Guide to Tax 1 for Students

San Beda College – Alabang School of Law

October 24, 2015

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

Submitted to:
Atty. Efren Dizon Jr.

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 Section 3-B Section 3-E

ABASTA, Sancho III Gutierrez CHUA, Angelo Anthony Chua

ALARKON, Romulo Bernard Bustamante DESTAJO, Pierre Honcel Angela Tabares
ALIMAGNO, Maria Alexis Alconaba DIAMITAS, Jan Erik Bonifacio
ALMAZAN, Nathalie Torallo DUBLIN, Maria Rodielita Ante
ANGALA, Miguel Eugenio Derequito ENCIO, Flores Becina
ARANZANSO, Jeffrey Nombrado ESPALDON, Shelumiel Milagros Mendoza
BAVIERA, Denise Carla Villamoran GENERAL, Jose Luis Obias
BOHOL, Vincent Joshua De Lima GUERZON, Randolph Jon Pamaran
BUENO, Christian Benedict Tanchico GUILLERMO, Evandell Sanguir
DE LA CRUZ, Uri Ian Del Rosario JIMENEZ, Joseph James Ilao
DE VEYRA, Ronald Redentor Gumayao LAYUSA, Francis Paolo Bautista
DELGADO, Lorenzo Enriquez LAZARO, Charissa Elaine Bubutan
DIATO, Jea Mari Dolojan MAAMBONG, Urane Leslie Fabrigaras
DONATO, Edward Felix Madamba NERVEZA, Daniel Evan Lucillo
DULCE, Michael Cedric Narciso OLOSAN, Nova Grail Gonayon
GABORNES, Maris Cay Elejido PADRE, Ronald Moya
GARCIA, Daryl Patrick Quinto PEREZ, Rachel Kay Agustin
GOMEZ, Erwin Kristoffer Santos SANTOS, Wilfredo Jr. Evangelista
GUSI, Francisco III Balmes SBAÏZ, Dave James Patrick Guzman
MANABAT, Leandro Mari Borabien
MENDOZA, Lauren Antonette Morales
MOYA, Maeryl Laiza Baguio
SUAN, Rose Anne Galino
TAMAYO, Jai Jagannath Sangco
YABUT, Lee Anne Therese Esureña

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 CHAPTER 1: TAXATION IN GENERAL Assessment or determination of tax Describes burden ration, usually expressed as a
liability is based or the wealth within a percentage, at which a person, property,
TAXES: enforced proportional contributions from persons and property, levied by the State jurisdiction that is liable to taxation. privileges or occupation is taxed.
by virtue of its sovereignty, for the support of the government and for all public needs.
Ex. Taxable income is the tax base for Important distinction when considering tax rates
TO TAX: to impose a financial charge or other levy upon a tax payer by a state or the income tax and assessed value is the is to distinguish between marginal rate and
functional equivalent of a state. tax base for property taxes. effective average rate.
Marginal tax rate Average rate
Amount of tax collected by the taxing authority from the public is always greater than the Percent levied on Rate a taxpayer
amount to be expended for public purpose. each additional would be taxed at, if
COMPLIANCE COST: resulting difference; which includes labor cost and other expenses peso of taxable taxing was done at a
incurred in complying with tax laws and rules. income. constant rate, instead
of progressively.
HYPOTHECATION: levy of a tax for a specified end (e.g. imposing a tax on vehicles to be Marginal tax rate
used on road construction rehabilitation and maintenance) rises as income
increases.

TAXATION DEFINED Impact of tax Incidence of tax

Governments perspective Taxpayer’s perspective Economist’s perspective Person from whom government collects Person who finally bears the burden of a
Power by which the Compulsory transfer of Non-penal, yet compulsory money in first instance. Refers to liability for tax.
sovereign, through its law- money (or goods) from transfer of resources from the tax.
making body, raises revenue private individuals, the private to the public
to defray the necessary institutions or groups to the sector levied on a basis of Ex. Amount of sales tax paid may be shifted or passed on by the seller to the buyer. What is
expenses of the government. government. It may be predetermined criteria and transferred is not the liability for the tax, but the tax burden. A seller who is directly and
levied upon wealth or without reference to specific legally liable for payment of an indirect tax, such as the VAT on goods or services is not
A way of apportioning the income, or in the form of a benefit received. necessarily the person who ultimately bears the burden of the same tax. It is the final
costs of government among surcharge on prices. purchaser or consumer of such goods or services who, although not directly and legally
those who in some measure liable for the payment, ultimately bears the burden of the tax.
are privileged to enjoy its Destructive power which
benefits and must bear its interferes with the personal
burdens. and property rights of the Tax base erosion Tax pyramiding
people and takes from them When traditional taxable components of the When sales taxes are applied to both inputs
a portion of their property tax based are no longer representative of and outputs, thus shifting the tax burden to
for the support of the the economy at large, this results to the ultimate consumer. In this situation,
government. demographic changes, relative changes in some or all stages of production are taxed,
production, stagnation or inflationary effects. with the accumulation borne by the
Tax base Tax rate consumer at the point of sale.

