240, and within the first five (5) days of
For the above purpose, "net retail price" shall mean the price at which every month thereafter, submit to the Commissioner a sworn statement of
wine is sold on retail in ten (10) major supermarkets in Metro Manila, the volume of sales for each particular brand of fermented liquor sold at
excluding the amount intended to cover the applicable excise tax and the his establishment for the three-month period immediately preceding.
value-added tax as of October 1, 1996.
Any brewer or importer who, in violation of this Section, knowingly
misdeclares or misrepresents in his or its sworn statement herein required
any pertinent data or information shall be penalized by a summary (2) If the net retail price (excluding the excise tax and the value-added
cancellation or withdrawal of his or its permit to engage in business as tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten
brewer or importer of fermented liquor. pesos (P10.00) per pack, the tax shall be Eight pesos (8.00) per pack;
Any corporation, association or partnership liable for any of the acts or (3) If the net retail price (excluding the excise tax and the value-added
omissions in violation of this Section shall be fined treble the amount of tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos
deficiency taxes, surcharge, and interest which may be assessed pursuant (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
to this Section.
(4) If the net retail price (excluding the excise tax and the value-added tax
Any person liable for any of the acts or omissions prohibited under this is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00)
Section shall be criminally liable and penalized under Section 254 of this per pack;
Code.
Variants of existing brands of cigarettes which are introduced in the
Any person who willfully aids or abets in the commission of any such act domestic market after the effectivity of R.A. No. 8240 shall be taxed under
or omission shall be criminally liable in the same manner as the principal. the highest classification of any variant of that brand.
If the offender is not a citizen of the Philippines, he shall be deported The excise tax from any brand of cigarettes within the next three (3) years
immediately after serving the sentence, without further proceedings for from the effectivity of R. A. No. 8240 shall not be lower than the tax,
deportation. which is due from each brand on October 1, 1996: Provided, however,
That in cases where the excise tax rates imposed in paragraphs (1), (2),
(3) and (4) hereinabove will result in an increase in excise tax of more
CHAPTER IV
than seventy percent (70%); for a brand of cigarette, the increase shall
EXCISE TAX ON TOBACCO PRODUCTS
take effect in two tranches: fifty percent (50%) of the increase shall be
effective in 1997 and one hundred percent (100%) of the increase shall be
SEC. 144. Tobacco Products. - There shall be collected a tax of effective in 1998.
seventy-five centavos (P0.75) on each kilogram of the following products
of tobacco:
Duly registered or existing brands of cigarettes or new brands thereof
packed by machine shall only be packed in twenties.
(a) Tobacco twisted by hand or reduced into a condition to be consumed
in any manner other than the ordinary mode of drying and curing;
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2),
(3) and (4) hereof, shall be increased by twelve percent (12%) on January
(b) Tobacco prepared or partially prepared with or without the use of any 1, 2000.
machine or instruments or without being pressed or sweetened; and
New brands shall be classified according to their current net retail price.
(c) Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and
sweepings of tobacco.
For the above purpose, "net retail price" shall mean the price at which the
cigarette is sold on retail in twenty (20) major supermarkets in Metro
Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and Manila (for brands of cigarettes marketed nationally), excluding the
sweepings of tobacco resulting from the handling or stripping of whole leaf amount intended to cover the applicable excise tax and the value-added
tobacco may be transferred, disposed of, or otherwise sold, without tax.
prepayment of the excise tax herein provided for under such conditions as
may be prescribed in the rules and regulations promulgated by the
For brands which are marketed only outside Metro Manila, the "net retail
Secretary of Finance, upon recommendation of the Commissioner, if the
price" shall mean the price at which the cigarette is sold in five (5) major
same are to be exported or to be used in the manufacture of other
supermarkets in the region excluding the amount intended to cover the
tobacco products on which the excise tax will eventually be paid on the
applicable excise tax and the value-added tax.
finished product.
The classification of each brand of cigarettes based on its average net

On tobacco specially prepared for chewing so as to be unsuitable for use
retail price as of October 1, 1996, as set forth in Annex "D", shall remain
in any other manner, on each kilogram, Sixty centavos (P0.60).
in force until revised by Congress.
SEC. 145. Cigars and Cigarettes. -

Variant of a brand" shall refer to a brand on which a modifier is prefixed
and/or suffixed to the root name of the brand and/or a different brand
(A) Cigars.- There shall be levied, assessed and collected on cigars a tax which carries the same logo or design of the existing brand.
of One peso (P1.00) per cigar.
Manufactures and importers of cigars and cigarettes shall, within thirty
(B) Cigarettes Packed by Hand.- There shall be levied, assessed and (30) days from the effectivity of R. A. No. 8240 and within the first five (5)
collected on cigarettes packed by hand a tax of Forty centavos (P0.40) per days of every month thereafter submit to the Commissioner a sworn
pack. statement of the volume of sales for each particular brand of cigars and/or
cigarettes sold at his establishment for the three-month period
(C) Cigarettes Packed by Machine. - There shall be levied, assessed immediately preceding.
and collected on cigarettes packed by machine a tax at the rates
prescribed below: Any manufacturer or importer who, in violation of this Section, knowingly
misdeclares or misrepresents in his or its sworn statement herein required
(1) If the net retail price (excluding the excise tax and the value-added any pertinent data or information shall, upon discovery, be penalized by a
tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos summary cancellation or withdrawal of his or its permit to engage in
(P12.00) per pack; business as manufacturer or importer of cigars or cigarettes.

Any corporation, association or partnership liable for any of the acts or other similar preparations, and additives for lubricating oils and greases,
omissions in violation of this Section shall be fined treble the amount of whether such additives are petroleum based or not, per liter and kilogram
deficiency taxes, surcharges and interest which may be assessed pursuant respectively, of volume capacity or weight, Four pesos and fifty centavos
to this Section. (P4.50): Provided, however, That the excise taxes paid on the purchased
feedstock (bunker) used in the manufacture of excisable articles and
forming part thereof shall be credited against the excise tax due
Any person liable for any of the acts or omissions prohibited under this
therefrom: Provided, further, That lubricating oils and greases produced
Section shall be criminally liable and penalized under Section 254 of this
from base stocks and additives on which the excise tax has already been
Code.
paid shall no longer be subject to excise tax: Provided, finally, That locally
produced or imported oils previously taxed as such but are subsequently
Any person who willfully aids or abets in the commission of any such act reprocessed, rerefined or recycled shall likewise be subject to the tax
or omission shall be criminally liable in the same manner as the principal. imposed under this Section.
If the offender is not a citizen of the Philippines, he shall be deported (b) Processed gas, per liter of volume capacity, Five centavos (P0.05);(c)
immediately after serving the sentence without further proceedings for Waxes and petrolatum, per kilogram, Three pesos and fifty centavos
deportation. (P3.50);(d) On denatured alcohol to be used for motive power, per liter of
volume capacity, Five centavos (P0.05): Provided, That unless otherwise
SEC. 146. Inspection Fee. - For inspection made in accordance with this provided by special laws, if the denatured alcohol is mixed with gasoline,
Chapter, there shall be collected a fee of Fifty centavos (P0.50) for each the excise tax on which has already been paid, only the alcohol content
thousand cigars or fraction thereof; Ten centavos (P0.10) for each shall be subject to the tax herein prescribed.
thousand cigarettes of fraction thereof; Two centavos (P0.02) for each
kilogram of leaf tobacco or fraction thereof; and Three centavos (P0.03) For purposes of this Subsection, the removal of denatured alcohol of not
for each kilogram or fraction thereof, of scrap and other manufactured less than one hundred eighty degrees (180o ) proof (ninety percent (90%)
tobacco. absolute alcohol) shall be deemed to have been removed for motive
power, unless shown otherwise;(e) Naphtha, regular gasoline and other
The inspection fee on leaf tobacco, scrap, cigars, cigarettes and other similar products of distillation, per liter of volume capacity, Four pesos and
tobacco products as defined in Section 147 of this Code shall be paid by eighty centavos (P4.80): Provided, however, That naphtha, when used as
the wholesaler, manufacturer, producer, owner or operator of redrying a raw material in the production of petrochemical products or as
plant, as the case may be, immediately before removal there of from the replacement fuel for natural-gas-fired-combined cycle power plant, in lieu
establishment of the wholesaler, manufacturer, owner or operator of the of locally-extracted natural gas during the non-availability thereof, subject
redrying plant. to the rules and regulations to be promulgated by the Secretary of Energy,
in consultation with the Secretary of Finance, per liter of volume capacity,
Zero (P0.00): Provided, further, That the by-product including fuel oil,
In case of imported leaf tobacco and products thereof, the inspection fee diesel fuel, kerosene, pyrolysis gasoline, liquefied petroleum gases and
shall be paid by the importer before removal from customs' custody. similar oils having more or less the same generating power, which are
produced in the processing of naphtha into petrochemical products shall
Fifty percent (50%) of the tobacco inspection fee shall accrue to the be subject to the applicable excise tax specified in this Section, except
Tobacco Inspection Fund created by Section 12 of Act No. 2613, as when such by-products are transferred to any of the local oil refineries
amended by Act No. 3179, and fifty percent (50%) shall accrue to the through sale, barter or exchange, for the purpose of further processing or
Cultural Center of the Philippines. blending into finished products which are subject to excise tax under this
Section;(f) Leaded premium gasoline, per liter of volume capacity, Five
pesos and thirty-five centavos (P5.35); unleaded premium gasoline, per
SEC. 147. Definition of Terms. - When used herein and in statements liter of volume capacity, Four pesos and thirty-five centavos (P4.35);(g)
or official forms prescribed hereunder, the following terms shall have the Aviation turbo jet fuel, per liter of volume capacity, Three pesos and sixty-
meaning indicated: seven centavos (P3.67);(h) Kerosene, per liter of volume capacity, Sixty
centavos (0.60): Provided, That kerosene, when used as aviation fuel,
(a) "Cigars" mean all rolls of tobacco or any substitute thereof, wrapped in shall be subject to the same tax on aviation turbo jet fuel under the
leaf tobacco. preceding paragraph (g), such tax to be assessed on the user thereof;(i)
Diesel fuel oil, an on similar fuel oils having more or less the same
generating power, per liter of volume capacity, One peso and sixty-three
(b) "Cigarettes" mean all rolls of finely-cut leaf tobacco, or any substitute centavos (P1.63);(j) Liquefied petroleum gas, per liter, Zero (P0.00):
therefor, wrapped in paper or in any other material. Provided, That liquefied petroleum gas used for motive power shall be
taxed at the equivalent rate as the excise tax on diesel fuel oil;(k)
(c) "Wholesale price" shall mean the amount of money or price paid for Asphalts, per kilogram, Fifty-six centavos (P0.56); and(l) Bunker fuel oil,
cigars or cigarettes purchased for the purpose of resale, regardless of and on similar fuel oils having more or less the same generating power,
quantity. per liter of volume capacity, Thirty centavos (P0.30).
(d) "Retail price" shall mean the amount of money or price which an CHAPTER VI
ultimate consumer or end-user pays for cigars or cigarettes purchased. EXCISE TAX ON MISCELLANEOUS ARTICLES
CHAPTER V
EXCISE TAX ON PETROLEUM PRODUCTS SEC. 149. Automobiles. - There shall be levied, assessed and collected
an ad valorem tax on automobiles based on the manufacturers or
importers selling price, net of excise and value-added tax, in accordance
SEC. 148. Manufactured Oils and Other Fuels. - There shall be
with the following schedule:
collected on refined and manufactured mineral oils and motor fuels, the
following excise taxes which shall attach to the goods hereunder
enumerated as soon as they are in existence as such: ENGINE DISPLACEMENT [in cc.]
GASOLINE DIESEL TAX RATE

(a) Lubricating oils and greases, including but not limited to, base stock
Up to 1600 Up to 1800 15%
for lube oils and greases, high vacuum distillates, aromatic extracts, and
1601 to 2000 1801 to 2300 35% CHAPTER VII
EXCISE TAX ON MINERAL PRODUCTS
2001 to 2700 2301 to 3000 50%
2701 or over 3001 to over 100%
SEC. 151. Mineral Products. -

Provided, That in the case of imported automobiles not for sale, the tax
imposed herein shall be based on the total value used by the Bureau of
(A) Rates of Tax. - There shall be levied, assessed and collected on
Customs in determining tariff and customs duties, including customs duty
minerals, mineral products and quarry resources, excise tax as follows:
and all other charges, plus ten percent (10%) of the total thereof.
(1) On coal and coke, a tax of Ten pesos (P10.00) per metric ton;(2) On
Automobiles acquired for use by persons or entities operating within the
all nonmetallic minerals and quarry resources, a tax of two percent (2%)
freeport zone shall be exempt from excise tax: Provided, That utility
based on the actual market value of the gross output thereof at the time
vehicles of registered zone enterprises, which are indispensable in the
of removal, in the case of those locally extracted or produced; or the value
conduct and operations of their business, such as delivery trucks and
used by the Bureau of Customs in determining tariff and customs duties,
cargo vans with gross vehicle weight above three (3) metric tons may be
net of excise tax and value-added tax, in the case of importation.
allowed unrestricted use outside the freeport zone: Provided, further, That
vehicles owned by tourist-oriented enterprises, such as tourist buses and
cars with yellow plates, color-coded, and utilized exclusively for the Notwithstanding the provision of paragraph (4) of Subsection (A) of
purpose of transporting tourists in tourism-related activities, and service Section 151, locally extracted natural gas and liquefied natural gas shall be
vehicles of freeport registered enterprises and executives, such as taxed at the rate of two percent (2%);
company service cars and expatriates and investors automobiles brought
in the name of such enterprises, may be used outside the freeport zone (3) On all metallic minerals, a tax based on the actual market value of the
for such periods as may be prescribed by the Departments of Finance, and gross output thereof at the time of removal, in the case of those locally
Trade and Industry, the Bureau of Customs and the Freeport authorities extracted or produced; or the value used by the Bureau of Customs in
concerned, which in no case shall exceed fourteen (14) days per month. determining tariff and customs duties, net of excise tax and value-added
tax, in the case of importation, in accordance with the following schedule:
In case such tourist buses and cars, service vehicles of registered freeport
enterprises and company service cars are used for more than an (a) Copper and other metallic minerals; (i) On the first three (3) years
aggregate period of fourteen (14) days per month outside of the freeport upon the effectivity of Republic Act No. 7729,
zone, the owner or importer shall pay the corresponding customs duties, one percent (1%); (ii) On the fourth and the fifth years, one and a half
taxes and charges. percent (1 %); and (iii) On the sixth year and thereafter, two percent
(2%); (b) Gold and chromite, two percent (2%).
In the case of personally-owned vehicles of residents, including
leaseholders of residences inside the freeport zone, the use of such (4) On indigenous petroleum, a tax of three percent (3%) of the fair
vehicles outside of the freeport zone shall be deemed an introduction into international market price thereof, on the first taxable sale, barter,
the Philippine customs territory, and such introduction shall be deemed an exchange or such similar transaction, such tax to be paid by the buyer or
importation into the Philippines and shall subject such vehicles to Customs purchaser before removal from the place of production.
duties taxes and charges, including excise tax due on such vehicle.
The phrase "first taxable sale, barter, exchange or similar transaction"

The Secretaries of Finance, and Trade and Industry, together with the means the transfer of indigenous petroleum in its original state to a first
Commissioner of Customs and the administrators of the freeports taxable transferee.
concerned, shall promulgate rules and regulations for the proper
identification and control of said automobiles.
The fair international market price shall be determined in consultation with
an appropriate government agency.For the purpose of this Subsection,
SEC. 150. Non-Essential Goods. - There shall be levied, assessed and "indigenous petroleum" shall include locally-extracted mineral oil,
collected a tax equivalent to twenty percent (20%) based on the hydrocarbon gas, bitumen, crude asphalt, mineral gas and all other similar
wholesale price or the value of importation used by the Bureau of Customs or naturally associated substances with the exception of coal, peat,
in determining tariff and customs duties, net of excise tax and value- bituminous shale and/or stratified mineral deposits.
added tax, of the following goods:
(B) For Purposes of This Section, the Term: (1) "Gross output" shall
(a) All goods commonly or commercially known as jewelry, whether real or be interpreted as the actual market value of minerals or mineral products
imitation, pearls, precious and semi-precious stones and imitations or of bullion from each mine or mineral land operated as a separate entity,
thereof; goods made of, or ornamented, mounted or fitted with, precious without any deduction from mining, milling, refining (including all
metals or imitations thereof or ivory (not including surgical and dental expenses incurred to prepare the said minerals or mineral products in a
instruments, silver-plated wares, frames or mountings for spectacles or marketable state), as well as transporting, handling, marketing or any
eyeglasses, and dental gold or gold alloys and other precious metals used other expenses: Provided, That if the minerals or mineral products are
in filling, mounting or fitting the teeth); opera glasses and lorgnettes. sold or consigned abroad by the lessee or owner of the mine under C.I.F.
The term "precious metals" shall include platinum, gold, silver and other terms, the actual cost of ocean freight and insurance shall be deducted:
metals of similar or greater value. Provided, however, That in the case of mineral concentrate, not traded in
commodity exchanges in the Philippines or abroad, such as copper
The term imitations thereof shall include platings and alloys of such concentrate, the actual market value shall be the world price quotations of
metals; the refined mineral products content thereof prevailing in the said
commodity exchanges, after deducting the smelting, refining and other
charges incurred in the process of converting the mineral concentrates
(b) Perfumes and toilet waters;
into refined metal traded in those commodity exchanges.
(c) Yachts and other vessels intended for pleasure or sports.