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May also result from use of aggressive tax needed to support the government and its widely expanding services to the
strategies by taxpayers (eg. Less than Ex. When a product is taxed at the pre-retail people.
appropriate income is shown and more than stage and thus, tax is imposed on
deduction is claimed). successive pairs of buyers and sellers a.Should be collected without unnecessary hindrance.
rather than only at the final sale of the b.Claims for refund or tax credit should be exercised within the time fixed by
product to the ultimate consumer. law because the functions of an administrative body enforced to collect
taxes should not be unduly delayed or hampered by incidental matters.
Violates the uniformity and neutrality c. Fraudulent means employed to evade payment of taxes should be
principles of taxation. stopped at the earliest stage.
d. Neglect or omission of government officials entrusted with the collection
of taxes should not be allowed to bring harm in the same manner as
Neutral tax Revenue Neutral private persons may be made to suffer individually on account of his own
Tax that does not cause individuals or firms Taxing procedure that allows the negligence.
to shift their economic choices, such as to government to still receive the same amount PRESUMPTION: Private persons take good care of their personal affairs.
choose among different goods, inputs, of money despite changes in tax laws. EXCEPTION: government officials with respect to matters of public concern;
locations etc. Government may lower taxes for one group exception to the principle of estoppel.
and raise for another. This allows revenue to
Tax structure that does not change the remain unchanged. e.Primary purpose for legislature in adopting measures is to generate funds
incentives in the market. for the State to finance the needs of citizenry and to advance common
Ex. Poll tax (e.g. Community Tax weal.
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Certificate). f. Granting exemptions are construed as strictissimi juris against the
taxpayer and liberally in favor of taxing authority.
GR: Taxation
Statutory taxpayer Extraterritorial taxation Tax exporting EXCEPTION: exemption from tax
Person on whom the tax Tax is imposed on Shifting of a tax burden to EXCEPTION TO EXCEPTION: if grantee is a political subdivision or
is imposed by law and property/subject outside the non-residents of a given instrumentality, rigid rule of construction does not apply because practical effect of
who paid the same even if State. jurisdiction. Exporting can be exemption is to reduce the amount of money that has to be handled by the
he shifts the burden to achieved indirectly by taxing government in the course of its operation.
another. imports or through
intergovernmental transfer
mechanisms. 2. Benefits-protection theory/theory of reciprocity/symbiotic relationship—
citizen pays from his property the portion demanded in order that he may be
secured in the enjoyment of the benefits of organized society. A person
RELEVANT THEORIES/BASES OF TAXATION (NL-BS-NS) cannot object to or resist the payment of taxes solely because no personal
1. Necessity theory and lifeblood doctrine: the existence of the government is a benefit to him can be pointed out arising from the tax.
necessity. It has the right to compel all citizens and property within its limits
to pay taxes. Taxes constitute the lifeblood of the nation and are greatly
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The most strict right or law.
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Despite natural reluctance to surrender part of one’s income to taxing authorities, every RAISE REVENUES—Primary purpose is REVENUE: to generate funds or property for the
person who is able must contribute his share in the burden of running the government. State to finance the needs of the citizens and to advance the common weal.
Government is expected to respond in the form of tangible and intangible benefits. Taxation is no longer a measure merely to raise revenue; taxes may be levied with a
regulatory purpose as an exercise of police power of the State.
Ω BPI-FSB vs. CA
REGULATORY PURPOSE— police power may sometimes use the taxing power as an
HELD: If State expects its taxpayers to observe fairness and honesty in paying their taxes, implement for the attainment of a legitimate police objective.
so must it apply the same standard against itself in refunding excess payments. When it is Ω Powell vs. Pennsylvania
undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities HELD: If massage parlors are found to be mere fronts for prostitution, they may be
to keep money not belonging to it. No one, not even the State, should enrich oneself at the subjected to such onerous taxes as to practically force them to stop operating.
expense of another”.
Ω PAL vs. Edu
It is a requirement that it be exercised in accordance of the prescribed procedure. If not, the HELD: Law requiring owners of vehicles to pay for their registration is to raise funds for
taxpayer has a right to complain. construction and maintenance of highways. Fees may be regarded as taxes even though
they also sere as an instrument of regulation. If the purpose is revenue, or if revenue is one
of the real and substantial purposes, exaction is called a TAX.
3. Taxation as government violation of the non-aggression principle and the
social contract theory. SUMPTUARY PURPOSE OF TAXATION: non-revenue or regulatory purpose of taxation.

Government violation of non-aggression principle—taxation wrongfully presumes that REDISTRIBUTION OF WEALTH/REDUCITON OF SOCIAL INEQUALITY—there is an
government has a higher claim on property than the owner. Taxation is theft and tax effort to apportion the costs of government among the people which in a way thwarts the
resistance is therefore legitimate. undue concentration of wealth in the hands of a few individuals.

Social contract theory—in an organized society, members agree to define and limit the PROGESSIVITY: those who are able to pay more should shoulder the bigger portion of tax
rights and duties of each. Principal attribute of sovereignty is the exercise of taxing power burden.
which derives its source from the existence of the state whose social contract with its Taxation is now being used as an implement for exercise of the power of eminent domain.
citizens obliges it to promote public interest and common good. Full reimbursement (peso for peso basis) is not necessary when the State uses taxation as
an implement of eminent domain.
Ex. Tax deduction does not offer full reimbursement of the senior citizen discount because it
Purposes and effect of taxation(Six [6] Rs) only shaves money off the taxable income resulting to a partial recovery unlike a tax credit
1. Raise revenues. which reduces the tax to be paid by the amount of discount. As such, it does not meet the
2. Regulatory purpose. definition of just compensation. However, amendment to the law granting senior citizen
3. Redistribution of wealth/reduction of social inequality. discount providing for tax deduction instead credit is not unconstitutional since the State can
4. Repricing. impose upon private establishments the burden of partly subsidizing a government program.
5. Resuscitate economy.
6. Representation. REPRICING— taxes may be levied to address externalities.

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EXTERNALITIES: cost or benefit that is not transmitted through prices and is incurred by a Tax exemptions may be granted to entice investments. Reduced tax collection redounds by
party who was not involved as either a buyer or seller of the goods or services causing the enticing more business investments and employment opportunities.
cost or benefit.
FISCAL POLICY: taxes used to influence macroeconomic performance.
External cost External benefit
Negative externality/cost of an externality Positive/benefit of an externality
REPRESENTATION—“no taxation without representation”; no taxes should be imposed on
Ex: Imposition of Pigovian Tax the people but with their consent, personally or by representatives.

PIGOVIAN TAX: tax levied on a market activity to correct the market outcome, if there are CONSTI: all bills for raising revenue shall originate in House of Representative on theory
negative externalities associated with market activity. that they are more sensitive to local needs and problems.
If there are negative externalities, social cost is not covered by the private cost of the activity
which may lead to over-consumption of the product. To correct this, Pigouvian tax may be Characteristics and requisites of taxes
imposed (effective means to reduce incidence of bad behavior is to tax it). Characteristics
If there are positive externalities (public benefits from a market activity), those who receive 1. An enforced contribution.
the benefit do not pay for it and the market may under-supply the product. To correct this, 2. Exacted pursuant to legislative authority.
Pigouvian subsidy may be given. 3. Contribution being in form of money.
4. Imposed, levied and collected for the purpose of raising revenue.
Illustration: 5. To be used for public or governmental purposes.
A tax may be imposed on cigarettes—vs. negative externality of second-hand smoke. 6. Levied by authority which has jurisdiction over the person, property, transaction,
Pollution tax—factories emitting smoke. rights and privileges.

Taxes may be used to modify consumption or employment by making some classes of Requisites (JAPUN)
transaction attractive or to protect local industries or consumers. 1. Person or property taxed should be within jurisdiction of taxing authority.
2. Assessment and collection of certain kinds of taxes guarantee against injustice to
Ex: Levying of special duties on importation individuals, especially by providing notice and opportunity for hearing.
1. Dumping duty; 3. For public purpose.
2. Countervailing duty; 4. Rule of taxation shall be uniform and equitable.
3. Marking duty; and 5. Tax must not impinge on the inherent and constitutional limitation on power of
4. Discriminatory or retaliatory duty. taxation.

An enforced contribution—does not depend on the will or acquiescence of the taxpayer.

RESUSCITATE ECONOMY— tax may be imposed as a first aid measure to resuscitate an Exacted pursuant to legislative authority—GR: power is exercised only by the legislative
economy in distress. department except in case of valid delegations of power or when there is constitutional
Ex: PD 1956: AD VALOREM TAX on manufactured oils and other fuel oils—for the purpose grant.
of minimizing frequent price changes by exchange rate adjustments and/or increase in
world market prices of crude oil and imported petroleum products. Contribution in the form of money—there is no law prohibiting payment in some other form
of property.
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However, State could determine in what manner taxes should be discharged. 1. Purposes provided they are lawful
1. Notes of legal tender do not apply to involuntary contributions exacted by a State Rule of taxation shall be uniform and and public
buy only to debts (obligations for payment of money founded on contracts, whether equitable and Congress shall evolve a 2. Person, property, privileges or
express or implied). progressive system of taxation. occupation to be taxed
2. Statute requiring payment to be collected in gold and silver coins was sustained on 3. Amount or rate
2 grounds: The following are manifestation of this 4. Kind of tax
a. Right of each state to collect its taxes in such material as it might deem inherent nature 5. Apportionment of tax (whether tax
expedient. Mode in which it should be exercised, were all equally within 1. It can be imposed even in the shall be of general application or
the discretion of its legislature, except as restrained by its own absence of a constitutional grant limited to a particular locality, partly
constitution; and 2. Injunction is not generally general and partly local)
b. Legal tender act had no reference to taxes imposed by State authority, available to enjoin collection of 6. Situs
but only to debts arising out of simple contracts or contracts of specialty, taxes 7. Mode or method of collection
which include judgments or recognizances. 3. Taxes cannot be set-off or
compensated Power to tax is primarily vested in Congress;
Imposed, levied and collected for purpose of raising revenue—taxes may have regulatory or 4. It is an unlimited or plenary power however it may be exercised by local
economic purpose other than to generate funds. 5. It is inherent in the power to tax legislative bodies pursuant to direct authority
that State be free to select the conferred by SEC 5, ART 10 CONSTI.
To be used for public or governmental purpose—it cannot be used for private purposes. subjects of taxation
TAX FARMING: principle of assigning the
Levied by authority which has jurisdiction over the person, property, transaction, rights and Taxing power of LGUs is not inherent responsibility for tax revenue collecting to
privileges—jurisdictional limitation has 2 questions: because they are not sovereign units. LGU private citizens or grounds was once used by
1. Is there a sufficient relationship between the State exercising tax power and the is merely an agency of the State for other countries.
object of the exercise of that power? carrying out the objects of the government.
2. Is the degree of contact sufficient to justify the state’s imposition of a particular Thus, constitutional or legislative grant is
obligation? necessary before it can exercise taxing
power.
Nature of taxing power
1. It is inherent and legislative. 2. Power is not granted in the Constitution.
3. It is not a contract between the State and its citizens.
Inherent Legislative 4. It is not political in nature.
GR: power to tax is an incident of Legislature lies the discretion to determine 5. Taxes are personal.
sovereignty and is unlimited in its range, the nature, object, extent, coverage and situs 6. It is unlimited in range.
acknowledging in its very nature no limits, of taxation. It has the authority to prescribe a 7. It is imprescriptible.
so that security against its abuse is to be certain tax at a specific rate for a particular
found only in the responsibility of this public purpose. Power is not granted in the Constitution—it merely constitutes limitations upon a power
legislature which imposes the tax on the which would be impractical without it
constituency who are to pay it. Scopes of legislative power: SEC 28(3), ART 6 CONSTI. Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, nonprofit cemeteries and all lands, buildings and
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improvements, actually, directly and exclusively used for religion, charitable or educational
purposes shall be exempt from taxation. Ω Panhandle vs. Mississippi
HELD: Debunked the ruling in McCullock vs. Maryland where it is held that "power to tax is
It is not a contract between the State and its citizens—it operates in invitum, which means not the power to destroy while this court sits”. The power to tax may include the power to
that it is in no way depend on the will or contractual assent, expressed or implied, of the destroy if it is used as an implement of the police power in discouraging and in effect
person taxed. ultimately prohibiting certain things or enterprises inimical to public welfare. But where the
Taxes are obligations arising from law and not from contracts because of lack of consent or power to tax is used solely for the purpose of raising revenues, modern view is that it cannot
choice. be allowed to confiscate or destroy.

It is not political in nature— It is imprescriptible—without exception, taxes being the lifeblood of the government.
ΩCo Kim Chan vs. Valdes Tan Keh However, statutes may provide for prescriptive periods for the collection of particular kinds
HELD: Internal revenue laws were continued in force during the period of enemy occupation of taxes when government has not by express statutory provision, provided a limitation upon
and in effect were enforced by the occupation government. As a matter of fact, income tax its right to assess unpaid taxes, such right is imprescriptible.
returns were filed during that period and income tax payment were effected and considered
valid and legal. Such tax laws are deemed to be the laws of occupied territory and not of the HELD: The government is not bound by any statute of limitations, unless Congress has
occupying enemy. clearly manifested its intention that it should be so bound.

Tax are personal—liability cannot be shifted. Rights are transmissible but obligations are Aspects of taxation
not. 1. Aspects (LAP)
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Thus, heirs cannot be held liable beyond what they inherited for delinquent taxes of a a. Levy
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decedent. b. Assessment and Collection
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Corporation’s tax delinquency cannot be enforced against its stockholders or related c. Payment and/or exercise of remedies
entities. A corporation is vested by law with a separate and distinct personality. However,
stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears 2. Grant of exemption is an exercise of power of taxation—power to tax includes
that corporate assets have been passed into their hands. Same is true if stockholders have power to exempt
unpaid subscriptions pursuant of the trust fund doctrine.
Sound Tax System (ECCEPSD)
In case of indirect taxes, shifting of the burden to tax from the seller to the buyer is not 1. Canons of taxation.
incompatible with the principle that taxes are personal liabilities. When seller passes on the a. Equity.
tax to his buyer, he is only shifting the tax burden, but not the liability, to the buyer as part of b. Certainty.
the cost of the goods sold or services rendered. c. Convenience.