(2) "Minerals" shall mean all naturally occurring inorganic substances SEC. 156. Labels and Form of Packages. - All articles of domestic
(found in nature) whether in solid, liquid, gaseous or any intermediate manufacture subject to excise tax and all leaf tobacco shall be put up and
state. prepared by the manufacturer or producer, when removed for sale or
consumption, in such packages only and bearing such marks or brand as
shall be prescribed in the rules and regulations promulgated by the
(3) "Mineral products" shall mean things produced and prepared in a
Secretary of Finance; and goods of similar character imported into the
marketable state by simple treatment processes such as washing or
Philippines shall likewise be packed and marked in such a manner as may
drying, but without undergoing any chemical change or process or
be required.
manufacturing by the lessee, concessionaire or owner of mineral lands.
SEC. 157. Removal of Articles After the Payment of Tax. - When

(4) "Quarry resources" shall mean any common stone or other common
the tax has been paid on articles or products subject to excise tax, the
mineral substances as the Director of the Bureau of Mines and Geo-
same shall not thereafter be stored or permitted to remain in the distillery,
Sciences may declare to be quarry resources such as, but not restricted to,
distillery warehouse, bonded warehouse, or other factory or place where
marl, marble, granite, volcanic cinders, basalt, tuff and rock phosphate:
produced.
Provided, That they contain no metal or other valuable minerals in
economically workable quantities.
However, upon prior permit from the Commissioner, oil refineries and/or
companies may store or deposit tax-paid petroleum products and
CHAPTER VIII
commingle the same with its own manufactured products not yet
ADMINISTRATIVE PROVISIONS REGULATING BUSINESS
subjected to excise tax.
OR PERSONS DEALING IN ARTICLES SUBJECT TO EXCISE TAX
Imported petroleum products may be allowed to be withdrawn from

SEC. 152. Extent of Supervision Over Establishments Producing
customs custody without the prepayment of excise tax, which products
Taxable Output. - The Bureau of Internal Revenue has authority to
may be commingled with the tax-paid or bonded products of the importer
supervise establishments where articles subject to excise tax are made or
himself after securing a prior permit from the Commissioner: Provided,
kept.
That withdrawals shall be taxed and accounted for on a "first-in, first-out"
basis.
The Secretary of Finance shall prescribe rules and regulations as to the
mode in which the process of production shall be conducted insofar as
SEC. 158. Storage of Goods in Internal-Revenue Bonded
may be necessary to secure a sanitary output and to safeguard the
Warehouses. - An internal-revenue bonded warehouse may be
revenue.
maintained in any port of entry for the storing of imported or
manufactured goods which are subject to excise tax.
SEC. 153. Records to be Kept by Manufacturers; Assessment
Based Thereon.- Manufacturers of articles subject to excise tax shall
The taxes on such goods shall be payable only upon removal from such
keep such records as required by rules and regulations recommended by
warehouse and a reasonable charge shall be made for their storage
the Commissioner and approved by the Secretary of Finance, and such
therein.
records, whether of raw materials received into the factory or of articles
produced therein, shall be deemed public and official documents for all
purposes. The Commissioner, may, in his discretion, exact a bond to secure the
payment of the tax on any goods so stored.
The records of raw materials kept by such manufacturers may be used as
evidence by which to determine the amount of excise taxes due from SEC. 159. Proof of Exportation; Exporter's Bond. - Exporters of
them, and whenever the amounts of raw material received into any goods that would be subject to excise tax, if sold or removed for
factory exceeds the amount of manufactured or partially manufactured consumption in the Philippines, shall submit proof of exportation
products on hand and lawfully removed from the factory, plus waste satisfactory to the Commissioner and, when the same is deemed
removed or destroyed, and a reasonable allowance for unavoidable loss in necessary, shall be required to give a bond prior to the removal of the
manufacture, the Commissioner may assess and collect the tax due on the goods for shipment, conditioned upon the exportation of the same in good
products which should have been produced from the excess. faith.
The excise tax due on the products as determined and assessed in SEC. 160. Manufacturers' and Importers' Bond. - Manufacturers and
accordance with this Section shall be payable upon demand or within the importers of articles subject to excise tax shall post a bond subject to the
period specified therein. following conditions:
SEC. 154. Premises Subject to Approval by Commissioner. - No (A) Initial Bond. - In case of initial bond, the amount shall be equal to
person shall engage in business as a manufacturer of or dealer in articles One Hundred thousand pesos (P100,000): Provided, That if after six (6)
subject to excise tax unless the premises upon which the business is to months of operation, the amount of initial bond is less than the amount of
conducted shall have been approved by the Commissioner. the total excise tax paid during the period, the amount of the bond shall
be adjusted to twice the tax actually paid for the period.
SEC. 155. Manufacturers to Provide Themselves with Counting or
Metering Devices to Determine Production. - Manufacturers of (B) Bond for the Succeeding Years of Operation. - The bonds for the
cigarettes, alcoholic products, oil products and other articles subject to succeeding years of operation shall be based on the actual total excise tax
excise tax that can be similarly measured shall provide themselves with paid during the period the year immediately preceding the year of
such necessary number of suitable counting or metering devices to operation.
determine as accurately as possible the volume, quantity or number of the
articles produced by them under rules and regulations promulgated by the
Such bond shall be conditioned upon faithful compliance, during the time
such business is followed, with laws and rules and regulations relating to
such business and for the satisfaction of all fines and penalties imposed by
This requirement shall be complied with before commencement of this Code.
operations.

SEC. 161. Records to be Kept by Wholesale Dealers. - Wholesale It shall be kept securely locked, and shall at no time be unlocked or
dealers shall keep records of their purchases and sales or deliveries of opened or remain unlocked or opened unless in the presence of such
articles subject to excise tax, in such form as shall be prescribed in the revenue inspector or other person who may be designated to act for him
rules and regulations by the Secretary of Finance. as provided by law.
These records and the entire stock of goods subject to tax shall be subject SEC. 167. Limitation on Quantity of Spirits Removed from
at all times to inspection of internal revenue officers. Warehouse. - No distilled spirits shall be removed from any distillery,
distillery warehouse, or bonded warehouse in quantities of less than
fifteen (15) gauge liters at any one time, except bottled goods, which may
SEC. 162. Records to be Kept by Dealers in Leaf Tobacco. - Dealers
be removed by the case of not less than twelve (12) bottles.
in leaf tobacco shall keep records of the products sold or delivered by
them to other persons in such manner as may be prescribed in the rules
and regulations by the Secretary of Finance, such records to be at all SEC. 168. Denaturing Within Premises. - For purposes of this Title,
times subject to inspection of internal revenue officers. the process of denaturing alcohol shall be effected only within the distillery
premises where the alcohol to be denatured is produced in accordance
with formulas duly approved by the Bureau of Internal Revenue and only
SEC. 163. Preservation of Invoices and Stamps. - All dealers
in the presence of duly designated representatives of said Bureau.
whosoever shall preserve, for the period prescribed in Section 235, all
official invoices received by them from other dealers or from
manufacturers, together with the fractional parts of stamps affixed SEC. 169. Recovery of Alcohol for Use in Arts and Industries. -
thereto, if any, and upon demand, shall deliver or transmit the same to Manufacturers employing processes in which denatured alcohol used in
any interval revenue officer. arts and industries is expressed or evaporated from the articles
manufactured may, under rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, be
SEC. 164. Information to be Given by Manufacturers, Importers,
permitted to recover the alcohol so used and restore it again to a condition
Indentors, and Wholesalers of any Apparatus or Mechanical
suitable solely for use in manufacturing processes.
Contrivance Specially for the Manufacture of Articles Subject to
Excise Tax and Importers, Indentors, Manufacturers or Sellers of
Cigarette Paper in Bobbins, Cigarette Tipping Paper or Cigarette SEC. 170. Requirements Governing Rectification and
Filter Tips. - Manufacturers, indentors, wholesalers and importers of any Compounding of Liquors. - Persons engaged in the rectification or
apparatus or mechanical contrivance specially for the manufacture of compounding of liquors shall, as to the mode of conducting their business
articles subject to tax shall, before any such apparatus or mechanical and supervision over the same, be subject to all the requirements of law
contrivance is removed from the place of manufacture or from the applicable to distilleries: Provided, That where a rectifier makes use of
customs house, give written information to the Commissioner as to the spirits upon which the excise tax has been paid, no further tax shall be
nature and capacity of the same, the time when it is to be removed, and collected on any rectified spirits produced exclusively therefrom: Provided,
the place for which it is destined, as well as the name of the person by further, That compounders in the manufacture of any intoxicating
whom it is to be used; and such apparatus or mechanical contrivance shall beverage whatever, shall not be allowed to make use of spirits upon which
not be set up nor dismantled or transferred without a permit in writing the excise tax has not been previously paid.
from the Commissioner.
SEC. 171. Authority of Internal Revenue Officer in Searching for
A written permit from the Commissioner for importing, manufacturing or Taxable Articles. - Any internal revenue officer may, in the discharge of
selling of cigarette paper in bobbins or rolls, cigarette tipping paper or his official duties, enter any house, building or place where articles subject
cigarette filter tips is required before any person shall engage in the to tax under this Title are produced or kept, or are believed by him upon
importation, manufacture or sale of the said articles. reasonable grounds to be produced or kept, so far as may be necessary to
examine, discover or seize the same.
No permit to sell said articles shall be granted unless the name and
address of the prospective buyer is first submitted to the Commissioner He may also stop and search any vehicle or other means of transportation
and approved by him. when upon reasonable grounds he believes that the same carries any
article on which the excise tax has not been paid.
Records, showing the stock of the said articles and the disposal thereof by
sale of persons with their respective addresses as approved by the SEC. 172. Detention of Package Containing Taxable Articles.- Any
Commissioner, shall be kept by the seller, and records, showing stock of revenue officer may detain any package containing or supposed to contain
said articles and consumption thereof, shall be kept by the buyer, subject articles subject to excise tax when he has good reason to believe that the
to inspection by internal revenue officers. lawful tax has not been paid or that the package has been or is being
removed in violation of law, and every such package shall be held by such
officer in a safe place until it shall be determined whether the property so
SEC. 165. Establishment of Distillery Warehouse. - Every distiller,
detained is liable by law to be proceeded against for forfeiture; but such
when so required by the Commissioner, shall provide at his own expense a
summary detention shall not continue in any case longer than seven (7)
warehouse, and shall be situated in and constitute a part of his distillery
days without due process of law or intervention of the officer to whom
premises and to be used only for the storage of distilled spirits of his own
such detention is to be reported.
manufacture until the tax thereon shall have been paid; but no dwelling
house shall be used for such purpose.
TITLE VII
DOCUMENTARY STAMP TAX
Such warehouse, when approved by the Commissioner, is declared to be a
bonded warehouse, and shall be known as a distillery warehouse.
SEC. 173. Stamp Taxes Upon Documents, Loan Agreements,
Instruments and Papers. - Upon documents, instruments, loan
SEC. 166. Custody of Distillery or Distillery Warehouse. - Every
agreements and papers, and upon acceptances, assignments, sales and
distillery or distillery warehouse shall be in the joint custody of the revenue
transfers of the obligation, right or property incident thereto, there shall
inspector, if one is assigned thereto, and of the proprietor thereof.
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 sight or on demand, there shall be collected a documentary stamp tax of
made, signed, issued, accepted or transferred when the obligation or right One peso and fifty centavos (P1.50).
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
SEC. 180. Stamp Tax on All Bonds, Loan Agreements, promissory
whenever one party to the taxable document enjoys exemption from the
Notes, Bills of Exchange, Drafts, Instruments and Securities
tax herein imposed, the other party who is not exempt shall be the one
Issued by the Government or Any of its Instrumentalities,
directly liable for the tax.
Deposit Substitute Debt Instruments, Certificates of Deposits
Bearing Interest and Others Not Payable on Sight or Demand. -
SEC. 174. Stamp Tax on Debentures and Certificates of On all bonds, loan agreements, including those signed abroad, wherein
Indebtedness. - On all debentures and certificates of indebtedness the object of the contract is located or used in the Philippines, bills of
issued by any association, company or corporation, there shall be collected exchange (between points within the Philippines), drafts, instruments and
a documentary stamp tax of One peso and fifty centavos (P1.50) on each securities issued by the Government or any of its instrumentalities, deposit
Two hundred pesos (P200), or fractional part thereof, of the face value of substitute debt instruments, certificates of deposits drawing interest,
such documents. orders for the payment of any sum of money otherwise than at sight or on
demand, on all promissory notes, whether negotiable or non-negotiable,
except bank notes issued for circulation, and on each renewal of any such
SEC. 175. Stamp Tax on Original Issue of Shares of Stock. - On
note, there shall be collected a documentary stamp tax of Thirty centavos
every original issue, whether on organization, reorganization or for any
(P0.30) on each Two hundred pesos (P200), or fractional part thereof, of
lawful purpose, of shares of stock by any association, company or
the face value of any such agreement, bill of exchange, draft, certificate of
corporation, there shall be collected a documentary stamp tax of Two
deposit, or note: Provided, That only one documentary stamp tax shall be
pesos (P2.00) on each Two hundred pesos (P200), or fractional part
imposed on either loan agreement, or promissory notes issued to secure
thereof, of the par value, of such shares of stock: Provided, That in the
such loan, whichever will yield a higher tax: Provided, however, That loan
case of the original issue of shares of stock without par value the amount
agreements or promissory notes the aggregate of which does not exceed
of the documentary stamp tax herein prescribed shall be based upon the
Two hundred fifty thousand pesos (P250,000) executed by an individual
actual consideration for the issuance of such shares of stock: Provided,
for his purchase on installment for his personal use or that of his family
further, That in the case of stock dividends, on the actual value
and not for business, resale, barter or hire of a house, lot, motor vehicle,
represented by each share.
appliance or furniture shall be exempt from the payment of the
documentary stamp tax provided under this Section.
SEC. 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of
Sales, Deliveries or Transfer of Due-bills, Certificates of
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and
Obligation, or Shares of Certificates of Stock. - On all sales, or
Others. - Upon any acceptance or payment of any bill of exchange or
agreements to sell, or memoranda of sale, or deliveries, or transfer of due-
order for the payment of money purporting to be drawn in a foreign
bills, certificates of obligation, or shares of certificates of stock in any
country but payable in the Philippines, there shall be collected a
association, company, or corporation, or transfer of such securities by
documentary stamp tax of Thirty centavos (P0.30) on each Two hundred
assignment in blank, or by delivery, or by any paper or agreement, or
pesos (P200), or fractional part thereof, of the face value of any such bill
memorandum or other evidences of transfer or sale whether entitling the
of exchange, or order, or the Philippine equivalent to such value, if
holder in any manner to the benefit of such due-bills, certificates of
expressed in foreign currency.
obligation or stock, or to secure the future payment of money, or for the
future transfer of any due-bill, certificate of obligation or stock, there shall
be collected a documentary stamp tax of One peso and fifty centavos SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of
(P1.50) on each Two hundred pesos (P200) or fractional part thereof, of Credit. - On all foreign bills of exchange and letters of credit (including
the par value of such due-bill, certificate of obligation or stock; Provided, orders, by telegraph or otherwise, for the payment of money issued by
That only one tax shall be collected on each sale or transfer of stock or express or steamship companies or by any person or persons) drawn in
securities from one person to another, regardless of whether or not a but payable out of the Philippines in a set of three (3) or more according
certificate of stock or obligation is issued, indorsed, or delivered in to the custom of merchants and bankers, there shall be collected a
pursuance of such sale or transfer: and, Provided, further, That in the case documentary stamp tax of Thirty centavos (P0.30) on each Two hundred
of stock without par value the amount of documentary stamp tax herein pesos (P200), or fractional part thereof, of the face value of any such bill
prescribed shall be equivalent to twenty-five percent (25%) of the of exchange or letter of credit, or the Philippine equivalent of such face
documentary stamp tax paid upon the original issue of said stock. value, if expressed in foreign currency.
SEC. 177. Stamp Tax on Bonds, Debentures, Certificate of Stock SEC. 183. Stamp Tax on Life Insurance Policies. - On all policies of
or Indebtedness Issued in Foreign Countries. - On all bonds, insurance or other instruments by whatever name the same may be
debentures, certificates of stock, or certificates of indebtedness issued in called, whereby any insurance shall be made or renewed upon any life or
any foreign country, there shall be collected from the person selling or lives, there shall be collected a documentary stamp tax of Fifty centavos
transferring the same in the Philippines, such as tax as is required by law (P0.50) on each Two hundred pesos (P200), or fractional part thereof, of
on similar instruments when issued, sold or transferred in the Philippines. the amount insured by any such policy.
SEC. 178. Stamp Tax on Certificates of Profits or Interest in SEC. 184. Stamp Tax on Policies of Insurance Upon Property. - On
Property or Accumulations. - On all certificates of profits, or any all policies of insurance or other instruments by whatever name the same
certificate or memorandum showing interest in the property or may be called, by which insurance shall be made or renewed upon
accumulations of any association, company or corporation, and on all property of any description, including rents or profits, against peril by sea
transfers of such certificates or memoranda, there shall be collected a or on inland waters, or by fire or lightning, there shall be collected a
documentary stamp tax of Fifty centavos (P0.50) on each Two hundred documentary stamp tax of Fifty centavos (P0.50) on each Four pesos
pesos (P200), or fractional part thereof, of the face value of such (P4.00), or fractional part thereof, of the amount of premium charged:
certificate or memorandum. Provided, however, That no documentary stamp tax shall be collected on
reinsurance contracts or on any instrument by which cession or
acceptance of insurance risks under any reinsurance agreement is effected
SEC. 179. Stamp Tax on Bank Checks, Drafts, Certificates of
or recorded.
Deposit not Bearing Interest, and Other Instruments. - On each
bank check, draft, or certificate of deposit not drawing interest, or order
for the payment of any sum of money drawn upon or issued by any bank, SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance
trust company, or any person or persons, companies or corporations, at Policies. - On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage or liability made or renewed by any (P100) and does not exceed One Thousand pesos (P1,000); Ten pesos
person, association, company or corporation transacting the business of (P10), if the value exceeds One thousand pesos (P1,000): Provided,
accident, fidelity, employers liability, plate, glass, steam, boiler, burglar, however, That freight tickets covering goods, merchandise or effects
elevator, automatic sprinkler, or other branch of insurance (except life, carried as accompanied baggage of passengers on land and water carriers
marine, inland, and fire insurance), and all bonds, undertakings, or primarily engaged in the transportation of passengers are hereby exempt.
recognizances, conditioned for the performance of the duties of any office
or position, for the doing or not doing of anything therein specified, and
SEC. 192. Stamp Tax on Proxies. - On each proxy for voting at any
on all obligations guaranteeing the validity or legality of any bond or other
election for officers of any company or association, or for any other
obligations issued by any province, city, municipality, or other public body
purpose, except proxies issued affecting the affairs of associations or
or organization, and on all obligations guaranteeing the title to any real
corporations organized for religious, charitable or literary purposes, there
estate, or guaranteeing any mercantile credits, which may be made or
shall be collected a documentary stamp tax of Fifteen pesos (P15.00).
renewed by any such person, company or corporation, there shall be
collected a documentary stamp tax of Fifty centavos (P0.50) on each Four
pesos (P4.00), or fractional part thereof, of the premium charged. SEC. 193. Stamp Tax on Powers of Attorney. - On each power of
attorney to perform any act whatsoever, except acts connected with the
collection of claims due from or accruing to the Government of the
SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need Plans.
Republic of the Philippines, or the government of any province, city or
- On all policies of annuities, or other instruments by whatever name the
municipality, there shall be collected a documentary stamp tax of Five
same may be called, whereby an annuity may be made, transferred or
pesos (P5.00).
redeemed, there shall be collected a documentary stamp tax of One peso
and fifty centavos (P1.50) on each Two hundred pesos (P200) or fractional
part thereof, of the capital of the annuity, or should this be unknown, then SEC. 194. Stamp Tax on Leases and Other Hiring Agreements. -
on each Two hundred (P200) pesos, or fractional part thereof, of thirty- On each lease, agreement, memorandum, or contract for hire, use or rent
three and one-third (33 1/3) times the annual income. of any lands or tenements, or portions thereof, there shall be collected a
documentary stamp tax of Three pesos (P3.00) for the first Two thousand
pesos (P2,000), or fractional part thereof, and an additional One peso
On pre-need plans, the documentary stamp tax shall be Fifty centavos
(P1.00) for every One Thousand pesos (P1,000) or fractional part thereof,
(P0.50) on each Five hundred pesos (P500), or fractional part thereof, of
in excess of the first Two thousand pesos (P2,000) for each year of the
the value or amount of the plan.
term of said contract or agreement.
SEC. 187. Stamp Tax on Indemnity Bonds. - On all bonds for

SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. -
indemnifying any person, firm or corporation who shall become bound or
On every mortgage or pledge of lands, estate, or property, real or
engaged as surety for the payment of any sum of money or for the due
personal, heritable or movable, whatsoever, where the same shall be
execution or performance of the duties of any office or position or to
made as a security for the payment of any definite and certain sum of
account for money received by virtue thereof, and on all other bonds of
money lent at the time or previously due and owing of forborne to be
any description, except such as may be required in legal proceedings, or
paid, being payable and on any conveyance of land, estate, or property
are otherwise provided for herein, there shall be collected a documentary
whatsoever, in trust or to be sold, or otherwise converted into money
stamp tax of Thirty centavos (P0.30) on each Four pesos (P4.00), or
which shall be and intended only as security, either by express stipulation
fractional part thereof, of the premium charged.
or otherwise, there shall be collected a documentary stamp tax at the
following rates:
SEC. 188. Stamp Tax on Certificates. - On each certificate of damages
or otherwise, and on every certificate or document issued by any customs
(a) When the amount secured does not exceed Five thousand pesos
officer, marine surveyor, or other person acting as such, and on each
(P5,000), Twenty pesos (P20.00).
certificate issued by a notary public, and on each certificate of any
description required by law or by rules or regulations of a public office, or
which is issued for the purpose of giving information, or establishing proof (b) On each Five thousand pesos (P5,000), or fractional part thereof in
of a fact, and not otherwise specified herein, there shall be collected a excess of Five thousand pesos (P5,000), an additional tax of Ten pesos
documentary stamp tax of Fifteen pesos (P15.00). (P10.00).
SEC. 189. Stamp Tax on Warehouse Receipts. - On each warehouse On any mortgage, pledge, or deed of trust, where the same shall be made
receipt for property held in storage in a public or private warehouse or as a security for the payment of a fluctuating account or future advances
yard for any person other than the proprietor of such warehouse or yard, without fixed limit, the documentary stamp tax on such mortgage, pledge
there shall be collected a documentary stamp tax of Fifteen pesos or deed of trust shall be computed on the amount actually loaned or given
(P15.00): Provided, That no tax shall be collected on each warehouse at the time of the execution of the mortgage, pledge or deed of trust,
receipt issued to any one person in any one calendar month covering additional documentary stamp tax shall be paid which shall be computed
property the value of which does not exceed Two hundred pesos (P200). on the basis of the amount advanced or loaned at the rates specified
above: Provided, however, That if the full amount of the loan or credit,
granted under the mortgage, pledge or deed of trust shall be computed on
SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or
the amount actually loaned or given at the time of the execution of the
Other Authorized Numbers Games. - On each jai-alai, horse race
mortgage, pledge or deed of trust.
ticket, lotto, or other authorized number games, there shall be collected a
documentary stamp tax of Ten centavos (P0.10): Provided, That if the
cost of the ticket exceeds One peso (P1.00), an additional tax of Ten However, if subsequent advances are made on such mortgage, pledge or
centavos (P0.10) on every One peso (P1.00, or fractional part thereof, deed of trust, additional documentary stamp tax shall be paid which shall
shall be collected. be computed on the basis of the amount advanced or loaned at the rates
specified above: Provided, however, That if the full amount of the loan or
credit, granted under the mortgage, pledge or deed of trust is specified in
SEC. 191. Stamp Tax on Bills of Lading or Receipts. - On each set of
such mortgage, pledge or deed of trust, the documentary stamp tax
bills of lading or receipts (except charter party) for any goods,
prescribed in this Section shall be paid and computed on the full amount
merchandise or effects shipped from one port or place in the Philippines to
of the loan or credit granted.
another port or place in the Philippines (except on ferries across rivers), or
to any foreign port, there shall be collected documentary stamp tax of One
peso (P1.00), if the value of such goods exceeds One hundred pesos

SEC. 196. Stamp tax on Deeds of Sale and Conveyances of Real plan and organized and conducted solely by the members thereof for the
Property. - On all conveyances, deeds, instruments, or writings, other exclusive benefit of each member and not for profit.
than grants, patents or original certificates of adjudication issued by the
Government, whereby any land, tenement, or other realty sold shall be
(b) Certificates of oaths administered to any government official in his
granted, assigned, transferred or otherwise conveyed to the purchaser, or
official capacity or of acknowledgment by any government official in the
purchasers, or to any other person or persons designated by such
performance of his official duties, written appearance in any court by any
purchaser or purchasers, there shall be collected a documentary stamp
government official, in his official capacity; certificates of the
tax, at the rates herein below prescribed, based on the consideration
administration of oaths to any person as to the authenticity of any paper
contracted to be paid for such realty or on its fair market value determined
required to be filed in court by any person or party thereto, whether the
in accordance with Section 6(E) of this Code, whichever is higher:
proceedings be civil or criminal; papers and documents filed in courts by
Provided, That when one of the contracting parties is the Government the
or for the national, provincial, city or municipal governments; affidavits of
tax herein imposed shall be based on the actual consideration.
poor persons for the purpose of proving poverty; statements and other
compulsory information required of persons or corporations by the rules
(a) When the consideration, or value received or contracted to be paid for and regulations of the national, provincial, city or municipal governments
such realty after making proper allowance of any encumbrance, does not exclusively for statistical purposes and which are wholly for the use of the
exceed One thousand pesos (P1,000) fifteen pesos (P15.00). bureau or office in which they are filed, and not at the instance or for the
use or benefit of the person filing them; certified copies and other
certificates placed upon documents, instruments and papers for the
(b) For each additional One thousand Pesos (P1,000), or fractional part
national, provincial, city, or municipal governments, made at the instance
thereof in excess of One thousand pesos (P1,000) of such consideration or
and for the sole use of some other branch of the national, provincial, city
value, Fifteen pesos (P15.00).
or municipal governments; and certificates of the assessed value of lands,
not exceeding Two hundred pesos (P200) in value assessed, furnished by
When it appears that the amount of the documentary stamp tax payable the provincial, city or municipal Treasurer to applicants for registration of
hereunder has been reduced by an incorrect statement of the title to land.
consideration in any conveyance, deed, instrument or writing subject to
such tax the Commissioner, provincial or city Treasurer, or other revenue
SEC. 200. Payment of Documentary Stamp Tax. -
officer shall, from the assessment rolls or other reliable source of
information, assess the property of its true market value and collect the
proper tax thereon. (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
SEC. 197. Stamp Tax on Charter Parties and Similar Instruments.
return and pay the tax in accordance with the rules and regulations to be
- On every charter party, contract or agreement for the charter of any
ship, vessel or steamer, or any letter or memorandum or other writing
Commissioner.
between the captain, master or owner, or other person acting as agent of
any ship, vessel or steamer, and any other person or persons for or
relating to the charter of any such ship, vessel or steamer, and on any (B) Time for Filing and Payment of the Tax.- Except as provided by
renewal or transfer of such charter, contract, agreement, letter or rules and regulations promulgated by the Secretary of Finance, upon
memorandum, there shall be collected a documentary stamp tax at the recommendation of the Commissioner, the tax return prescribed in this
following rates: (a) If the registered gross tonnage of the ship, vessel or Section shall be filed within ten (10) days after the close of the month
steamer does not exceed one thousand (1,000) tons, and the duration of when the taxable document was made, signed, issued, accepted, or
the charter or contract does not exceed six (6) months, Five hundred transferred, and the tax thereon shall be paid at the same time the
pesos (P500); and for each month or fraction of a month in excess of six aforesaid return is filed.
(6) months, an additional tax of Fifty pesos (P50.00) shall be paid.
(C) Where to File.- Except in cases where the Commissioner otherwise
(b) If the registered gross tonnage exceeds one thousand (1,000) tons permits, the aforesaid tax return shall be filed with and the tax due shall
and does not exceed ten thousand (10,000) tons, and the duration of the be paid through the authorized agent bank within the territorial jurisdiction
charter or contract does not exceed six (6) months, One thousand pesos of the Revenue District Office which has jurisdiction over the residence or
(P1,000); and for each month or fraction of a month in excess of six (6) principal place of business of the taxpayer.
months, an additional tax of One hundred pesos (P100) shall be paid.
In places where there is no authorized agent bank, the return shall be filed
(c) If the registered gross tonnage exceeds ten thousand (10,000) tons with the Revenue District Officer, collection agent, or duly authorized
and the duration of the charter or contract does not exceed six (6) Treasurer of the city or municipality in which the taxpayer has his legal
months, One thousand five hundred pesos (P1,500); and for each month residence or principal place of business.
or fraction of a month in excess of six (6) months, an additional tax of One
hundred fifty pesos (P150) shall be paid.
(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
SEC. 198. Stamp Tax on Assignments and Renewals of Certain the stamps through a documentary stamp metering machine, on the
Instruments. - Upon each and every assignment or transfer of any taxable document, in the manner as may be prescribed by rules and
mortgage, lease or policy of insurance, or the renewal or continuance of regulations to be promulgated by the Secretary of Finance, upon
any agreement, contract, charter, or any evidence of obligation or recommendation of the Commissioner.
indebtedness by altering or otherwise, there shall be levied, collected and
paid a documentary stamp tax, at the same rate as that imposed on the
SEC. 201. Effect of Failure to Stamp Taxable Document. - An
original instrument.
instrument, document or paper which is required by law to be stamped
and which has been signed, issued, accepted or transferred without being
SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The duly stamped, shall not be recorded, nor shall it or any copy thereof or
provisions of Section 173 to the contrary notwithstanding, the following any record of transfer of the same be admitted or used in evidence in any
instruments, documents and papers shall be exempt from the court until the requisite stamp or stamps are affixed thereto and cancelled.
documentary stamp tax: (a) Policies of insurance or annuities made or
granted by a fraternal or beneficiary society, order, association or
cooperative company, operated on the lodge system or local cooperation
TITLE VIII within two (2) years after the payment of the tax or penalty: Provided,
REMEDIES however, That a return filed showing an overpayment shall be considered
as a written claim for credit or refund.
CHAPTER I
REMEDIES IN GENERAL
A Tax Credit Certificate validly issued under the provisions of this Code
may be applied against any internal revenue tax, excluding withholding
SEC. 202. Final Deed to Purchaser.- In case the taxpayer shall not taxes, for which the taxpayer is directly liable.
redeem the property as herein provided the Revenue District Officer shall,
as grantor, execute a deed conveying to the purchaser so much of the
Any request for conversion into refund of unutilized tax credits may be
property as has been sold, free from all liens of any kind whatsoever, and
allowed, subject to the provisions of Section 230 of this Code: Provided,
the deed shall succintly recite all the proceedings upon which the validity
That the original copy of the Tax Credit Certificate showing a creditable
of the sale depends.
balance is surrendered to the appropriate revenue officer for verification
and cancellation: Provided, further, That in no case shall a tax refund be
SEC. 203. Period of Limitation Upon Assessment and Collection. - given resulting from availment of incentives granted pursuant to special
Except as provided in Section 222, internal revenue taxes shall be laws for which no actual payment was made.
assessed within three (3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court without assessment for the
The Commissioner shall submit to the Chairmen of the Committee on
collection of such taxes shall be begun after the expiration of such period:
Ways and Means of both the Senate and House of Representatives, every
Provided, That in a case where a return is filed beyond the period
six (6) months, a report on the exercise of his powers under this Section,
prescribed by law, the three (3)-year period shall be counted from the day
stating therein the following facts and information, among others: names
the return was filed.
and addresses of taxpayers whose cases have been the subject of
abatement or compromise; amount involved; amount compromised or
For purposes of this Section, a return filed before the last day prescribed abated; and reasons for the exercise of power: Provided, That the said
by law for the filing thereof shall be considered as filed on such last day. report shall be presented to the Oversight Committee in Congress that
shall be constituted to determine that said powers are reasonably
exercised and that the government is not unduly deprived of revenues.
SEC. 204. Authority of the Commissioner to Compromise, Abate
and Refund or Credit Taxes. - The Commissioner may -
CHAPTER II
CIVIL REMEDIES FOR COLLECTION OF TAXES
(A) Compromise the Payment of any Internal Revenue Tax, when:
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The

(1) A reasonable doubt as to the validity of the claim against the taxpayer
civil remedies for the collection of internal revenue taxes, fees or charges,
exists; or(2) The financial position of the taxpayer demonstrates a clear
and any increment thereto resulting from delinquency shall be:
inability to pay the assessed tax.
(a) By distraint of goods, chattels, or effects, and other personal property

The compromise settlement of any tax liability shall be subject to the
of whatever character, including stocks and other securities, debts, credits,
following minimum amounts:
bank accounts and interest in and rights to personal property, and by levy
upon real property and interest in rights to real property; and
For cases of financial incapacity, a minimum compromise rate equivalent
to ten percent (10%) of the basic assessed tax; and
(b) By civil or criminal action.
For other cases, a minimum compromise rate equivalent to forty percent