It is unlimited in range—it is not subject to any restrictions except in the discretion of the 2
Determination of persons, property or exercises to be taxed, amount to be raised, rate to be
authority which exercises it. Security against its abuse is to be founded only in the imposed and the manner of implementation; this is exercised by the Legislature.
responsibility of the legislature which imposes the tax on the constituency who pay it. 3
Manner of enforcing the obligation of taxes already levied upon the taxpayer; act of
administration and implementation by Executive Department.
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ΩMcCulloch vs. Maryland Compliance and/or resistance by the taxpayer; through Executive or Legislature (through suffrage
HELD: Power to tax involves the power to destroy. or initiative/referendum) and ultimately through Judiciary.
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 d. Economy. on the resources of peron affected. Violation of this principle will make the law unsound,
e. Productivity. invalid and unconstitutional.
f. Elasticity.
g. Simplicity. Taxes are not subject to compensation—Taxes cannot be offset from government
h. Diversity. obligations or liabilities due to the taxpayer
1. Taxes cannot be subject of compensation because government and taxpayer are
Equity—every person should pay to the government depending upon his ability to pay. not mutual creditors and debtors of each other. A claim for taxes is not a debt,
Certainty—must not be arbitrary; taxpayer should know in advance how much tax he has to demand, contract or judgment that is allowed to be set-off.
pay, at what time and in what form. 2. Tax and debt
Convenience—mode and timing must be convenient to tax payers.
Economy—cost of tax collection should be lower than amount of tax collected. Tax Debt
Due to government in its sovereign capacity Due to the government in its corporate
Productivity—tax when levied should produce sufficient revenue to the government. capacity
Elasticity—tax system should be fairly elastic so that if at any time the government is in Imposts levied by the Government for its
need of more funds, it should increase its financial resources without incurring any support or some special purpose, which the Sum of money due upon contract, express
additional cost of collection. government has recognized. or implied or one which is evidenced by
Simplicity—tax system should be fairly simple, plain, and intelligible to the taxpayer. judgment
Diversity—system should include a large number of taxes which are economical;
government should collect revenue by levying direct and indirect taxes. However, tax in a broad sense may be a debt, so that interest on estate and inheritance
may be deducted as interest on indebtedness:
2. Basic principles of Sound Tax System(FAT). a. Tax and debt
a. Fiscal adequacy. Tax Debt
b. Administrative feasibility. Does not proceed from contract Generally the result of the contract
c. Theoretical justice. Obligations created by law and Obligation created by a contract
governed by special laws and
Fiscal adequacy—sources of revenues must be adequate to meet government expenditures falsification and non-payment of
and their variations; violation of this principle will make the law unsound but still valid and such taxes impose criminal
not unconstitutional. liabilities May be off-set
May arise out of acts of private
Administrative feasibility--- taxes should be capable of being effectively enforced; tax policy May not be off-set individuals
that costs government and taxpayers more to collect that taxes generated is inherently Can only be imposed by public
flawed. Violation of this principle will make the law unsound but still valid and not authority Can be assigned
unconstitutional. May be paid in money, property or
Cannot be assigned service
Theoretical justice—taxed must be based on the taxpayer’s ability to pay and proportional to Generally payable in money Draw interest if stipulated or there
the relative value of the property; it must be uniform and equitable and that State must Do not draw interest unless is default
evolve a progressive system of taxation. It is progressive when its rate goes up depending delinquent

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 1. Both the claim of the Government for inheritance tax and claim for estate for
b. Rule on non-imprisonment for non-payment of debts is not applicable. services rendered have already become due, demandable and fully liquidated.
Except for community taxes/poll taxes (cedula), fraudulent non-payment 2. An amount for the claim of the estate had already been appropriated by the
of other taxes (like real estate) would be subject to imprisonment. Government by virtue of law.
Falsification of community tax is subject to criminal liability.
Ω CIR vs. Esso Standard
c. There can be no off-setting; collection of tax cannot avail the results of a
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lawsuit against the government. HELD: On the ground of solution indebiti , SC allowed compensation. Obligation to
return money mistakenly paid arises from the moment that payment is made, and not
d. Compensation had been the practice in the past can set no valid from the time the payee admits the obligation to reimburse. Since the money belonging
precedent. Such practice has no legal basis. to ESSO was already in the hands of the government, although the latter ha no right
whatever to the amount and indeed was bound to return it, it was neither legally nor
logically possible for ESSO to be considered a debtor of the Government; and whatever
EXCEPTION: Ω Domingo vs. Garlitos other obligation ESSO might subsequently incur in favor of the Government should
have to be reduced in that sum, in respect of which no interest could be charged.
HELD: SC allowed legal compensation of tax and debt when the claim of the
estate against the Government has been recognized and amount has already been Ω Republic vs. Ericta and Sampaguita Pictures
appropriate for the purpose of a corresponding law. Both the claim of the
Government for inheritance taxes and the claim of the intestate for services HELD: SC upheld the dismissal of complaint to pay the amount for alleged unpaid
rendered have already become overdue and demandable as well as fully taxes and counter claim representing the face value of negotiable certificates of
liquidated. Compensation takes place by operation of law and both debts are indebtedness.
extinguished to the concurrent amount, this:
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ART 1200. When all requisites mentioned in ART 1279 are present,
compensation takes effect by operation of law and extinguished both debts to the DOCTRINE OF EQUITABLE RECOUPMENT: grants a right to a creditor to recover
concurrent amount, even though the creditors and debtors are not aware of the debt; debt diminishes to the extent s/he holds the debtor’s property in violation of the
compensation. debtor’s legal rights. It is the legal principle that a creditor loses right to recover a
debt if the creditor illegally possess some of the debtor’s property. ( Doctrine does
Compensation may be applied if these circumstances are present: not apply in the Philippines.)

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Applied in taxation—
ART 1279. In order that compensation may be proper, it is necessary: 1. It allows a taxpayer to set off previously overpaid taxes due, even though the
1. That each one of the obligors be bound principally, and that he be at the same time a
taxpayer is time-bared from claiming refund on previous taxes. It applies only if the
principal creditor of the other;
Statute of Limitation has created an inequitable result. It is a defensive remedy
2. That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated; against mitigation of damages.
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or controversy, commenced by third
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persons and communicated in due time to the debtor. Payment to one of what is not due to him.
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 2. It is applicable in cases to a taxpayer who erroneously paid a tax and is later period determined in
properly assessed a tax arising from the same taxable event. It allows the taxpayer advance, collected at
to offset the tax properly assessed by the tax erroneously paid, even if the Statute appointed times, enforced
of Limitations would otherwise prevent the taxpayer from recovering the earlier by sale of property and by
overpayment through a claim for refund. imprisonment of person
assessed.
3. It can occur only when the untimely refund claim to be set off against the timely
assessment occurs within the same transaction or tax year. Doctrine can only be It is a tax in rem and
used as a defense to an assessment made during the same transaction or tax judgments in proceedings
period. is one in rem.