Either of these remedies or both simultaneously may be pursued in the
(40%) of the basic assessed tax.
discretion of the authorities charged with the collection of such taxes:
Provided, however, That the remedies of distraint and levy shall not be
Where the basic tax involved exceeds One million pesos (P1,000.000) or availed of where the amount of tax involve is not more than One hundred
where the settlement offered is less than the prescribed minimum rates, pesos (P100).
the compromise shall be subject to the approval of the Evaluation Board
which shall be composed of the Commissioner and the four (4) Deputy
The judgment in the criminal case shall not only impose the penalty but
Commissioners.
shall also order payment of the taxes subject of the criminal case as finally
decided by the Commissioner.
(B) Abate or Cancel a Tax Liability, when:
The Bureau of Internal Revenue shall advance the amounts needed to
(1) The tax or any portion thereof appears to be unjustly or excessively defray costs of collection by means of civil or criminal action, including the
assessed; or(2) The administration and collection costs involved do not preservation or transportation of personal property distrained and the
justify the collection of the amount due. advertisement and sale thereof, as well as of real property and
improvements thereon.
All criminal violations may be compromised except: (a) those already filed
in court, or (b) those involving fraud. SEC. 206. Constructive Distraint of the Property of a Taxpayer. -
To safeguard the interest of the Government, the Commissioner may place
(C) Credit or refund taxes erroneously or illegally received or penalties under constructive distraint the property of a delinquent taxpayer or any
imposed without authority, refund the value of internal revenue stamps taxpayer who, in his opinion, is retiring from any business subject to tax,
when they are returned in good condition by the purchaser, and, in his or is intending to leave the Philippines or to remove his property therefrom
discretion, redeem or change unused stamps that have been rendered or to hide or conceal his property or to perform any act tending to
unfit for use and refund their value upon proof of destruction. obstruct the proceedings for collecting the tax due or which may be due
from him.
No credit or refund of taxes or penalties shall be allowed unless the

taxpayer files in writing with the Commissioner a claim for credit or refund
The constructive distraint of personal property shall be affected by Within ten (10) days after receipt of the warrant, a report on any levy shall
requiring the taxpayer or any person having possession or control of such be submitted by the levying officer to the Commissioner or his duly
property to sign a receipt covering the property distrained and obligate authorized representative: Provided, however, That a consolidated report
himself to preserve the same intact and unaltered and not to dispose of by the Revenue Regional Director may be required by the Commissioner
the same ;in any manner whatever, without the express authority of the as often as necessary: Provided, further, That the Commissioner or his
Commissioner. 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
In case the taxpayer or the person having the possession and control of
accordance with the provisions hereof.
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, SEC. 208. Procedure for Distraint and Garnishment. - The officer
in the presence of two (2) witnessed, leave a copy thereof in the premises serving the warrant of distraint shall make or cause to be made an
where the property distrained is located, after which the said property account of the goods, chattels, effects or other personal property
shall be deemed to have been placed under constructive distraint. 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
SEC. 207. Summary Remedies. -
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
(A) Distraint of Personal Property. - Upon the failure of the person and place of sale.
owing any delinquent tax or delinquent revenue to pay the same at the
time required, the Commissioner or his duly authorized representative, if
Stocks and other securities shall be distrained by serving a copy of the
the amount involved is in excess of One million pesos (P1,000,000), or the
warrant of distraint upon the taxpayer and upon the president, manager,
Revenue District Officer, if the amount involved is One million pesos
treasurer or other responsible officer of the corporation, company or
(P1,000,000) or less, shall seize and distraint any goods, chattels or
association, which issued the said stocks or securities.
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 Debts and credits shall be distrained by leaving with the person owing the
charge, together with any increment thereto incident to delinquency, and debts or having in his possession or under his control such credits, or with
the expenses of the distraint and the cost of the subsequent sale. his agent, a copy of the warrant of distraint.
A report on the distraint shall, within ten (10) days from receipt of the The warrant of distraint shall be sufficient authority to the person owning
warrant, be submitted by the distraining officer to the Revenue District the debts or having in his possession or under his control any credits
Officer, and to the Revenue Regional Director: Provided, That the belonging to the taxpayer to pay to the Commissioner the amount of such
Commissioner or his duly authorized representative shall, subject to rules debts or credits.
and regulations promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, have the power to lift such order of
Bank accounts shall be garnished by serving a warrant of garnishment
distraint: Provided, further, That a consolidated report by the Revenue
upon the taxpayer and upon the president, manager, treasurer or other
Regional Director may be required by the Commissioner as often as
responsible officer of the bank.
necessary.
Upon receipt of the warrant of garnishment, the bank shall tun over to the
(B) Levy on Real Property.- After the expiration of the time required to
Commissioner so much of the bank accounts as may be sufficient to
pay the delinquent tax or delinquent revenue as prescribed in this Section,
satisfy the claim of the Government.
real property may be levied upon, before simultaneously or after the
distraint of personal property belonging to the delinquent.
SEC. 209. Sale of Property Distrained and Disposition of Proceeds.
- The Revenue District Officer or his duly authorized representative, other
To this end, any internal revenue officer designated by the Commissioner
than the officer referred to in Section 208 of this Code shall, according to
or his duly authorized representative shall prepare a duly authenticated
rules and regulations prescribed by the Secretary of Finance, upon
certificate showing the name of the taxpayer and the amounts of the tax
recommendation of the Commissioner, forthwith cause a notification to be
and penalty due from him.
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
Said certificate shall operate with the force of a legal execution throughout articles distrained.
the Philippines.
The time of sale shall not be less than twenty (20) days after notice.
Levy shall be affected by writing upon said certificate a description of the
property upon which levy is made.
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.
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
At the time and place fixed in such notice, the said revenue officer shall
located and upon the delinquent taxpayer, or if he be absent from the
sell the goods, chattels, or effects, or other personal property, including
Philippines, to his agent or the manager of the business in respect to
stocks and other securities so distrained, at public auction, to the highest
which the liability arose, or if there be none, to the occupant of the
bidder for cash, or with the approval of the Commissioner, through duly
property in question.
licensed commodity or stock exchanges.
In case the warrant of levy on real property is not issued before or

In the case of Stocks and other securities, the officer making the sale shall
simultaneously with the warrant of distraint on personal property, and the
execute a bill of sale which he shall deliver to the buyer, and a copy
personal property of the taxpayer is not sufficient to satisfy his tax
thereof furnished the corporation, company or association which issued
delinquency, the Commissioner or his duly authorized representative shall,
the stocks or other securities.
within thirty (30) days after execution of the distraint, proceed with the
levy on the taxpayer's real property.
Upon receipt of the copy of the bill of sale, the corporation, company or The Revenue Collection Officer, in consultation with the Revenue district
association shall make the corresponding entry in its books, transfer the Officer, shall then make out and deliver to the purchaser a certificate from
stocks or other securities sold in the name of the buyer, and issue, if his records, showing the proceedings of the sale, describing the property
required to do so, the corresponding certificates of stock or other sold stating the name of the purchaser and setting out the exact amount
securities. 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.
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 Revenue Collection Officer, upon approval by the Revenue District
Officer may, out of his collection, advance an amount sufficient to defray
The expenses chargeable upon each seizure and sale shall embrace only
the costs of collection by means of the summary remedies provided for in
the actual expenses of seizure and preservation of the property pending
this Code, including ;the preservation or transportation in case of personal
;the sale, and no charge shall be imposed for the services of the local
property, and the advertisement and subsequent sale, both in cases of
internal revenue officer or his deputy.
personal and real property including improvements found on the latter.
SEC. 210. Release of Distrained Property Upon Payment Prior to

In his monthly collection reports, such advances shall be reflected and
Sale. - If at any time prior to the consummation of the sale all proper
supported by receipts.
charges are paid to the officer conducting the sale, the goods or effects
distrained shall be restored to the owner.
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
SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within
the right of paying to the Revenue District Officer the amount of the public
two (2) days after the sale, the officer making the same shall make a
taxes, penalties, and interest thereon from the date of delinquency to the
report of his proceedings in writing to the Commissioner and shall himself
date of sale, together with interest on said purchase price at the rate of
preserve a copy of such report as an official record.
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
SEC. 212. Purchase by Government at Sale Upon Distraint. - When delivery of the certificate issued to the purchaser and a certificate from the
the amount bid for the property under distraint is not equal to the amount said Revenue District Officer that he has thus redeemed the property, and
of the tax or is very much less than the actual market value of the articles the Revenue District Officer shall forthwith pay over to the purchaser the
offered for sale, the Commissioner or his deputy may purchase the same amount by which such property has thus been redeemed, and said
in behalf of the national Government for the amount of taxes, penalties property thereafter shall be free form the lien of such taxes and penalties.
and costs due thereon.
The owner shall not, however, be deprived of the possession of the said
Property so purchased may be resold by the Commissioner or his deputy, property and shall be entitled to the rents and other income thereof until
subject to the rules and regulations prescribed by the Secretary of the expiration of the time allowed for its redemption.
Finance, the net proceeds therefrom shall be remitted to the National
Treasury and accounted for as internal revenue.
SEC. 215. Forfeiture to Government for Want of Bidder. - In case
there is no bidder for real property exposed for sale as herein above
SEC. 213. Advertisement and Sale. - Within twenty (20) days after provided or if the highest bid is for an amount insufficient to pay the
levy, the officer conducting the proceedings shall proceed to advertise the taxes, penalties and costs, the Internal Revenue Officer conducting the
property or a usable portion thereof as may be necessary to satisfy the sale shall declare the property forfeited to the Government in satisfaction
claim and cost of sale; and such advertisement shall cover a period of a of the claim in question and within two (2) days thereafter, shall make a
least thirty (30) days. return of his proceedings and the forfeiture which shall be spread upon
the records of his office.
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 It shall be the duty of the Register of Deeds concerned, upon registration
barrio or district in which the real estate lies and ;by publication once a with his office of any such declaration of forfeiture, to transfer the title of
week for three (3) weeks in a newspaper of general circulation in the the property forfeited to the Government without the necessity of an order
municipality or city where the property is located. from a competent court.
The advertisement shall contain a statement of the amount of taxes and Within one (1) year from the date of such forfeiture, the taxpayer, or any
penalties so due and the time and place of sale, the name of the taxpayer one for him may redeem said property by paying to the Commissioner or
against whom taxes are levied, and a short description of the property to the latter's Revenue Collection Officer the full amount of the taxes and
be sold. penalties, together with interest thereon and the costs of sale, but if the
property be not thus redeemed, the forfeiture shall become absolute.
At any time before the day fixed for the sale, the taxpayer may
discontinue all proceedings by paying the taxes, penalties and interest. SEC. 216. Resale of Real Estate Taken for Taxes. - The
Commissioner shall have charge of any real estate obtained by the
If he does not do so, the sale shall proceed and shall be held either at the Government of the Philippines in payment or satisfaction of taxes,
main entrance of the municipal building or city hall, or on the premises to penalties or costs arising under this Code or in compromise or adjustment
be sold, as the officer conducting the proceedings shall determine and as of any claim therefore, and said Commissioner may, upon the giving of not
the notice of sale shall specify. 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.
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 In either case, the proceeds of the sale shall be deposited with the
Regional Director. 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 The period so agreed upon may be extended by subsequent written
personal property and levy on realty may be repeated if necessary until agreements made before the expiration of the period previously agreed
the full amount due, including all expenses, is collected. upon.
SEC. 218. Injunction not Available to Restrain Collection of Tax. - (e) Provided, however, That nothing in the immediately preceding and
No court shall have the authority to grant an injunction to restrain the paragraph (a) hereof shall be construed to authorize the examination and
collection of any national internal revenue tax, fee or charge imposed by investigation or inquiry into any tax return filed in accordance with the
this Code. provisions of any tax amnesty law or decree.
SEC. 219. Nature and Extent of Tax Lien. - If any person, SEC. 223. Suspension of Running of Statute of Limitations. - The
corporation, partnership, joint-account (cuentas en participacion), running of the Statute of Limitations provided in Sections 203 and 222 on
association or insurance company liable to pay an internal revenue tax, the making of assessment and the beginning of distraint or levy a
neglects or refuses to pay the same after demand, the amount shall be a proceeding in court for collection, in respect of any deficiency, shall be
lien in favor of the Government of the Philippines from the time when the suspended for the period during which the Commissioner is prohibited
assessment was made by the Commissioner until paid, with interests, from making the assessment or beginning distraint or levy or a proceeding
penalties, and costs that may accrue in addition thereto upon all property in court and for sixty (60) days thereafter; when the taxpayer requests for
and rights to property belonging to the taxpayer: Provided, That this lien a reinvestigation which is granted by the Commissioner; when the
shall not be valid against any mortgagee purchaser or judgment creditor taxpayer cannot be located in the address given by him in the return filed
until notice of such lien shall be filed by the Commissioner in the office of upon which a tax is being assessed or collected: Provided, that, if the
the Register of Deeds of the province or city where the property of the taxpayer informs the Commissioner of any change in address, the running
taxpayer is situated or located. of the Statute of Limitations will not be suspended; when the warrant of
distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion,
SEC. 220. Form and Mode of Proceeding in Actions Arising under
and no property could be located; and when the taxpayer is out of the
this Code. - Civil and criminal actions and proceedings instituted in behalf
Philippines.
of the Government under the authority of this Code or other law enforced
by the Bureau of Internal Revenue shall be brought in the name of the
Government of the Philippines and shall be conducted by legal officers of SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture
the Bureau of Internal Revenue but no civil or criminal action for the of chattels and removable fixtures of any sort shall be enforced by the
recovery of taxes or the enforcement of any fine, penalty or forfeiture seizure and sale, or destruction, of the specific forfeited property.
under this Code shall be filed in court without the approval of the
Commissioner.
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
SEC. 221. Remedy for Enforcement of Statutory Penal Provisions. the case may require.
- The remedy for enforcement of statutory penalties of all sorts shall be by
criminal or civil action, as the particular situation may require, subject to
SEC. 225. When Property to be Sold or Destroyed. - Sales of
the approval of the Commissioner.
forfeited chattels and removable fixtures shall be effected, so far as
practicable, in the same manner and under the same conditions as the
SEC. 222. Exceptions as to Period of Limitation of Assessment public notice and the time and manner of sale as are prescribed for sales
and Collection of Taxes. - of personal property distrained for the non-payment of taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or Distilled spirits, liquors, cigars, cigarettes, other manufactured products of
of failure to file a return, the tax may be assessed, or a proceeding in tobacco, and all apparatus used I or about the illicit production of such
court for the collection of such tax may be filed without assessment, at articles may, upon forfeiture, be destroyed by order of the Commissioner,
any time within ten (10) years after the discovery of the falsity, fraud or when the sale of the same for consumption or use would be injurious to
omission: Provided, That in a fraud assessment which has become final public health or prejudicial to the enforcement of the law.
and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
All other articles subject to excise tax, which have been manufactured or
removed in violation of this Code, as well as dies for the printing or
(b) If before the expiration of the time prescribed in Section 203 for the making of internal revenue stamps and labels which are in imitation of or
assessment of the tax, both the Commissioner and the taxpayer have purport to be lawful stamps, or labels may, upon forfeiture, be sold or
agreed in writing to its assessment after such time, the tax may be destroyed in the discretion of the Commissioner.
assessed within the period agreed upon.
Forfeited property shall not be destroyed until at least twenty (20) days
The period so agreed upon may be extended by subsequent written after seizure.
agreement made before the expiration of the period previously agreed
upon.
SEC. 226. Disposition of funds Recovered in Legal Proceedings or
Obtained from Forfeitures. - all judgments and monies recovered and
(c) Any internal revenue tax which has been assessed within the period of received for taxes, costs, forfeitures, fines and penalties shall be paid to
limitation as prescribed in paragraph (a) hereof may be collected by the Commissioner or his authorized deputies as the taxes themselves are
distraint or levy or by a proceeding in court within five (5) years following required to be paid, and except as specially provided, shall be accounted
the assessment of the tax. for and dealt with the same way.
(d) Any internal revenue tax, which has been assessed within the period SEC. 227. Satisfaction of Judgment Recovered Against any
agreed upon as provided in paragraph (b) hereinabove, may be collected Internal Revenue Officer. - When an action is brought against any
by distraint or levy or by a proceeding in court within the period agreed Internal Revenue officer to recover damages by reason of any act done in
upon in writing before the expiration of the five (5) -year period. the performance of official duty, and the Commissioner is notified of such
action in time to make defense against the same, through the Solicitor
General, any judgment, damages or costs recovered in such action shall
be satisfied by the Commissioner, upon approval of the Secretary of In any case, no such suit or proceeding shall be filed after the expiration
Finance, or if the same be paid by the person used shall be repaid or of two (2) years from the date of payment of the tax or penalty regardless
reimbursed to him. of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon
No such judgment, damages, or costs shall be paid or reimbursed in
which payment was made, such payment appears clearly to have been
behalf of a person who has acted negligently or in bad faith, or with willful
erroneously paid.
oppression.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -

CHAPTER III
PROTESTING AN ASSESSMENT, REFUND, ETC.
(A) Forfeiture of Refund.- A refund check or warrant issued in
accordance with the pertinent provisions of this Code, which shall remain
SEC. 228. Protesting of Assessment. - When the Commissioner or his
unclaimed or uncashed within five (5) years from the date the said
duly authorized representative finds that proper taxes should be assessed,
warrant or check was mailed or delivered, shall be forfeited in favor of the
he shall first notify the taxpayer of his findings: Provided, however, That a
Government and the amount thereof shall revert to the general fund.
preassessment notice shall not be required in the following cases:
cralaw
(a) When the finding for any deficiency tax is the result of mathematical
(B) Forfeiture of Tax Credit. - A tax credit certificate issued in
error in the computation of the tax as appearing on the face of the return;
accordance with the pertinent provisions of this Code, which shall remain
or(b) When a discrepancy has been determined between the tax withheld
unutilized after five (5) years from the date of issue, shall, unless
and the amount actually remitted by the withholding agent; or(c) When a
revalidated, be considered invalid, and shall not be allowed as payment for
taxpayer who opted to claim a refund or tax credit of excess creditable
internal revenue tax liabilities of the taxpayer, and the amount covered by
withholding tax for a taxable period was determined to have carried over
the certificate shall revert to the general fund.
and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable
year; or(d) When the excise tax due on exciseable articles has not been (C) Transitory Provision. - For purposes of the preceding Subsection, a
paid; or(e) When the article locally purchased or imported by an exempt tax credit certificate issued by the Commissioner or his duly authorized
person, such as, but not limited to, vehicles, capital equipment, representative prior to January 1, 1998, which remains unutilized or has a
machineries and spare parts, has been sold, traded or transferred to non- creditable balance as of said date, shall be presented for revalidation with
exempt persons. the Commissioner or his duly authorized representative or on before June
30, 1998.
The taxpayers shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be void. SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the
seizure of personal property under claim of forfeiture, the owner desiring
to contest the validity of the forfeiture may, at any time before sale or
Within a period to be prescribed by implementing rules and regulations,
destruction of the property, bring an action against the person seizing the
the taxpayer shall be required to respond to said notice.
property or having possession thereof to recover the same, and upon
giving proper bond, may enjoin the sale; or after the sale and within six
If the taxpayer fails to respond, the Commissioner or his duly authorized (6) months, he may bring an action to recover the net proceeds realized at
representative shall issue an assessment based on his findings. the sale.
Such assessment may be protested administratively by filing a request for TITLE IX

reconsideration or reinvestigation within thirty (30) days from receipt of COMPLIANCE REQUIREMENTS
the assessment in such form and manner as may be prescribed by CHAPTER I
implementing rules and regulations. KEEPING OF BOOKS OF ACCOUNTS AND RECORDS
Within sixty (60) days from filing of the protest, all relevant supporting SEC. 232. Keeping of Books of Accounts. -
documents shall have been submitted; otherwise, the assessment shall
become final.
(A) Corporations, Companies, Partnerships or Persons Required
to Keep Books of Accounts. - All corporations, companies, partnerships
If the protest is denied in whole or in part, or is not acted upon within one or persons required by law to pay internal revenue taxes shall keep a
hundred eighty (180) days from submission of documents, the taxpayer journal and a ledger or their equivalents: Provided, however, That those
adversely affected by the decision or inaction may appeal to the Court of whose quarterly sales, earnings, receipts, or output do not exceed Fifty
Tax Appeals within thirty (30) days from receipt of the said decision, or thousand pesos (P50,000) shall keep and use simplified set of
from the lapse of one hundred eighty (180)-day period; otherwise, the bookkeeping records duly authorized by the Secretary of Finance where in
decision shall become final, executory and demandable. all transactions and results of operations are shown and from which all
taxes due the Government may readily and accurately be ascertained and
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no determined any time of the year: Provided, further, That corporations,
suit or proceeding shall be maintained in any court for the recovery of any companies, partnerships or persons whose gross quarterly sales, earnings,
national internal revenue tax hereafter alleged to have been erroneously receipts or output exceed One hundred fifty thousand pesos (P150,000)
or illegally assessed or collected, or of any penalty claimed to have been shall have their books of accounts audited and examined yearly by
collected without authority, of any sum alleged to have been excessively independent Certified Public Accountants and their income tax returns
or in any manner wrongfully collected without authority, or of any sum accompanied with a duly accomplished Account Information Form (AIF)
alleged to have been excessively or in any manner wrongfully collected, which shall contain, among others, information lifted from certified
until a claim for refund or credit has been duly filed with the balance sheets, profit and loss statements, schedules listing income-
Commissioner; but such suit or proceeding may be maintained, whether or producing properties and the corresponding income therefrom and other
not such tax, penalty, or sum has been paid under protest or duress. relevant statements.

(B) Independent Certified Public Accountant Defined. - The term exempt organizations or grantees of tax incentives shall be subject to
"Independent Certified Public Accountant", as used in the preceding examination by the Bureau of Internal Revenue for purposes of
paragraph, means an accountant who possesses the independence as ascertaining compliance with the conditions under which they have been
defined in the rules and regulations of the Board of Accountancy granted tax exemptions or tax incentives, and their tax liability, if any.
promulgated pursuant to Presidential Decree No. 692, otherwise known as
the Revised Accountancy Law.
CHAPTER II
ADMINISTRATIVE PROVISIONS
SEC. 233. Subsidiary Books. - All corporations, companies,
partnerships or persons keeping the books of accounts mentioned in the
SEC. 236. Registration Requirements. -
preceding Section may, at their option, keep subsidiary books as the needs
of their business may require: Provided, That were such subsidiaries are
kept, they shall form part of the accounting system of the taxpayer and (A) Requirements. - Every person subject to any internal revenue tax
shall be subject to the same rules and regulations as to their keeping, shall register once with the appropriate Revenue District Officer:
translation, production and inspection as are applicable to the journal and
the ledger. (1) Within ten (10) days from date of employment, or
SEC. 234. Language in which Books are to be Kept; Translation. - (2) On or before the commencement of business, or
All such corporations, companies, partnerships or persons shall keep the
books or records mentioned in Section 232 hereof in native language,
English or Spanish: Provided, however, That if in addition to said books or (3) Before payment of any tax due, or
records the taxpayer keeps other books or records in a language other
than a native language, English or Spanish, he shall make a true and (4) Upon filing of a return, statement or declaration as required in this
complete translation of all the entries in suck other books or records into a Code.
native language; English or Spanish, and the said translation must be
made by the bookkeeper, or such taxpayer, or in his absence, by his
manager and must be certified under oath as to its correctness by the said The registration shall contain the taxpayer's name, style, place of
bookkeeper or manager, and shall form an integral part of the aforesaid residence, business and such other information as may be required by the
books of accounts. Commissioner in the form prescribed therefor.
The keeping of such books or records in any language other than a native A person maintaining a head office, branch or facility shall register with
language, English or Spanish, is hereby prohibited. the Revenue District Officer having jurisdiction over the head office, brand
or facility.
SEC. 235. Preservation of Books and Accounts and Other

Accounting Records. - All the books of accounts, including the For purposes of this Section, the term "facility" may include but not be
subsidiary books and other accounting records of corporations, limited to sales outlets, places of production, warehouses or storage
partnerships, or persons, shall be preserved by them for a period places.
beginning from the last entry in each book until the last day prescribed by
Section 203 within which the Commissioner is authorized to make an (B) Annual Registration Fee. - An annual registration fee in the
assessment. amount of Five hundred pesos (P500) for every separate or distinct
establishment or place of business, including facility types where sales
The said books and records shall be subject to examination and inspection transactions occur, shall be paid upon registration and every year
by internal revenue officers: Provided, That for income tax purposes, such thereafter on or before the last day of January: Provided, however, That
examination and inspection shall be made only once in a taxable year, cooperatives, individuals earning purely compensation income, whether
except in the following cases: locally or abroad, and overseas workers are not liable to the registration
fee herein imposed.
(a) Fraud, irregularity or mistakes, as determined by the Commissioner;(b)

The taxpayer requests reinvestigation;(c) Verification of compliance with The registration fee shall be paid to an authorized agent bank located
withholding tax laws and regulations;(d) Verification of capital gains tax within the revenue district, or to the Revenue Collection Officer, or duly
liabilities; and(e) In the exercise of the Commissioner's power under authorized Treasurer of the city of municipality where each place of
Section 5(B) to obtain information from other persons in which case, business or branch is registered.
another or separate examination and inspection may be made.
(C) Registration of Each Type of Internal Revenue Tax. - Every
Examination and inspection of books of accounts and other accounting person who is required to register with the Bureau of Internal Revenue
records shall be done in the taxpayer's office or place of business or in the under Subsection (A) hereof, shall register each type of internal revenue
office of the Bureau of Internal Revenue. tax for which he is obligated, shall file a return and shall pay such taxes,
and shall updates such registration of any changes in accordance with
Subsection (E) hereof.
All corporations, partnerships or persons that retire from business shall,
within ten (10) days from the date of retirement or within such period of
time as may be allowed by the Commissioner in special cases, submit their (D) Transfer of Registration. - In case a registered person decides to
books of accounts, including the subsidiary books and other accounting transfer his place of business or his head office or branches, it shall be his
records to the Commissioner or any of his deputies for examination, after duty to update his registration status by filing an application for
which they shall be returned. registration information update in the form prescribed therefor.
Corporations and partnerships contemplating dissolution must notify the (E) Other Updates. - Any person registered in accordance with this
Commissioner and shall not be dissolved until cleared of any tax liability. Section shall, whenever applicable, update his registration information
with the Revenue District Office where he is registered, specifying therein
any change in type and other taxpayer details.
Any provision of existing general or special law to the contrary
notwithstanding, the books of accounts and other pertinent records of tax-
(F) Cancellation of Registration. - The registration of any person who he is registered: Provided, however, That in case such executor or
ceases to be liable to a tax type shall be cancelled upon filing with the administrator is not registered, registration of the estate shall be made
Revenue District Office where he is registered an application for with the Taxpayer Identification Number (TIN) supplied by the Revenue
registration information update in a form prescribed therefor. District Office having jurisdiction over his legal residence.
(G) Persons Commencing Business. - Any person, who expects to Only one Taxpayer identification Number (TIN) shall be assigned to a
realize gross sales or receipts subject to value-added tax in excess of the taxpayer.
amount prescribed under Section 109(z) of this Code for the next 12-
month period from the commencement of the business, shall register with
Any person who shall secure more than one Taxpayer Identification
the Revenue District Office which has jurisdiction over the head office or
Number shall be criminally liable under the provision of Section 275 on
branch and shall pay the annual registration fee prescribed in Subsection
'Violation of Other Provisions of this Code or Regulations in General'.
(B) hereof.
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. -

(H) Persons Becoming Liable to the Value-added Tax. - Any person,
All persons subject to an internal revenue tax shall, for each sale or
whose gross sales or receipts in any 12-month period exceeds the amount
transfer of merchandise or for services rendered valued at Twenty-five
prescribed under Subsection 109(z) of this Code for exemption from the
pesos (P25.00) or more, issue duly registered receipts or sales or
value-added tax shall register in accordance with Subsection (A) hereof,
commercial invoices, prepared at least in duplicate, showing the date of
and shall pay the annual registration fee prescribed within ten (10) days
transaction, quantity, unit cost and description of merchandise or nature
after the end of the last month of that period, and shall be liable to the
of service: Provided, however, That in the case of sales, receipts or
value-added tax commencing from the first day of the month following his
transfers in the amount of One hundred pesos (P100.00) or more, or
registration.
regardless of the amount, where the sale or transfer is made by a person
liable to value-added tax to another person also liable to value-added tax;
(I) Optional Registration of Exempt Person. - Any person whose or where the receipt is issued to cover payment made as rentals,
transactions are exempt from value-added tax under Section 109(z) of this commissions, compensations or fees, receipts or invoices shall be issued
Code; or any person whose transactions are exempt from the value-added which shall show the name, business style, if any, and address of the
tax under Section 109(a), (b), (c), and (d) of this Code, who opts to purchaser, customer or client: Provided, further, That where the purchaser
register as a VAT taxpayer with respect to his export sales only, may is a VAT-registered person, in addition to the information herein required,
update his registration information in accordance with Subsection (E) the invoice or receipt shall further show the Taxpayer Identification
hereof, not later than ten (10) days before the beginning of the taxable Number (TIN) of the purchaser.
quarter and shall pay the annual registration fee prescribed in Subsection
(B) hereof.
The original of each receipt or invoice shall be issued to the purchaser,
customer or client at the time the transaction is effected, who, if engaged
In any case, the Commissioner may, for administrative reasons, deny any in business or in the exercise of profession, shall keep and preserve the
application for registration including updates prescribed under Subsection same in his place of business for a period of three (3) years from the close
(E) hereof. of the taxable year in which such invoice or receipt was issued, while the
duplicate shall be kept and preserved by the issuer, also in his place of
business, for a like period.
For purposes of Title IV of this Code, any person who has registered
value-added tax as a tax type in accordance with the provisions of
Subsection (C) hereof shall be referred to as VAT-registered person who The Commissioner may, in meritorious cases, exempt any person subject
shall be assigned only one Taxpayer Identification Number. to internal revenue tax from compliance with the provisions of this
Section.
(J) Supplying of Taxpayer Identification Number (TIN). - Any
person required under the authority of this Code to make, render or file a SEC. 238. Printing of Receipts or Sales or Commercial Invoices. -
return, statement or other document shall be supplied with or assigned a All persons who are engaged in business shall secure from the Bureau of
Taxpayer Identification Number (TIN) which he shall indicate in such Internal Revenue an authority to print receipts or sales or commercial
return, statement or document filed with the Bureau of Internal Revenue invoices before a printer can print the same.
for his proper identification for tax purposes, and which he shall indicate in
certain documents, such as, but not limited to the following:
No authority to print receipts or sales or commercial invoices shall be
granted unless the receipts or invoices to be printed are serially numbered
(1) Sugar quedans, refined sugar release order or similar instruments;(2) and shall show, among other things, the name, business style, Taxpayer
Domestic bills of lading;(3) Documents to be registered with the Register Identification Number (TIN) and business address of the person or entity
of Deeds of Assessor's Office;(4) Registration certificate of transportation to use the same, and such other information that may be required by rules
equipment by land, sea or air;(5) Documents to be registered with the and regulations to be promulgated by the Secretary of Finance, upon
Securities and Exchange Commission;(6) Building construction permits;(7) recommendation of the Commissioner.
Application for loan with banks, financial institutions, or other financial
intermediaries;(8) Application for mayor's permit;(9) Application for
All persons who print receipt or sales or commercial invoices shall maintain
business license with the Department of Trade & Industry; and(10) Such
a logbook/register of taxpayers who availed of their printing services.
other documents which may hereafter be required under rules and
regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner. The logbook/register shall contain the following information:
In cases where a registered taxpayer dies, the administrator or executor (1) Names, Taxpayer Identification Numbers of the persons or entities for
shall register the estate of the decedent in accordance with Subsection (A) whom the receipts or sales or commercial invoices were printed; and
hereof and a new Taxpayer Identification Number (TIN) shall be supplied
in accordance with the provisions of this Section. (2) Number of booklets, number of sets per booklet, number of copies per
set and the serial numbers of the receipts or invoices in each booklet.
In the case of a nonresident decedent, the executor or administrator of
the estate shall register the estate with the Revenue District Office where

SEC. 239. Sign to be Exhibited by Distiller, Rectifier, Compounder, not exported would be subject to an excise tax, shall be labelled, branded
Repacker and Wholesale Liquor Dealer. - Every person engaged in or marked;(d) The conditions to be observed by revenue officers
distilling or rectifying spirits, compounding liquors, repacking wines or respecting the institutions and conduct of legal actions and
distilled spirits, and every wholesale liquor dealer shall keep conspicuously proceedings;(e) The conditions under which goods intended for storage in
on the outside of his place of business a sign exhibiting, in letters not less bonded warehouses shall be conveyed thither, their manner of storage
than six centimeters (6 cms.) high, his name or firm style, with the words and the method of keeping the entries and records in connection
"Registered Distiller", "Rectifier of Spirits", "Compounder of Liquors", therewith, also the books to be kept by Revenue Inspectors and the
"Repacker of Wines or Distilled Spirits", or "Wholesale Liquor Dealer", as reports to be made by them in connection with their supervision of such
the case may be, and his assessment number. houses;(f) The conditions under which denatured alcohol may be removed
and dealt in, the character and quantity of the denaturing material to be
used, the manner in which the process of denaturing shall be effected, so
SEC. 240. Sign to be Exhibited by Manufacturer of Products of
as to render the alcohol suitably denatured and unfit for oral intake, the
Tobacco. Every manufacturer of cigars, cigarettes or tobacco, and
bonds to be given, the books and records to be kept, the entries to be
every wholesale dealer in leaf tobacco or manufactured products of
made therein, the reports to be made to the Commissioner, and the signs
tobacco shall place and keep on outside of the building wherein his
to be displayed in the business or by the person for whom such denaturing
business is carried on, so that it can be distinctly seen, a sign stating his
is done or by whom, such alcohol is dealt in;(g) The manner in which
full name and business in letters not less than six centimeters (6 cms.)
revenue shall be collected and paid, the instrument, document or object to
high and also giving his assessment number.
which revenue stamps shall be affixed, the mode of cancellation of the
same, the manner in which the proper books, records, invoices and other
SEC. 241. Exhibition of Certificate of Payment at Place of papers shall be kept and entries therein made by the person subject to the
Business. - The certificate or receipts showing payment of taxes issued tax, as well as the manner in which licenses and stamps shall be gathered
to a person engaged in a business subject to an annual registration fee up and returned after serving their purposes;(h) The conditions to be
shall be kept conspicuously exhibited in plain view in or at the place where observed by revenue officers respecting the enforcement of Title III
the business is conducted; and in case of a peddler or other persons not imposing a tax on estate of a decedent, and other transfers mortis causa,
having a fixed place of business, shall be kept in the possession of the as well as on gifts and such other rules and regulations which the
holder thereof, subject to production upon demand of any internal Commissioner may consider suitable for the enforcement of the said Title
revenue officer. III;(i) The manner in which tax returns, information and reports shall be
prepared and reported and the tax collected and paid, as well as the
SEC. 242. Continuation of Business of Deceased Person. - When conditions under which evidence of payment shall be furnished the
any individual who has paid the annual registration fee dies, and the same taxpayer, and the preparation and publication of tax statistics;(j) The
business is continued by the person or persons interested in his estate, no manner in which internal revenue taxes, such as income tax, including
additional payment shall be required for the residue of the term which the withholding tax, estate and donor's taxes, value-added tax, other
tax was paid: Provided, however, That the person or persons interested in percentage taxes, excise taxes and documentary stamp taxes shall be paid
the estate should, within thirty (30) days from the death of the decedent, through the collection officers of the Bureau of Internal Revenue or
submit to the Bureau of Internal Revenue or the regional or revenue through duly authorized agent banks which are hereby deputized to
District Office inventories of goods or stocks had at the time of such receive payments of such taxes and the returns, papers and statements
death. that may be filed by the taxpayers in connection with the payment of the
tax: Provided, however, That notwithstanding the other provisions of this
Code prescribing the place of filing of returns and payment of taxes, the
The requirement under this Section shall also be applicable in the case of Commissioner may, by rules and regulations, require that the tax returns,
transfer of ownership or change of name of the business establishment. papers and statements that may be filed by the taxpayers in connection
with the payment of the tax. Provided, however, That notwithstanding the
SEC. 243. Removal of Business to Other Location. - Any business for other provisions of this Code prescribing the place of filing of returns and
which the annual registration fee has been paid may, subject to the rules payment of taxes, the Commissioner may, by rules and regulations require
and regulations prescribed by the Secretary of Finance, upon that the tax returns, papers and statements and taxes of large taxpayers
recommendation of the Commissioner, be removed and continued in any be filed and paid, respectively, through collection officers or through duly
other place without the payment of additional tax during the term for authorized agent banks: Provided, further, That the Commissioner can
which the payment was made. exercise this power within six (6) years from the approval of Republic Act
No. 7646 or the completion of its comprehensive computerization
program, whichever comes earlier: Provided, finally, That separate venues
CHAPTER III for the Luzon, Visayas and Mindanao areas may be designated for the
RULES AND REGULATIONS filing of tax returns and payment of taxes by said large taxpayers.
SEC. 244. Authority of Secretary of Finance to Promulgate Rules For the purpose of this Section, "large taxpayer" means a taxpayer who
and Regulations. - The Secretary of Finance, upon recommendation of satisfies any of the following criteria;
the Commissioner, shall promulgate all needful rules and regulations for
the effective enforcement of the provisions of this Code.
(1) Value-Added Tax (VAT). - Business establishment with VAT paid or
payable of at least One hundred thousand pesos (P100,000) for any
SEC. 245. Specific Provisions to be Contained in Rules and quarter of the preceding taxable year;
Regulations. - The rules and regulations of the Bureau of Internal
Revenue shall, among other thins, contain provisions specifying,
prescribing or defining: (2) Excise Tax. - Business establishment with excise tax paid or payable
of at least One million pesos (P1,000,000) for the preceding taxable year;
(a) The time and manner in which Revenue Regional Director shall
canvass their respective Revenue Regions for the purpose of discovering (3) Corporate Income Tax. - Business establishment with annual
persons and property liable to national internal revenue taxes, and the income tax paid or payable of at least One million pesos (P1,000,000) for
manner in which their lists and records of taxable persons and taxable the preceding taxable year; and
objects shall be made and kept;(b) The forms of labels, brands or marks
to be required on goods subject to an excise tax, and the manner in which (4) Withholding Tax. - Business establishment with withholding tax
the labelling, branding or marking shall be effected;(c) The conditions payment or remittance of at least One million pesos (P1,000,000) for the
under which and the manner in which goods intended for export, which if preceding taxable year.
Provided, however, That the Secretary of Finance, upon recommendation fraud: Provided, That a substantial underdeclaration of taxable sales,
of the Commissioner, may modify or add to the above criteria for receipts or income, or a substantial overstatement of deductions, as
determining a large taxpayer after considering such factors as inflation, determined by the Commissioner pursuant to the rules and regulations to
volume of business, wage and employment levels, and similar economic be promulgated by the Secretary of Finance, shall constitute prima facie
factors. 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
The penalties prescribed under Section 248 of this Code shall be imposed
exceeding (30%) of actual deductions, shall render the taxpayer liable for
on any violation of the rules and regulations issued by the Secretary of
substantial underdeclaration of sales, receipts or income or for
Finance, upon recommendation of the Commissioner, prescribing the place
overstatement of deductions, as mentioned herein.
of filing of returns and payments of taxes by large taxpayers.
SEC. 249. Interest. -

SEC. 246. Non-Retroactivity of Rulings. - Any revocation,
modification or reversal of any of the rules and regulations promulgated in
accordance with the preceding Sections or any of the rulings or circulars (A) In General. - There shall be assessed and collected on any unpaid
promulgated by the Commissioner shall not be given retroactive amount of tax, interest at the rate of twenty percent (20%) per annum, or
application if the revocation, modification or reversal will be prejudicial to such higher rate as may be prescribed by rules and regulations, from the
the taxpayers, except in the following cases: date prescribed for payment until the amount is fully paid.
(a) Where the taxpayer deliberately misstates or omits material facts from (B) Deficiency Interest. - Any deficiency in the tax due, as the term is
his return or any document required of him by the Bureau of Internal defined in this Code, shall be subject to the interest prescribed in
Revenue;(b) Where the facts subsequently gathered by the Bureau of Subsection (A) hereof, which interest shall be assessed and collected from
Internal Revenue are materially different from the facts on which the the date prescribed for its payment until the full payment thereof.
ruling is based; or(c) Where the taxpayer acted in bad faith.
(C) Delinquency Interest. - In case of failure to pay:
TITLE X
STATUTORY OFFENSES AND PENALTIES
(1) The amount of the tax due on any return to be filed, or
CHAPTER I
ADDITIONS TO TAX (2) The amount of the tax due for which no return is required, or
SEC. 247. General Provisions. - (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
(a) The additions to the tax or deficiency tax prescribed in this Chapter prescribed in Subsection (A) hereof until the amount is fully paid, which
shall apply to all taxes, fees and charges imposed in this Code. interest shall form part of the tax.
The Amount so added to the tax shall be collected at the same time, in the (D) Interest on Extended Payment. - If any person required to pay
same manner and as part of the tax. 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,
(b) If the withholding agent is the Government or any of its agencies, or any part of such amount or installment on or before the date prescribed
political subdivisions or instrumentalities, or a government-owned or for its payment, or where the Commissioner has authorized an extension
controlled corporation, the employee thereof responsible for the of time within which to pay a tax or a deficiency tax or any part thereof,
withholding and remittance of the tax shall be personally liable for the there shall be assessed and collected interest at the rate hereinabove
additions to the tax prescribed herein. prescribed on the tax or deficiency tax or any part thereof unpaid from the
date of notice and demand until it is paid.
(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 SEC. 250. Failure to File Certain Information Returns. - In the case
under a duty to perform the act in respect of which the violation occurs. of each failure to file an information return, statement or list, or keep any
record, or supply any information required by this Code or by the
Commissioner on the date prescribed therefor, unless it is shown that such
SEC. 248. Civil Penalties. - (A) There shall be imposed, in addition to failure is due to reasonable cause and not to willful neglect, there shall,
the tax required to be paid, a penalty equivalent to twenty-five percent upon notice and demand by the Commissioner, be paid by the person
(25%) of the amount due, in the following cases: (1) Failure to file any failing to file, keep or supply the same, One thousand pesos (1,000) for
return and pay the tax due thereon as required under the provisions of each failure: Provided, however, That the aggregate amount to be
this Code or rules and regulations on the date prescribed; or (2) Unless imposed for all such failures during a calendar year shall not exceed
otherwise authorized by the Commissioner, filing a return with an internal Twenty-five thousand pesos (P25,000).
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 SEC. 251. Failure of a Withholding Agent to Collect and Remit
part of the amount of tax shown on any return required to be filed under Tax. - Any person required to withhold, account for, and remit any tax
the provisions of this Code or rules and regulations, or the full amount of imposed by this Code or who willfully fails to withhold such tax, or account
tax due for which no return is required to be filed, on or before the date for and remit such tax, or aids or abets in any manner to evade any such
prescribed for its payment. tax or the payment thereof, shall, in addition to other penalties provided
for under this Chapter, be liable upon conviction to a penalty equal to the
total amount of the tax not withheld, or not accounted for and remitted.
(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 SEC. 252. Failure of a Withholding Agent to refund Excess
(50%) of the tax or of the deficiency tax, in case, any payment has been Withholding Tax. - Any employer/withholding agent who fails or refuses
made on the basis of such return before the discovery of the falsity or to refund excess withholding tax shall, in addition to the penalties