2. Purpose
Classification of taxes
1. Subject matter General, fiscal or revenue Special or regulatory
Designed to raise revenue for the general or Achieve social or economic goals
Personal, capitation Property Excise or privilege Customs ordinary purposes. irrespective of whether revenue is actually
or poll duties raised or not.
Taxes of a fixed Taxes assessed on all Charge imposed Charged upon
amount upon all property or on all property upon performance commodities Special tax is imposed for special public
persons or upon all of a certain class located of an act, enjoyment being purpose. Money raised shall be spent only
persons of a certain within a certain territory on of a privilege or imported or for such purpose and if such purpose has
class, resident within a specified date in engaging in an exported. been fulfilled, remaining amount shall be
a specified territory, proportion to its value, or in occupation. placed in general funds of the government to
without regard to accordance with some be spent for any general purpose.
their property or other reasonable method However, these do
occupations in which of apportionment. not pertain to 3. Who bears the burden
they may be Obligation to pay is performance of an
engaged. absolute and involuntary. activity, at least not Direct Indirect
to extent of equating Imposed and absorbed by same person. Tax paid by a person other than one whom
Taxes of a specified It is measured by amount excise with it is imposed.
amount upon each of property owned by the business.taxes. Personal tax Direct tax Taxes wherein liability for payment of tax
person performing a taxpayer on a given day, Those of a fixed Both the incidence falls on one person to another.
certain act or and not on the total amount upon all of or liability for the
engaging in a certain amount owned by him persons of a payment of tax as Illustration
business or during the way. certain class within well as impact or 1. VAT is payable by any person, in
profession is not poll jurisdiction of the burden of tax falls the course of trade and business.
tax. It is assessed at stated taxing power on same person It is applied to each stage of

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 without regard to and cannot be production. Burden of paying the of income increases.
the amount of their shifted. amount may be shifted on to the
property. buyer, transferee or lessee of PROPORTIONATE TAXES:
Ex. Franchise tax: a goods, properties or services. based on a fixed portion of the
percentage tax 2. Contractor’s tax—payable by value of the subject being
imposed on contractor but it is the owner of the taxed.
franchise holders is building that shoulders the burden.
a direct liability of 3. Excise tax—liability for payment
the franchise may fall from a person other than 5. Taxing authority
grantee. the one who actually bears the
burden. National Local/municipal
Those that are exacted from the very person Imposed by Congress imposed by local legislative bodies
ho, it is intended or desired, should pay
them; they are impositions for which a Those that are demanded, from or are paid 6. Scope
taxpayer is directly liable on the transaction by, one person in the expectation and
or business he is engaged in. intention that he can shift the burden to General Specific
someone else. Imposed throughout the state or civil division Levied for a special purpose for the benefit
Ex. Income tax—taxes an individual’s ability for raising revenue for general purposes on of a part of a body politic resting upon the
to pay based on his income or net wealth. the ground of general public interests. supposition that a portion of the public is
Ex. VAT—substantial portion of consumer specially benefited in the increase of the
expenditures. value of property.

4. Rate or graduation 7. Basis of amount

Proportional Progressive or graduated Regressive Specific Ad valorem (value)

Fixed rate regardless of tax Tax rate and tax base are Tax rate and tax base are Fixed amount by head or number or by some Fixed proportion of value of property
base. directly proportional. inversely proportional. standard of weight or measurement. with respect to which taxes are
assessed and require the intervention
Implies that tax rate Implies that tax rate regresses Specific Excise of assessors or appraisers to estimate
progresses as affluence as affluence increases. Imposes a specific Privilege tax laid the value of such property.
(income) increases. sum by the head or upon the
PROGRESSIVE TAXES: tax number or by some manufacture, sale or
imposed whereby the rate or standard of weight or consumption of
amount of tax increases. measurement and commodities within
which requires no the country .
REGRESSIVE TAXES: tax assessment beyond a
rate decreases as the amount listing and

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

13
Ordinary tax Special assessment 6. Tariff/customs duty—impost upon goods transported from one political
Provide the government with revenues Finance the improvement of particular jurisdiction to another.
needed for the financing of state affairs. properties, with benefits of the improvement
accruing or inuring to the owners who pay 7. Subsidy—grant of money in aid of a private enterprise deemed to promote
the assessment. the public welfare.
Refusal of citizen to pay may not be
sanctioned because it would government Refusal to pay may hold sanctions.
functions. 8. Compromise penalty—amount imposed in case of a compromise involving
violations of tax laws.
3. Fines—paid in case of violation of law.
9. Revenue—money which comes to a person or entity from an source or
4. Penalty—punitive sanction for compelling timely action. sources which includes money which comes to a government from taxes.

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

14
 7
consideration or in case of a Property other than money c. Locus standi of a private citizen questioning the act;
government franchise. and choses in action. d. Question of constitutionality must be raised at the earlier opportunity; and
Any property, including e. Issue of constitutionality must be the lis mota of the case.
Money is taken. money, which is the source,
implements or proceeds of Interferes only with property A private person is allowed to raise constitutional questions only if he can show that he has
the danger to health, safety rights although violation of personally suffered some actual or threatened injury as a result of the allegedly illegal
or morals. tax laws may result to conduct of the government, injury is fairly traceable to the challenged action and injury is
Interferes only with property imprisonment. likely to be redressed by a favorable action.
rights although violation of Regulates both liberty and
tax laws may result to property. Party must show not only that law or act is invalid butalso that he has imminent danger of
imprisonment. sustaining some direct injury as a result of its enforcement and not merely that he suffers in
some indefinite way.

2. Taxation may be enhanced through the exercise of police power 3. Moot and academic case
Illustration. If under police power, local government can classify lands as GR: Courts decline jurisdiction on the ground of mootness
residential and commercial, then, since conversion of industrial land is usually EXCEPTION: Not moot and academic if:
assessed on higher assessment level, tax collections are increased. a. There is a grave violation of the Constitution;
b. Exceptional character of the situation and the paramount public interest is
3. Taxation may be used as an implement of the police power and eminent involved;
domain c. When constitutional issue raised requires formulation of controlling
Power to destroy may be included if tax is used validly as an implement of police principles to guide the bench, the bar and the public; and
power. d. Case is capable of repetition yet evading review.

4. Judicial proceedings not required

Judicial review Collection of taxes levied should be summary and interfered with as little as
1. Courts cannot review the wisdom of or advisability or expediency of a tax possible. However, taxpayers and State are not prohibited from seeking remedies
SC is only allowed to settle actual controversies involving rights which are legally from courts.
demandable and enforceable and may not annul an act of the political departments
simply because the Court feels it is unwise or impractical. 5. Quantum of evidence: preponderance of evidence

7
Party’s personal and substantial interest in a case such that he has sustained or will sustain direct
2. Requirements of questioning constitutionality
injury as a result of the governmental act being challenged; Right of appearance in a court of justice
a. There must be actual controversy falling for exercise of judicial review;
on a given question; in private suits, standing is governed by real parties in interest (SEC 2, RULE 3);
b. Question before Court must be ripe for adjudication;
REAL PARTY: party who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit.
INTEREST: material interest in an issue affected by the decree.
MERE INTEREST: mere interest in the question involved or mere incidental interest.
15
 PREPONDERANCE OF EVIDENCE: weight, credit and value of the aggregate on
either side; testimony adduced by one side is more credible and conclusive than Requirements
that of the other. 1. Cases involve constitutional issues;
2. For taxpayers, there must be a claim of illegal disbursement of public funds or that
6. No estoppel against the government tax measure is unconstitutional;
Government is not estopped by mistakes or errors of its agents. 3. For voters, there must be a showing of obvious interest in the validity of election
Erroneous application of the law by public officers do not bar the subsequent law in question;
correct application of statutes. Principle of Estoppel does not apply when State 4. For concerned citizens, there must be a showing that issues raised are for
acts to rectify mistakes, errors, irregularities or illegal acts of its officials and transcendental importance which must be settled early; and
agents. Rule holds true even if rectification prejudices parties who had meanwhile 5. For legislators, there must be a claim that official action complained of infringes
received benefits. This is particularly true in collection of legitimate taxes due upon their prerogatives as legislators.
where collection has to be made whether or not there is error, complicity or plain
neglect on part of collecting agents. Decision to entertain a taxpayer’s suit is discretionary upon court.

However, this rule may be relaxed in the interest of justice and fair play, as where
injustice will result to the taxpayer. Questioning the validity and constitutionality of statutes by a taxpayer
GR: Locus standi must be present
Taxpayer’s suit EXCEPTION: Misapplication of funds

Citizen and taxpayer suits GR: Not only persons individually affected, taxpayers must have sufficient interest in
Plaintiff in a taxpayer’s suit Plaintiff in citizen’s suit preventing the illegal expenditure of moneys raised by taxation and they may, therefore,
Plaintiff is affected by the expenditure of He is but the mere instrument of public question the constitutionality of statutes requiring expenditure of public moneys.
public funds. concern. To justify the suit, it is necessary that public funds should be involved.

Right a citizen and a taxpayer to maintain an In a matter of mere public right, people are Requisites of taxpayer’s suit
action in courts to restrain the unlawful use real parties. It is the right, if not the duty, of 1. Tax money is being extracted and spent in violation of specific Constitutional
of public funds to his injury cannot be denied every citizen to interfere and see that public protections against abuses of legislative power;
offense be properly pursued and punished 2. Public money is being deflected to any improper purpose; and
and that public grievance be remedied 3. Petitioner seeks to restrain respondents from wasting public funds through
enforcement of an invalid or unconstitutional law.
DIRECT INJURY TEST: for a private individual to invoke judicial power in determining the
validity of an executive or legislative action, he must have sustained direct injury and it is not Expenditure of public funds by an officer of the State for the purpose of executing an
sufficient that he has general interest common to all members in public. unconstitutional act constitutes a misapplication of such funds.

Taxpayer need not be a party to the contract to challenge its validity. As long as taxes are
Brushing aside technicalities involved, people have the right to question contracts entered into by the government.
Requirement of locus standi may be waived in the exercise of court discretion, where
transcendental importance prompted the Court to act liberally.
16
Transcendental importance • Violation of any or all of the above is
Determinants a. equal to taking without due process
1. Character of funds or other assets involved in the case; b. infringement of the general principles of int’l law which form part of the law
2. Presence of a clear case of disregard of a constitutional or statutory prohibition by of the land
the public respondent agency or instrumentality of the government; and
3. Lack of any other party with a more direct and specific interest in raising the C. LEVIED FOR A PUBLIC PURPOSE
questions being raised. • Amount raised must
o Inure to the benefit of the public
o Used for
It is not proper to implead the President as respondent  Support of the state
GR: The President, during his actual incumbency, may not be sued in any civil or criminal  Some recognized object of the Government
case.  Public service
EXCEPTION: He remains accountable to the people but he may be removed from office
only by impeachment. • You cannot use public funds to promote an individual’s interest, even if it may
incidentally result to the benefit of the public
• Rationale: tax can be levied against one class of individuals in favor of another
CHAPTER 2: INHERENT LIMITATIONS ON THE POWER OF TAXATION class; you can ruin one class while favoring the other
• If it is for a private purpose, it is robbery because government takes property of
A. THE POWER TO TAX HAS LIMITS another and then gives it in favor of another person.
• The power to tax is an inherent power but such power must still be exercised in • “public purpose” includes “indirect public advantage”
accordance with the inherent and constitutional limitations o if an individual directly enjoys the tax, it is still valid as long as there is a
• If there exists conflicting interest between the taxing authorities and taxpayers, it link to public purpose
must be resolved in favor of the real purpose of taxation, which is, promotion of
common good. • Test to determine existence of Public Purpose
o Duty test – if it is the duty of the government to provide such thing
• 2 Kinds of Limitations: o Promotion of General Welfare Test – if proceeds will directly promote
o Constitutional Limitation – those provided for in the Constitution the public’s welfare
o Inherent Limitations – restrictions to the power to tax attached to its
nature • Purposes of levying tax:
o regulatory purpose
B. THE INHERENT LIMITATIONS (Le-N-T-Ex-Ice) o raise government revenue
1. (Le) Levied for a public purpose o support government existence
2. (N) Non-delegability of the taxing power o rehabilitate/stablize a threatened industry, which is affected with public
3. (T) Territoriality or situs of taxation interest
4. (Ex) Tax exemptions of the Government
5. (Ice) International Comity • If purpose of the tax is not stated, it is presumed that it is created for a public
purpose

17
 • Examples (presumption of public purpose) d. (L) Local taxing power- Theory of non-delegation of legislative power does not
o Pensions of war veterans  assurance that a person’s patriotism will be apply in local units. Reason- LGU not sovereign entities.
acknowledged and rewarded e. (I) Initiative and Referendum-
o Unemployment relief o Initiative- power of the people to propose and enact legislation
o Support for the handicapped without action by the legislature.
o Care for the aged o Referendum- power of the people to approve or reject any act of the
o Scholarships for poor but deserving citizens legislature, and also to approve or reject legislation that the
o Tax on sugar legislature has referred to them.
o Oil Price Stabilization Fund  oil industry is imbued with public interest, f. (A) Administrative Matters:
and a dramatic increase in oil prices will result to economic crisis o Valid as regards:
i. Valuation of property pursuant to fixed rules
• The public purpose must exist at the time the law was enacted. ii. Equalization of assessments by a central body
o Government may only use public funds for a public purpose iii. Collection of taxes
o The existence of public purpose determines its validity, not the incidental
benefit to the public • Test to determine permissible delegation:
a. Completeness test- The law must be complete in itself, setting forth therein
D. NON DELEGABILITY OF TAXING POWER the policy to be executed, carried out, or implemented by the delegate
b. Sufficiency standard test -The law must fix a standard. The limits of which are
• Source of Power  People sufficiently determinate and determinable to which the delegate must conform
• Delegation  Transferred from the people to Congress in the performance of his functions.
• Basis: delegata potestas non potest delegari.
• Non-Delegable Powers:
• Theories that justify the delegation: a. Selection of property or transaction to be taxed
o Power to fill up the details- subjects of less interest in which general b. Determination of purposes
provision may be made, thus those who are to act under such general c. Rate of taxation
provision, has the power to fill up the details. d. Rules of taxation
o Power of Contingent Legislation- what is delegated is the task of
ascertaining the facts that bring its declared policy into operation. • Prohibition on Executive Legislation and Judicial Legislation
o Based on separation of powers of state.
• Delegable Powers: (Ta-Em-Trea-LIA) o Law-making power-legislative branch
a. (Ta) Tariff Powers-reason for its delegation is necessity. o Law-executing power- executive branch
b. (Em) Emergency Power- President can exercise this power in times of war or o Law-interpreting power- judicial branch
other national emergency, as authorized by Congress through law. (Sec23(2)
E. TERRITORIALITY OR SITUS OF TAXATION
ArtVI, 1987 Constitution)
c. (Trea) Treaty and Executive Agreement Powers-Power of President to enter in
to executive agreements, and to ratify treaties. (Sec21, ArtVII, 1987
Constitution)