provided in this Title, be liable to a penalty to the total amount of refunds Any person who attempts to make it appear for any reason that he or
which was not refunded to the employee resulting from any excess of the another has in fact filed a return or statement, or actually files a return or
amount withheld over the tax actually due on their return. statement and subsequently withdraws the same return or statement after
securing the official receiving seal or stamp of receipt of internal revenue
office wherein the same was actually filed shall, upon conviction therefor,
CHAPTER II
be punished by a fine of not less than Ten thousand pesos (P10,000) but
CRIMES, OTHER OFFENSES AND FORFEITURES
not more than Twenty thousand pesos (P20,000) and suffer imprisonment
of not less than one (1) year but not more than three (3) years.
SEC. 253. General Provisions. -
SEC. 256. Penal Liability of Corporations. - Any corporation,
(a) Any person convicted of a crime penalized by this Code shall, in association or general co-partnership liable for any of the acts or
addition to being liable for the payment of the tax, be subject to the omissions penalized under this Code, in addition to the penalties imposed
penalties imposed herein: Provided, That payment of the tax due after herein upon the responsible corporate officers, partners, or employees
apprehension shall not constitute a valid defense in any prosecution for shall, upon conviction for each act or omission, be punished by a fine of
violation of any provision of this Code or in any action for the forfeiture of not less than Fifty thousand pesos (P50,000) but not more than One
untaxed articles. hundred thousand pesos (P100,000).
(b) Any person who willfully aids or abets in the commission of a crime SEC. 257. Penal Liability for Making False Entries, Records or
penalized herein or who causes the commission of any such offense by Reports, or Using Falsified or Fake Accountable Forms. -
another shall be liable in the same manner as the principal.
(A) Any financial officer or independent Certified Public Accountant
(c) If the offender is not a citizen of the Philippines, he shall be deported engaged to examine and audit books of accounts of taxpayers under
immediately after serving the sentence without further proceedings for Section 232 (A) and any person under his direction who:
deportation.
(1) Willfully falsifies any report or statement bearing on any examination
If he is a public officer or employee, the maximum penalty prescribed for or audit, or renders a report, including exhibits, statements, schedules or
the offense shall be imposed and, in addition, he shall be dismissed from other forms of accountancy work which has not been verified by him
the public service and perpetually disqualified from holding any public personally or under his supervision or by a member of his firm or by a
office, to vote and to participate in any election. member of his staff in accordance with sound auditing practices; or
If the offender is a Certified Public Accountant, his certificate as a Certified (2) Certifies financial statements of a business enterprise containing an
Public Accountant shall, upon conviction, be automatically revoked or essential misstatement of facts or omission in respect of the transactions,
cancelled. taxable income, deduction and exemption of his client; or
(d) In the case of associations, partnerships or corporations, the penalty (B) Any person who:
shall be imposed on the partner, president, general manager, branch
manager, treasurer, officer-in-charge, and the employees responsible for
(1) Not being an independent Certified Public Accountant according to
the violation.
Section 232(B) or a financial officer, examines and audits books of
accounts of taxpayers; or
(e) The fines to be imposed for any violation of the provisions of this Code
shall not be lower than the fines imposed herein or twice the amount of
(2) Offers to sign and certify financial statements without audit; or
taxes, interest and surcharges due from the taxpayer, whichever is higher.
(3) Offers any taxpayer the use of accounting bookkeeping records for
SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully
internal revenue purposes not in conformity with the requirements
attempts in any manner to evade or defeat any tax imposed under this
prescribed in this Code or rules and regulations promulgated thereunder;
Code or the payment thereof shall, in addition to other penalties provided
or
by law, upon conviction thereof, be punished by a fine not less than Thirty
thousand (P30,000) but not more than One hunderd thousand pesos
(P100,000) and suffer imprisonment of not less than two (2) years but not (4) Knowingly makes any false entry or enters any false or fictitious name
more than four (4) years: Provided, That the conviction or acquittal in the books of accounts or record mentioned in the preceding
obtained under this Section shall not be a bar to the filing of a civil suit for paragraphs; or
the collection of taxes.
(5) Keeps two (2) or more sets of such records or books of accounts; or
SEC. 255. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax Withhold and Remit Tax and Refund Excess
(6) In any way commits an act or omission, in violation of the provisions of
Taxes Withheld on Compensation. - Any person required under this
this Section; or
Code or by rules and regulations promulgated thereunder to pay any tax
make a return, keep any record, or supply correct the accurate
information, who willfully fails to pay such tax, make such return, keep (7) Fails to keep the books of accounts or records mentioned in Section
such record, or supply correct and accurate information, or withhold or 232 in a native language, English or Spanish, or to make a true and
remit taxes withheld, or refund excess taxes withheld on compensation, at complete translation as required in Section 234 of this Code, or whose
the time or times required by law or rules and regulations shall, in addition books of accounts or records kept in a native language, English or
to other penalties provided by law, upon conviction thereof, be punished Spanish, and found to be at material variance with books or records kept
by a fine of not less than Ten thousand pesos (P10,000) and suffer by him in another language; or
imprisonment of not less than one (1) year but not more than ten (10)
years. (8) Willfully attempts in any manner to evade or defeat any tax imposed
under this Code, or knowingly uses fake or falsified revenue official
receipts, Letters of Authority, certificates authorizing registration, Tax
Credit Certificates, Tax Debit Memoranda and other accountable forms SEC. 262. Shipment or Removal of Liquor or Tobacco Products
shall, upon conviction for each act or omission, be punished by a fine not under False Name or Brand or as an Imitation of any Existing or
less than Fifty thousand pesos (P50,000) but not more than One hundred Otherwise Known Product Name or Brand. - Any person who ships,
pesos (P100,000) and suffer imprisonment of not less than two (2) years transports or removes spirituous, compounded or fermented liquors, wines
but not more than six (6) years. or any manufactured products of tobacco under any other than the proper
name or brand known to the trade as designating the kind and quality of
the contents of the cask, bottle or package containing the same or as an
If the offender is a Certified Public Accountant, his certificate as a Certified
imitation of any existing or otherwise known product name or brand or
Public Accountant shall be automatically revoked or cancelled upon
causes such act to be done, shall, upon conviction for each act or
conviction.
omission, be punished by a fine of not less than Twenty thousand pesos
(P20,000) but not more than One hundred thousand pesos (P1000,000)
In the case of foreigners, conviction under this Code shall result in his and suffer imprisonment of not less than six (6) years and one (1) day but
immediate deportation after serving sentence, without further proceedings not more than twelve (12) years.
for deportation.
SEC. 263. Unlawful Possession or Removal of Articles Subject to
SEC. 258. Unlawful Pursuit of Business. - Any person who carries on Excise Tax without Payment of the Tax. - Any person who owns
any business for which an annual registration fee is imposed without and/or is found in possession of imported articles subject to excise tax, the
paying the tax as required by law shall, upon conviction for each act or tax on which has not been paid in accordance with law, or any person who
omission, be punished by a fine of not less than Five thousand pesos owns and/or is found in possession of imported tax-exempt articles other
(P5,000) but not more than Twenty thousand pesos (P20,000) and suffer than those to whom they are legally issued shall be punished by:
imprisonment of not less than six (6) months but not more than two (2)
years: Provided, That in the case of a person engaged in the business of
(a) A fine of not less than One thousand pesos (P1,000) nor more than
distilling, rectifying, repacking, compounding or manufacturing any article
Two thousand pesos (P2,000) and suffer imprisonment of not less than
subject to excise tax, he shall, upon conviction for each act or omission,
sixty (60) days but not more than one hundred (100) days, if the
be punished by a fine of not less than Thirty thousand pesos (P30,000)
appraised value, to be determined in the manner prescribed in the Tariff
but not more than Fifty thousand pesos (P50,000) and suffer
and Customs Code, including duties and taxes, of the articles does not
imprisonment of not less than two (2) years but not more than four (4)
exceed One thousand pesos (P1,000).
years.
(b) A fine of not less than Ten thousand pesos (P10,000) but not more
SEC. 259. Illegal Collection of Foreign Payments. - Any person who
than Twenty thousand pesos (P20,000) and suffer imprisonment of not
knowingly undertakes the collection of foreign payments as provided
less than two (2) years but not more than four (4) years, if the appraised
under Section 67 of this Code without having obtained a license therefor,
value, to be determined in the manner prescribed in the Tariff and
or without complying with its implementing rules and regulations, shall,
Customs Code, including duties and taxes, of the articles exceeds One
upon conviction for each act or omission, be punished by a fine of not less
thousand pesos (P1,000) but does not exceed Fifty thousand pesos
than Twenty thousand pesos (P20,000) but not more than Fifty thousand
(P50,000);(c) A fine of not less than Thirty thousand pesos (P30,000) but
pesos (P50,000) and suffer imprisonment of not less than one (1) year but
not more than Sixty thousand pesos (P60,000) and suffer imprisonment of
not more than two (2) years.
not less than four (4) years but not more than six (6) years, if the
appraised value, to be determined in the manner prescribed in the Tariff
SEC. 260. Unlawful Possession of Cigarette Paper in Bobbins or and Customs Code, including duties and taxes of the articles is more than
Rolls, Etc. - It shall be unlawful for any person to have in his possession Fifty thousand pesos (P50,000) but does not exceed One hundred fifty
cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette thousand pesos (P150,000); or(d) A fine of not less than Fifty thousand
filter tips, without the corresponding authority therefor issued by the pesos (P50,000) but not more than One hundred thousand pesos
Commissioner. (P100,000) and suffer imprisonment of not less than ten (10) years but
not more than twelve (12) years, if the appraised value, to be determined
Any person, importer, manufacturer of cigar and cigarettes, who has been in the manner prescribed in the Tariff and Customs Code, including duties
found guilty under this Section, shall, upon conviction for each act or and taxes, of the articles exceeds One hundred fifty thousand pesos
omission, be punished by a fine of not less than Twenty thousand pesos (P150,000).
(P20,000) but not more than One hundred thousand pesos (P1000,000)
and suffer imprisonment for a term of not less than six (6) years and one Any person who is found in possession of locally manufactured articles
(1) day but not more than twelve (12) years. subject to excise tax, the tax on which has not been paid in accordance
with law, or any person who is found in possession of such articles which
SEC. 261. Unlawful Use of Denatured Alcohol. - Any person who for are exempt from excise tax other than those to whom the same is lawfully
the purpose of manufacturing any beverage, uses denatured alcohol or issued shall be punished with a fine of not less than (10) times the amount
alcohol specially denatured to be used for motive power or withdrawn of excise tax due on the articles found but not less than Five hundred
under bond for industrial uses or alcohol knowingly misrepresented to be pesos (P500) and suffer imprisonment of not less than two (2) years but
denatured to be unfit for oral intake or who knowingly sells or offers for not more than four (4) years.
sale any beverage made in whole or in part from such alcohol or who uses
such alcohol for the manufacture of liquid medicinal preparations taken Any manufacturer, owner or person in charge of any article subject to
internally, or knowingly sells or offers for sale such preparations containing excise tax who removes or allows or causes the unlawful removal of any
as an ingredient such alcohol, shall upon conviction for each act or such articles from the place of production or bonded warehouse, upon
omission be punished by a fine of not less than Twenty thousand pesos which the excise tax has not been paid at the time and in the manner
(P20,000) but not more than One hundred thousand pesos (P100,000) required, and any person who knowingly aids or abets in the removal of
and suffer imprisonment for a term of not less than six (6) years and one such articles as aforesaid, or conceals the same after illegal removal shall,
(1) day but not more than twelve (12) years. for the first offense, be punished with a fine of not less than ten (10)
times the amount of excise tax due on the articles but not less than One
Any person who shall unlawfully recover or attempt to recover by thousand pesos (P1,000) and suffer imprisonment of not less than one (1)
distillation or other process any denatured alcohol or who knowingly sells year but not more than two (2) years.
or offers for sale, conceals or otherwise disposes of alcohol so recovered
or redistilled shall be subject to the same penalties imposed under this
Section.
The mere unexplained possession of articles subject to excise tax, the tax SEC. 268. Other Crimes and Offenses. -
on which has not been paid in accordance with law, shall be punishable
under this Section.
(A) Misdeclaration or Misrepresentation of Manufacturers Subject
to Excise Tax.- Any manufacturer who, in violation of the provisions of
Sec. 264. Failure or refusal to Issue Receipts or Sales or Title VI of this Code, misdeclares in the sworn statement required therein
Commercial Invoices, Violations related to the Printing of such or in the sales invoice, any pertinent data or information shall be punished
Receipts or Invoices and Other Violations. - by a summary cancellation or withdrawal of the permit to engage in
business as a manufacturer of articles subject to excise tax.
(a) Any person who, being required under Section 237 to issue receipts or
sales or commercial invoices, fails or refuses to issue such receipts of (B) Forfeiture of Property Used in Unlicensed Business or Dies
invoices, issues receipts or invoices that do not truly reflect and/or contain Used for Printing False Stamps, Etc.- All chattels, machinery, and
all the information required to be shown therein, or uses multiple or removable fixtures of any sort used in the unlicensed production of articles
double receipts or invoices, shall, upon conviction for each act or omission, subject to excise tax shall be forfeited.
be punished by a fine of not less than One thousand pesos (P1,000) but
not more than Fifty thousand pesos (P50,000) and suffer imprisonment of
Dies and other equipment used for the printing or making of any internal
not less than two (2) years but not more than four (4) years.
revenue stamp, label or tag which is in imitation of or purports to be a
lawful stamp, label or tag shall also be forfeited.
(b) Any person who commits any of the acts enumerated hereunder shall
be penalized in the same manner and to the same extent as provided for
(C) Forfeiture of Goods Illegally Stored or Removed. - Unless
in this Section:
otherwise specifically authorized by the Commissioner, all articles subject
to excise tax should not be stored or allowed to remain in the distillery
(1) Printing of receipts or sales or commercial invoices without authority warehouse, bonded warehouse or other place where made, after the tax
from the Bureau of Internal Revenue; or thereon has been paid; otherwise, all such articles shall be forfeited.
(2) Printing of double or multiple sets of invoices or receipts; or Articles withdrawn from any such place or from customs custody or
imported into the country without the payment of the required tax shall
likewise be forfeited.
(3) Printing of unnumbered receipts or sales or commercial invoices, not
bearing the name, business style, Taxpayer Identification Number, and
business address of the person or entity. CHAPTER III
PENALTIES IMPOSED ON PUBLIC OFFICERS
SEC. 265. Offenses Relating to Stamps. - Any person who commits
any of the acts enumerated hereunder shall, upon conviction thereof, be SEC. 269. Violations Committed by Government Enforcement
punished by a fine of not less than Twenty thousand pesos (P20,000) but Officers. - Every official, agent, or employee of the Bureau of Internal
not more than Fifty thousand pesos (P50,000) and suffer imprisonment of Revenue or any other agency of the Government charged with the
not less than four (4) years but not more than eight (8) years: (a) making, enforcement of the provisions of this Code, who is guilty of any of the
importing, selling, using or possessing without express authority from the offenses herein below specified shall, upon conviction for each act or
Commissioner, any die for printing or making stamps, labels, tags or omission, be punished by a fine of not less than Fifty thousand pesos
playing cards;(b) Erasing the cancellation marks of any stamp previously (P50,000) but not more than One hundred thousand pesos (P100,000)
used, or altering the written figures or letters or cancellation marks on and suffer imprisonment of not less than ten (10) years but not more than
internal revenue stamps;(c) Possessing false, counterfeit, restored or fifteen (15) years and shall likewise suffer an additional penalty of
altered stamps, labels or tags or causing the commission of any such perpetual disqualification to hold public office, to vote, and to participate
offense by another;(d) Selling or offering for sale any box or package in any public election:
containing articles subject to excise tax with false, spurious or counterfeit
stamps or labels or selling from any such fraudulent box, package or
(a) Extortion or willful oppression through the use of his office or willful
container as aforementioned; or(e) Giving away or accepting from
oppression and harassment of a taxpayer who refused, declined, turned
another, or selling, buying or using containers on which the stamps are
down or rejected any of his offers specified in paragraph (d) hereof;(b)
not completely destroyed.
Knowingly demanding or receiving any fee, other or greater sums that are
authorized by law or receiving any fee, compensation or reward, except as
Sec. 266. Failure to Obey Summons. - Any person who, being duly by law prescribed, for the performance of any duty;(c) Willfully neglecting
summoned to appear to testify, or to appear and produce books of to give receipts, as by law required, for any sum collected in the
accounts, records, memoranda or other papers, or to furnish information performance of duty or willfully neglecting to perform any other duties
as required under the pertinent provisions of this Code, neglects to appear enjoined by law;(d) Offering or undertaking to accomplish, file or submit a
or to produce such books of accounts, records, memoranda or other report or assessment on a taxpayer without the appropriate examination
papers, or to furnish such information, shall, upon conviction, be punished of the books of accounts or tax liability, or offering or undertaking to
by a fine of not less than Five thousand pesos (P5,000) but not more than submit a report or assessment less than the amount due the Government
ten thousand pesos (P10,000) and suffer imprisonment of not less than for any consideration or compensation, or conspiring or colluding with
one (1) year but not more than two (2) years. another or others to defraud the revenues or otherwise violate the
provisions of this Code;(e) Neglecting or by design permitting the violation
of the law by any other person;(f) Making or signing any false entry or
SEC. 267. Declaration under Penalties of Perjury. - Any declaration,
entries in any book, or making or signing any false certificate or return;
return and other statement required under this Code, shall, in lieu of an
oath, contain a written statement that they are made under the penalties
of perjury. (g) Allowing or conspiring or colluding with another to allow the
unauthorized retrieval, withdrawal or recall of any return, statement or
declaration after the same has been officially received by the Bureau of
Any person who willfully files a declaration, return or statement containing
Internal Revenue;
information which is not true and correct as to every material matter shall,
upon conviction, be subject to the penalties prescribed for perjury under
the Revised Penal Code. (h) Having knowledge or information of any violation of this Code or of
any fraud committed on the revenues collectible by the Bureau of Internal
Revenue, failure to report such knowledge or information to their superior CHAPTER IV
officer, or failure to report as otherwise required by law; and. OTHER PENAL PROVISIONS
(i) Without the authority of law, demanding or accepting or attempting to SEC. 274. Penalty for Second and Subsequent Offenses. - In the
collect, directly or indirectly, as payment or otherwise any sum of money case of reincidence, the maximum of the penalty prescribed for the
or other thing of value for the compromise, adjustment or settlement of offense shall be imposed.
any charge or complaint for any violation or alleged violation of this Code.
Provided, That the provisions of the foregoing paragraph notwithstanding,
SEC. 275. Violation of Other Provisions of this Code or Rules and
any internal revenue officer for which a prima facie case of grave
Regulations in General. - Any person who violates any provision of this
misconduct has been established shall, after due notice and hearing of the
Code or any rule or regulation promulgated by the Department of Finance,
administrative case and subject to Civil Service Laws, be dismissed from
for which no specific penalty is provided by law, shall, upon conviction for
the revenue service: Provided, further, That the term "grave misconduct",
each act or omission, be punished by a fine of not more than One
as defined in Civil Service Law, shall include the issuance of fake letters of
thousand pesos (P1,000) or suffer imprisonment of not more than six (6)
authority and receipts, forgery of signature, usurpation of authority and
months, or both.
habitual issuance of unreasonable assessments.
SEC. 276. Penalty for Selling, Transferring, Encumbering or in Any

SEC. 270. Unlawful Divulgence of Trade Secrets. - Except as
Way Disposing of Property Placed Under Constructive Distraint. -
provided in Section 71 of this Code and Section 26 of Republic Act No.
Any taxpayer, whose property has been placed under constructive
6388, any officer or employee of the Bureau of Internal Revenue who
distraint, who sells, transfers, encumbers or in any way disposes of said
divulges to any person or makes known in any other manner than may be
property, or any part thereof, without the knowledge and consent of the
provided by law information regarding the business, income or estate of
Commissioner, shall, upon conviction for each act or omission, be
any taxpayer, the secrets, operation, style or work, or apparatus of any
punished by a fine of not less than twice the value of the property so sold,
manufacturer or producer, or confidential information regarding the
encumbered or disposed of but not less than Five Thousand pesos
business of any taxpayer, knowledge of which was acquired by him in the
(P5,000), or suffer imprisonment of not less than two (2) years and one
discharge of his official duties, shall upon conviction for each act or
(1) day but not more than four (4) years, of both.
omission, be punished by a fine of not less than Fifty thousand pesos
(P50,000) but not more than One hundred thousand pesos (P100,000), or
suffer imprisonment of not less than two (2) years but not more than five SEC. 277. Failure to Surrender Property Placed Under Distraint
(5) years, or both. and Levy. - Any person having in his possession or under his control any
property or rights to property, upon which a warrant of constructive
distraint, or actual distraint and levy has been issued shall, upon demand
SEC. 271. Unlawful Interest of Revenue Law Enforcers in
by the Commissioner or any of his deputies executing such warrant,
Business. - Any internal revenue officer who is or shall become
surrender such property or right to property to the Commissioner or any of
interested, directly or indirectly, in the manufacture, sale or importation of
his deputies, unless such property or right is, at the time of such demand,
any article subject to excise tax under Title VI of this Code or in the
subject to an attachment or execution under any judicial process.
manufacture or repair or sale, of any die for printing, or making of stamps,
or labels shall upon conviction for each act or omission, be punished by a
fine of not less than Five thousand pesos (P5,000) but not more than Ten Any person who fails or refuses to surrender any of such property or right
thousand pesos (P10,000), or suffer imprisonment of not less than two (2) shall be liable in his own person and estate to the Government in a sum
years and one (1) day but not more than four (4) years, or both. equal to the value of the property or rights not so surrendered but not
exceeding the amount of the taxes (including penalties and interest) for
the collection of which such warrant had been issued, together with cost
SEC. 272. Violation of Withholding Tax Provision. - Every officer or
and interest if any, from the date of such warrant.
employee of the Government of the Republic of the Philippines or any of
its agencies and instrumentalities, its political subdivisions, as well as
government-owned or controlled corporations, including the Bangko In addition, such person shall, upon conviction for each act or omission,
Sentral ng Pilipinas (BSP), who, under the provisions of this Code or rules be punished by a fine of not less than Five thousand pesos (P5,000), or
and regulations promulgated thereunder, is charged with the duty to suffer imprisonment of not less than six (6) months and one (1) day but
deduct and withhold any internal revenue tax and to remit the same in not more than two (2) years, or both.
accordance with the provisions of this Code and other laws is guilty of any
offense herein below specified shall, upon conviction for each act or SEC. 278. Procuring Unlawful Divulgence of Trade Secrets. - Any
omission be punished by a fine of not less than Five thousand pesos person who causes or procures an officer or employee of the Bureau of
(P5,000) but not more than Fifty thousand pesos (P50,000) or suffer Internal Revenue to divulge any confidential information regarding the
imprisonment of not less than six (6) months and one (1) day but not business, income or inheritance of any taxpayer, knowledge of which was
more than two (2) years, or both: (a) Failing or causing the failure to acquired by him in the discharge of his official duties, and which it is
deduct and withhold any internal revenue tax under any of the withholding unlawful for him to reveal, and any person who publishes or prints in any
tax laws and implementing rules and regulations;(b) Failing or causing the manner whatever, not provided by law, any income, profit, loss or
failure to remit taxes deducted and withheld within the time prescribed by expenditure appearing in any income tax return, shall be punished by a
law, and implementing rules and regulations; and(c) Failing or causing the fine of not more than Two thousand pesos (P2,000), or suffer
failure to file return or statement within the time prescribed, or rendering imprisonment of not less than six (6) months nor more than five (5) years,
or furnishing a false or fraudulent return or statement required under the or both.
withholding tax laws and rules and regulations.
SEC. 279. Confiscation and Forfeiture of the Proceeds or

SEC. 273. Penalty for Failure to Issue and Execute Warrant. - Any Instruments of Crime. - In addition to the penalty Imposed for the
official who fails to issue or execute the warrant of distraint or levy within violation of the provisions of Title X of this Code, the same shall carry with
thirty (30) days after the expiration of the time prescribed in Section 207 it the confiscation and forfeiture in favor of the government of the
or who is found guilty of abusing the exercise thereof by competent proceeds of the crime or value of the goods, and the instruments or tools
authority shall be automatically dismissed from the service after due notice with which the crime was committed: Provided, however, That if in the
and hearing. course of the proceedings, it is established that the instruments or tools
used in the illicit act belong to a third person, the same shall be
confiscated and forfeited after due notice and hearing in a separate
proceeding in favor of the Government if such third person leased, let,
chartered or otherwise entrusted the same to the offender: Provided, smuggled and confiscated goods or One Million Pesos (P1,000,000) per
further, That in case the lessee subleased, or the borrower, charterer, or case, whichever is lower, shall be given to persons instrumental in the
trustee allowed the use of the instruments or tools to the offender, such discovery and seizure of such smuggled goods.
instruments or tools shall, likewise, be confiscated and forfeited: Provided,
finally, That property of common carriers shall not be subject to forfeiture
The cash rewards of informers shall be subject to income tax, collected as
when used in the transaction of their business as such common carrier,
a final withholding tax, at a rate of ten percent (10%).
unless the owner or operator of said common carrier was, at the time of
the illegal act, a consenting party or privy thereto, without prejudice to the
owner's right of recovery against the offender in a civil or criminal action. The provisions of the foregoing Subsections notwithstanding, all public
officials, whether incumbent or retired, who acquired the information in
the course of the performance of their duties during their incumbency, are
Articles which are not subject of lawful commerce shall be destroyed.
prohibited from claiming informer's reward.
SEC. 280. Subsidiary Penalty. - If the person convicted for violation of

TITLE XI
any of the provisions of this Code has no property with which to meet the
ALLOTMENT OF INTERNAL REVENUE
fine imposed upon him by the court, or is unable to pay such fine, he shall
be subject to a subsidiary personal liability at the rate of one (1) day for
CHAPTER I
each Eight pesos and fifty centavos (P8.50) subject to the rules
DISPOSITION AND ALLOTMENT OF NATIONAL INTERNAL
established in Article 39 of the Revised Penal Code.
REVENUE IN GENERAL
SEC. 281. Prescription for Violations of any Provision of this Code.