18
• General rule: A state may not tax property lying outside its borders or lay an excise o The rule on the exemption of government is not absolute.
or privilege tax upon the exercise or enjoyment of a right or privilege derived from o The government may tax itself. Clearly, exemption applies only to
the laws of another state and therein exercised or enjoyed. government entities which immediately and directly exercise its
• Taxation is an act of sovereignty which could only be exercised within state’s government powers.
territorial boundaries. o GOCCs, agencies, or instrumentalities are subject to taxation under
the NIRC and LGC. However, only income from proprietary activities
• Taxes are paid for the protection and services provided by the taxing authority
and not from essential governmental functions are taxable.
which could not be provided outside the territorial limits of the taxing power.
• Situs of taxation: situs is latin term which means “situation,” “location or place.”
• Definition of Terms
o RP (Republic of the Philippines) – corporate government entity through
• Determination of situs: (S-NCR-L)
which the functions of government are exercised throughout the
o (S) Subject matter of the tax- Situs may depend on what is being taxed: Philippines.
excise/privilege, business, occupation, person, act or activity. o NG (National Government) – entire machinery of the central government
o (N) Nature/kind/ classification of the tax- situs may depend on what tax is as distinguished from different forms of local government
being levied: income tax, import duty, sales tax or real property tax. o GOCC (Government-Owned and Controlled Corporations) – any
o (C) Citizenship of the tax payer- situs may depend on which state the taxpayer agency organized as a stock or non-stock corporation
is a citizen of, or probably an alien, dual citizen, stateless or refugee. o GA (Government Agency) – any of the various units of the government
o (R) Residenxe of the taxpayer- situs may depend on the residence of the including a department, bureau, office, instrumentality, or GOCC, or LGU
taxpayer: resident, non- resident. or a distinct unit therein.
o (L) Location of the property- situs may depend on the palce the thing or
property is located: within the Philippines or outside the Philippines. G. INTERNATIONAL COMITY
F. GOVERNMENT EXEMPTION
• DSE (Doctrine of Sovereign Equality)
o In par parem non habet imperium or “as between equals there is no
• It is a matter of public policy.
sovereign”
o Property belonging to the State or any of its political division intended for
o Foreign sovereign does not subject itself to another.
government use and purposes is generally exempt from taxation.
o express provision of law needed to satisfy the rule.
• DSI (Doctrine of Sovereign Immunity)
o The State cannot be sued without its consent.
• Always remember that “Exemption is the rule and taxation is the exception.”
o The State can do no wrong.
o Based on practicality because of the difficulty of enforcing tax laws.
• Reasons for exemption (A-Nore-So-Re)
o (A) Avoid transferring money from one pocket to another.
o (Nore) No revenue.
• IC (Incorporation Clause)
o The Philippines adopts the generally accepted principles on international
o (So) So as not to unduly impede govt functions.
law as part of the law of the land.
o (Re) Reduce amount of money to be handled.
o The Philippines adheres to the policy of peace, equality, justice, freedom,
cooperation, and amity with all nations.
• Exception to the (General Rule) Exemption
19
 11. Tax exemption of properties actually, directly, and exclusively used for
religious, charitable, and educational purposes;
12. Voting requirement in connection with the legislative grant of tax exemption
CHAPTER III: CONSTITUTIONAL LIMITATIONS 13. Non – impairment of the jurisdiction of the Supreme court in tax cases;
14. Exemption from taxes of the revenues and assets of educational institutions,
including grants, endowments, donations and contributions
8
The power to tax involves the power to destroy. These were the famous words
penned by the great Chief Justice Marshall in 1819. As discussed in the preceding chapters,
the power to tax is the strongest of all the inherent powers of the State. As being unlimited DUE PROCESS
in its range, the 1987 Constitution has vested this power to the people who pay it, through
9
their representatives, the Legislature. Though the taxing power is characterized as such an
10
awesome power, it is not unconfined. No person shall be deprived of life, liberty, or property without due process of law,
nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III,
1987 Phil. Constitution)
In the previous chapter, we have already discussed that taxing power, although
plenary in nature, is still subject to certain limitations. Some of these limitations are not to be
found in any statute, thus the term inherent limitations. In this chapter, we are now to In order that a tax statute may be validly imposed on the people, it must be lawful.
discuss the second type of limitations of the taxing power of the State – The Constitutional In other words, a tax law passed by the Congress of the Philippines must first be
Limitations on Taxation. The 1987 Philippine Constitution provides the following limitations: constitutional. Under Section one (1) of the Bill of Rights (Art. III, 1987 Philippine
Constitution), the tax law must undergo due process for it amounts to an individual’s
property (though minimal) being deprived from him. The due process clause is a
1. Due process; constitutional safeguard of the people from the government, which is the taxing authority. If
2. Equal protection; so proved that the tax law is violative of this constitutionally protected right, under the
3. Freedom of speech and of the press; principle of ubi jus ibi remedium, it shall be struck down. As in the words of Justice Bradley,
4. Non – infringement of religious freedom and worship; “In judging what is ‘due process of law’, respect must be had to the cause and object of the
5. Non – impairment of contracts; taking, whether under the taxing power, the power of eminent domain, or the power of the
6. Non – imprisonment for dent or non – payment of poll tax; assessment fir local improvements, or some of these; and, if found to be suitable or
7. Appropriations, revenue, and tariff b ills shall originate exclusively originate admissible in the special case, it will be adjudged to be ‘due process of law’, but if found
from the house of representatives; arbitrary, oppressive, and unjust, it may be declared to be not ‘due process of law’.”
11