SEC. 283. Disposition of National Internal Revenue. - National
- All violations of any provision of this Code shall prescribe after Five (5)
Internal revenue collected and not applied as herein above provided or
years.
otherwise specially disposed of by law shall accrue to the National
Treasury and shall be available for the general purposes of the
Prescription shall begin to run from the day of the commission of the Government, with the exception of the amounts set apart by way of
violation of the law, and if the same be not known at the time, from the allotment as provided for under Republic Act No. 7160, otherwise known
discovery thereof and the institution of judicial proceedings for its as the Local Government Code of 1991. cralaw
investigation and punishment.
In addition to the internal revenue allotment as provided for in the
The prescription shall be interrupted when proceedings are instituted preceding paragraph, fifty percent (50%) of the national taxes collected
against the guilty persons and shall begin to run again if the proceedings under Sections 106, 108 and 116 of this Code in excess of the increase in
are dismissed for reasons not constituting jeopardy. collections for the immediately preceding year shall be distributed as
follows:
The term of prescription shall not run when the offender is absent from
the Philippines. (a) Twenty percent (20%) shall accrue to the city or municipality where
such taxes are collected and shall be allocated in accordance with Section
150 of Republic Act No. 7160, otherwise known as the Local Government
SEC. 282. Informer's Reward to Persons Instrumental in the
Code of 1991; and(b) Eighty percent (80%) shall accrue to the National
Discovery of Violations of the National Internal Revenue Code
Government.
and in the Discovery and Seizure of Smuggled Goods. -
SEC. 284. Allotment for the Commission on Audit. - One-half of one

(A) For Violations of the National Internal Revenue Code. - Any
percent (1/2 of 1%) of the collections from the national internal revenue
person, except an internal revenue official or employee, or other public
taxes not otherwise accruing to special accounts in the general fund of the
official or employee, or his relative within the sixth degree of
national government shall accrue to the Commission on Audit as a fee for
consanguinity, who voluntarily gives definite and sworn information, not
auditing services rendered to local government units, excluding
yet in the possession of the Bureau of Internal Revenue, leading to the
maintenance, equipment, and other operating expenses as provided for in
discovery of frauds upon the internal revenue laws or violations of any of
Section 21 of Presidential Decree No. 898.
the provisions thereof, thereby resulting in the recovery of revenues,
surcharges and fees and/or the conviction of the guilty party and/or the
imposition of any of the fine or penalty, shall be rewarded in a sum The Secretary of Finance is hereby authorized to deduct from the monthly
equivalent to ten percent (10%) of the revenues, surcharges or fees internal revenue tax collections an amount equivalent to the percentage as
recovered and/or fine or penalty imposed and collected or One Million herein fixed, and to remit the same directly to the Commission on Audit
Pesos (P1,000,000) per case, whichever is lower. under such rules and regulations as may be promulgated by the Secretary
of Finance and the Chairman of the Commission on Audit.
The same amount of reward shall also be given to an informer where the
offender has offered to compromise the violation of law committed by him SEC. 285. Allotment for the Bureau of Internal Revenue. - An
and his offer has been accepted by the Commissioner and collected from amount equivalent to five percent (5%) of the excess of actual collections
the offender: Provided, That should no revenue, surcharges or fees be of national internal revenue taxes over the collection goal shall accrue to
actually recovered or collected, such person shall not be entitled to a the special fund of the Bureau of Internal Revenue and shall be treated as
reward: Provided, further, That the information mentioned herein shall not receipts automatically appropriated.
refer to a case already pending or previously investigated or examined by
the Commissioner or any of his deputies, agents or examiners, or the
Said amount shall be utilized as incentive bonus for revenue personnel,
Secretary of Finance or any of his deputies or agents: Provided, finally,
purchase of necessary equipment and facilities for the improvement of tax
That the reward provided herein shall be paid under rules and regulations
administration, as approved by the Commissioner: Provided, That the
issued by the Secretary of Finance, upon recommendation of the
President may, upon recommendation of the Commissioner, direct that the
Commissioner.
excess be credited to a Special Account in the National Treasury to be held
in the reserve available for distribution as incentive bonus in the
(B) For Discovery and Seizure of Smuggled Goods. - To encourage subsequent years.
the public to extend full cooperation in eradicating smuggling, a cash
reward equivalent to ten percent (10%) of the fair market value of the
The Secretary of Finance is hereby authorized to transfer from the SEC. 288. Disposition of Incremental Revenues. - (A) Incremental
Treasury an amount equivalent to the percentage as herein fixed and to Revenues from Republic Act No. 7660. - The incremental revenues
remit the same directly to the Bureau of Internal Revenue under such from the increase in the documentary stamp taxes under R.A. No. 7660
rules and regulations as may be promulgated by the Secretary of Finance. shall be set aside for the following purposes:
CHAPTER II (1) In 1994 and 1995, twenty five percent (25%) thereof respectively,
SPECIAL DISPOSITION OF CERTAIN NATIONAL INTERNAL shall accrue to the Unified Home-Lending Program under Executive Order
REVENUE TAXES No. 90 particularly for mass socialized housing program to be allocated as
follows: fifty percent (50%) for mass-socialized housing; thirty percent
(30%) for the community mortgage program; and twenty percent (20%)
SEC. 286. Disposition of Proceeds of insurance Premium Tax. -
for land banking and development to be administered by the National
Twenty-five percent (25%) of the premium tax collected under Section
Housing Authority: Provided, That no more than one percent (1%) of the
123 of this Code shall accrue to the Insurance Fund as contemplated in
respective allocations hereof shall be used for administrative expenses;(2)
Section 418 of Presidential Decree No. 612 which shall be used for the
In 1996, twenty five percent (25%) thereof to be utilized for the National
purpose of defraying the expenses of the Insurance Commission.
Health Insurance Program that hereafter may be mandated by law;(3) In
1994 and every year thereafter, twenty five percent (25%) thereof shall
The Commissioner shall turn over and deliver the said Insurance Fund to accrue to a Special Education Fund to be Administered by the Department
the Insurance Commissioner as soon as the collection is made. of Education, Culture and Sports for the construction and repair of school
facilities, training or teachers, and procurement or production of
SEC. 287. Shares of Local Government Units in the Proceeds from instructional materials and teaching aids; and(4) In 1994 and every year
the Development and Utilization of the National Wealth. - Local thereafter, fifty percent (50%) thereof shall accrue to a Special
Government units shall have an equitable share in the proceeds derived Infrastructure Fund for the Construction and repair of roads, bridges,
from the utilization and development of the national wealth, within their dams and irrigation, seaports and hydroelectric and other indigenous
respective areas, including sharing the same with the inhabitants by way power projects: however, That for the years 1994 and 1995, thirty percent
of direct benefits. (30%), and for the years 1996, 1997 and 1998, twenty percent (20%), of
this fund shall be allocated for depressed provinces as declared by the
President as of the time of the effectivity of R. A. No. 7660: Provided,
(A) Amount of Share of Local Government Units. - Local government further, That availments under this fund shall be determined by the
units shall, in addition to the internal revenue allotment, have a share of President on the basis of equityProvided, finally, That in paragraphs (2),
forty percent (40%) of the gross collection derived by the national (3), and (4) of this Section, not more one percent (1%) of the allocated
government from the preceding fiscal year from excise taxes on mineral funds thereof shall be used for administrative expenses by the
products, royalties, and such other taxes, fees or charges, including implementing agencies.
related surcharges, interests or fines, and from its share in any co-
production, joint venture or production sharing agreement in the utilization
and development of the national wealth within their territorial jurisdiction. (B) Incremental Revenues from Republic Act No. 8240. - Fifteen
percent (15%) of the incremental revenue collected from the excise tax on
tobacco products under R. A. No. 8240 shall be allocated and divided
(B) Share of the Local Governments from Any Government among the provinces producing burley and native tobacco in accordance
Agency or Government-Owned or Controlled Corporation. - Local with the volume of tobacco leaf production.
Government Units shall have a share, based on the preceding fiscal year,
from the proceeds derived by any government agency or government-
owned or controlled corporation engaged in the utilization and The fund shall be exclusively utilized for programs in pursuit of the
development of the national wealth based on the following formula, following objectives:
whichever will produce a higher share for the local government unit:
(1) Cooperative projects that will enhance better quality of agricultural
(1) One percent (1%) of the gross sales or receipts of the preceding products and increase income and productivity of farmers;(2) Livelihood
calendar year, or(2) Forty percent (40%) of the excise taxes on mineral projects, particularly the development of alternative farming system to
products, royalties, and such other taxes, fees or charges, including enhance farmer's income; and(3) Agro-industrial projects that will enable
related surcharges, interests or fines the government agency or tobacco farmers to be involved in the management and subsequent
government-owned or -controlled corporations would have paid if it were ownership of projects, such as post-harvest and secondary processing like
not otherwise exempt. cigarette manufacturing and by-product utilization.
(C) Allocation of Shares. - The share in the preceding Section shall be The Department of Budget and Management, in consultation with the
distributed in the following manner: (1) Where the natural resources are Oversight Committee created under said R.A. No. 8240, shall issue the
located in the province: (a) Province - twenty percent (20%) (b) corresponding rules and regulations governing the allocation and
Component city/municipality - forty-five percent (45%); and (c) Barangay disbursement of this fund.
- thirty-five percent (35%)
SEC. 289. Special Financial Support to Beneficiary Provinces
Provided, however, That where the natural resources are located in two Producing Virginia Tobacco. - The financial support given by the
(2) or more cities, the allocation of shares shall be based on the formula National Government for the beneficiary provinces shall be constituted and
on population and land area as specified in subsection (C)(1) hereof. collected from the proceeds of fifteen percent (15%) of the excise taxes
on locally manufactured Virginia-type of cigarettes.
(2) Where the natural resources are located in a highly urbanized or

independent component city: (a) City - sixty - five percent (65%); and (b) The funds allotted shall be divided among the beneficiary provinces pro-
Barangay - thirty - five percent (35%) rata according to the volume of Virginia tobacco production.
Provided, however, That where the natural resources are located in two Production producing Virginia tobacco shall be the beneficiary provinces
(2) or more cities, the allocation of shares shall be based on the formula under Republic Act No. 7171. Provided, however, that to qualify as
on population and land area as specified in subsection (c)(1) hereof. beneficiary under R. A. No. 7171, a province must have an average annual
production of Virginia leaf tobacco in an amount not less than one million
kilos: Provided, further, that the Department of Budget and Management
(DBM) shall each year determine the beneficiary provinces and their SEC. 292. Separability Clause. - If any clause, sentence, paragraph or
computed share of the funds under R. A. No. 7171, referring to the part of this Code shall be adjudged by any Court of competent jurisdiction
National Tobacco Administration (NTA) records of tobacco acceptances, at to be invalid, such judgment shall not affect, impair or invalidate the
the tobacco trading centers for the immediate past year. remainder of said Code, but shall be confined in its operation to the
clause, sentence, paragraph or part thereof directly involved in the
controversy.
The Secretary of Budget and Management is hereby directed to retain
annually the said funds equivalent to fifteen percent (15%) of excise taxes
on locally manufactured Virginia type cigarettes to be remitted to the SEC. 4. The Secretary of Finance shall, upon recommendation of the
beneficiary provinces qualified under R. A. No. 7171. Commissioner of Internal Revenue, promulgate and publish the necessary
rules and regulations for the effective implementation of this Act.
The provision of existing laws to the contrary notwithstanding, the fifteen
percent (15%) share from government revenues mentioned in R. A. No. SEC. 5. Transitory Provisions. - Deferment of the Effectivity of the
7171 and due to the Virginia tobacco-producing provinces shall be directly Imposition of VAT on Certain Services. - The effectivity of the imposition of
remitted to the provinces concerned. the value-added tax on services as prescribed in Section 17(a) and (b) of
Republic Act No. 7616, as amended by Republic Act 8241, is hereby
further deferred until December 31, 1999, unless Congress deems
Provided, That this Section shall be implemented in accordance with the
otherwise: Provided, That the said services shall continue to pay the
guidelines of Memorandum Circular No. 61-A dated November 28, 1993,
applicable tax prescribed under the present provisions of the National
which amended Memorandum Circular No. 61, entitled "Prescribing
Internal Revenue Code, as amended.
Guidelines for Implementing Republic Act No. 7171", dated January 1,
1992.
SEC. 6. Separability Clause. - If any provision of this Act is
subsequently declared unconstitutional, the validity of the remaining
Provided, further, That in addition to the local government units
provisions hereof shall remain in full force and effect.
mentioned in the above circular, the concerned officials in the province
shall be consulted as regards the identification of projects to be financed.
SEC. 7. Repealing Clauses. - (A) The provision of Section 17 of
Republic Act No. 7906, otherwise known as the "Thrift Banks Act of 1995"
TITLE XII
shall continue to be in force and effect only until December 31, 1999.
OVERSIGHT COMMITTEE
Effective January 1, 2000, all thrift banks, whether in operation as of that

SEC. 290. Congressional Oversight Committee. - A Congressional
date or thereafter, shall no longer enjoy tax exemption as provided under
Oversight Committee, hereinafter referred to as the Committee, is hereby
Section 17 of R. A. No. 7906, thereby subjecting all thrift banks to taxes,
constituted in accordance with the provisions of this Code.
fees and charges in the same manner and at the same rate as banks and
other financial intermediaries.
The Committee shall be composed of the Chairmen of the Committee on
Ways and Means of the Senate and House Representatives and four (4)
(B) The provisions of the National Internal Revenue Code, as amended,
additional members from each house, to be designated by the Speaker of
and all other laws, including charters of government-owned or controlled
the House of Representatives and the Senate President, respectively. cral
corporations, decrees, orders, or regulations or parts thereof, that are
inconsistent with this Act are hereby repealed or amended accordingly.
The Committee shall, among others, in aid of legislation:
SEC. 8. Effectivity. - This Act shall take effect on January 1, 1998.
(1) Monitor and ensure the proper implementation of Republic Act No.
8240;(2) Determine that the power of the Commissioner to compromise
and abate is reasonably exercised;(3) Review the collection performance
of the Bureau of Internal Revenue; and(4) Review the implementation of
the programs of the Bureau of Internal Revenue.
In furtherance of the hereinabove cited objectives, the Committee is

empowered to require of the Bureau of Internal Revenue, submission of all
pertinent information, including but not limited to: industry audits;
collection performance data; status report on criminal actions initiated
against persons; and submission of taxpayer returns: Provided, however,
That any return or return information which can be associated with, or
otherwise identify, directly or indirectly, a particular taxpayer shall be
furnished the Committee only when sitting in Executive Session unless
such taxpayer otherwise consents in writing to such disclosure.
TITLE XIII
REPEALING PROVISIONS
SEC. 291. In General. - All laws, decrees, executive orders, rules and
regulations or parts thereof which are contrary to or inconsistent with this
Code are hereby repealed, amended or modified accordingly.
TITLE XIV
FINAL PROVISIONS

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THE made, or in determining the liability of any person for any internal revenue

SEC. 8. Duty of the Commissioner to Ensure the Provision and

SEC. 11. Duties of Revenue District Officers and Other Internal

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SEC. 19. Contents of Commissioner's Annual Report. - The Annual

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These instruments may include, but need not be limited to bankers'

(2) Exception - The provisions of paragraph (1) of this Subsection to the

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(1) In General. - Except as otherwise provided in this Code, a foreign

(1) Income exempt from tax;

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(2) Amount Received by Insured as Return of Premium - The amount

CHAPTER V (6) Retirement Benefits, Pensions, Gratuities, etc. -

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(7) Miscellaneous Items. - (a) Income Derived by Foreign Government -

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The Secretary of Finance, upon recommendation of the Commissioner, is

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In no case shall this paragraph apply with respect to amounts paid or

The term "exploration expenditures" means expenditures paid or incurred

(L) Optional Standard Deduction. - In lieu of the deductions allowed

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(C) If the amount of stock or securities acquired (or covered by the

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(i) with the approval of the Commissioner, a change to a different method

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The return should be accompanied by a return certificate of architects or

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(2) Consolidation of Income of Two or More Trusts. - Where, in the case

SEC. 74. Declaration of Income Tax for Individuals. -

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SEC. 78. Definitions. - As used in this Chapter:

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(C) Revocable Transfer. - (1) To the extent of any interest therein, of

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Such deduction allowable shall be reduced by an amount which bears the

(A) Requirements. - In all cases of transfers subject to the tax imposed

(A) Time of Payment. - The estate tax imposed by Section 84 shall be

If an extension is granted, the Commissioner may require the executor, or

(b) If no amount is shown as the tax by the executor, administrator or any

NATIONAL INTERNAL REVENUE CODE 36 | P a g e

(4) The name of the donee; and

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(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

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(a) Eighteen percent (18%) in the case of cockpits;(b) Eighteen percent