8. Uniformity, equitability, and progressivity of taxation;

9. Power of Congress to delegate to the President the authority to fix tariff rates,
import and export quotas, etc.; ASPECTS OF DUE PROCESS
10. Veto power of the President;
There are two aspects under the due process clause – substantive and procedural.
8
Substantive Due Process is the aspect which prohibits the State from encroaching on the
McCulloch v. Maryland, 17 U.S. 4 Wheat. 316 316 (1819). fundamental liberties provided for by the constitution. Simply put, in order that a tax statute
9
MCIAA v. Marcos, 330 Phil. 392, 404 (1996).
10
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
1111
Law Compendium (2013 ed., Vol. 1). Rex Book Store. Davidson v. New Orleans, 96 US 97 (1878).
20
be constitutional, it must be reasonable, fair and just, and not be harsh nor oppressive. In f.) There must be a right to appeal given to the taxpayer in cases where it is
16
the event that taxes collected, or to be collected, are confiscatory in nature, such obligation proper, being a statutory, and not a natural right.
enforced upon the tax payer is violative of the due process principle, and is therefore
12
unconstitutional.
It is good to take note, that although the taxpayer is granted the right to have due
notice and hearing, such is only guaranteed when the tax to be imposed shall substantially
Procedural due process, on the other hand refers to the procedural limitations affect him. In other words, when the tax to be imposed by the government is not one which
13
placed on the manner in which a law is administered, applied or enforced. It is but could be changed by hearing the taxpayer, its absence does not violate the constitutional
elementary in democratic forms of government that laws, especially those which impose a safeguard. A person’s right to due process is therefore not invaded. However, if such tax
tax obligation on its citizenry, be exercised in accordance with the prescribed procedure. would be in the nature of an ad valorem tax which utilizes the use of assessors to ascertain
This is mandatory. To do otherwise shall give rise to a right which the taxpayer may use to the proper value of a taxable item or property, such act is considered as judicial in nature.
ask the Courts its succor. The tax collector may be stopped if the taxpayer can demonstrate Thus, due process is satisfied by giving the opportunity to the taxpayer to be heard
14 17
that the law has not been observed. In a case decided by the Supreme Court, it held that respecting such assessment.
due process was not observed when the trial court classified certain properties of the
Roman Catholic Church were tax – exempt under the 1973 constitution where no court
15
hearing was conducted thereon. PROCEEDINGS IN TAX CASES

Due process in taxation does not mean nor require that a full blown judicial
proceeding be done. Generally, such cases are settled summarily and must be interfered
RULES OF DUE PROCESS IN TAXATION 18
with as little as possible. As government projects are mainly fueled by the revenue
The exercise of the State of its inherent power to tax its constituency must conform generated by taxes paid by individual taxpayers, the delay which is normally present in
to the following rules: judicial proceedings are not required in the enforcement of taxes and assessments and are
19
frowned upon. No government could exist if all litigants were permitted to delay the
20
collection of its taxes.
a.) It must be for a public purpose;
b.) Operates uniformly to all who are under its purview;
c.) Exercised only within the jurisdiction of the duly authorized taxing authority
d.) In the assessment and collection of taxes, notice and hearing shall be
PRESUMPTION OF VALIDITY OF TAX LAWS; RETROACTIVITY
provided the taxpayer to guarantee against injustice
e.) Publication is not merely directory, but mandatory; The courts of law will not declare a statute, passed in accordance with the manner
set out by the Constitution, unconstitutional for being in violation of the due process clause

16
Bello v. Francisco, 4 SCRA 134; Rodriguez v. Director of Prisons, 47 SCRA 153.
17
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
12
Reyes, et al. v. Almanzor, et al., G.R. Nos. 49839 – 46, 26 APR 1991. Law Compendium (2013 ed., Vol. 1). Rex Book Store.
13 18
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Churchill and Tait v. Rafferty, 32 Phil. 580, 585, 21 DEC 1915.
19
Law Compendium (2013 ed., Vol. 1). Rex Book Store. Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
14
Commissioner of Internal Revenue v. Algue, Inc., G.R. No. L – 28896, 17 FEB 1988. Law Compendium (2013 ed., Vol. 1). Rex Book Store.
15 20
Province of Abra v. Hernando, etc., et al., G.R. No. L – 49336, 31 AUG 1981. Lorenzo v. Posadas, 64 Phil. 353, 368 18 JUN 1937.
21
 21
on mere allegations by the taxpayer. Every statute passed by the Congress enjoys the equality of taxation rule is not violated if classifications or distinctions made are based on
26
presumption of validity, including tax laws. The burden of proving that the law is substantial and reasonable differences.
unconstitutional shall be borne by the taxpayer in accordance with our rules on evidence.
Also, the mere fact that a tax statute is expressed to be retroactive in its application is not
proof in itself that the law is unconstitutional. GOALS IN DISTRIBUTION

Two different goals in distribution arise when “fairness” or “equality” are looked at,
vertical and horizontal. The latter refers to the fair treatment of tax payers with the like ability
EQUAL PROTECTION
to pay. It prohibits the discrimination on the grounds such as race, gender, occupation,
27 28
etc. Stated differently, those similarly situated shall be similarly taxed. Meanwhile, the
former refers to the relative tax burden of tax paying units with different abilities to pay.
No person shall be deprived of life, liberty, or property without due process of law, 29
Vertical equity seeks to tax in a proportional or progressive way.
nor shall any person be denied the equal protection of the laws. (Sec. 1, Art III,
1987 Phil. Constitution)
DIMENSIONS OF TAX EQUITY AND FAIRNESS
nd
The second (2 ) constitutional limitation is found under the same provision of the Aside from the aforementioned goals, it has been recommended that the following
1987 Constitution as the due process clause. Aptly stated, not person shall be denied of the dimensions be considered in determining tax equity and fairness
equal protection of laws. The equal protection clause requires that persons similarly situated
22 a.) Exchange Equity and Fairness – Taxpayers must, over the long run, receive
should be treated alike, both as to rights conferred and responsibilities imposed. It does
the appropriate value for the taxes they pay;
not, however, require equal treatment of all persons, regardless of their situation. The
b.) Process Equity and Fairness – Taxpayers have a voice within the tax system,
Constitutional safeguard merely requires that all persons who are within the ambit of the
are given due process and are treated with respect by the tax administrators;
statute shall be treated alike, under like circumstances and conditions, both with respect to
23 c.) Time – Related Equity and Fairness – Taxes are not unduly distorted when
the privileges acquired and liabilities imposed.
income or wealth levels fluctuate over time;
d.) Inter – Group Equity and Fairness – No group of taxpayers is favored to the
detriment of another without good cause; and,
The power of the State to classify, in relation to taxation, property and persons to
e.) Compliance Equity and Fairness – All tax payers pay what they owe on a
be taxed, the rates of such taxes, as well as the methods of assessment, valuation, and 30
24 timely basis.
collection is unquestioned, but is not absolute. Such classification must be based upon
real and substantial differences between the persons, property or privileges, and those not
taxed must bear some reasonable relation to the object or purpose of legislation or to some
25 REQUIREMENTS OF VALID CLASSIFICATION OR DISTINCTION
permissible governmental policy or legitimate end of governmental action. Thus, the

26
Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book Store.
21 27
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store. Law Compendium (2013 ed., Vol. 1). Rex Book Store.
22 28
Ichong v. Hernandez, 101 Phil. 1155. See AICPA Guiding Principles for Tax Equity and Fairness (2007), p. 3.
23 29
Sison, jr. v. Ancheta, G.R. No. 59431, 25 JUL 1984. Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation Law
24
Aban, B. (1994). Law of Basic Taxation in the Philippines (2001 ed.). National Book Store. Compendium (2013 ed., Vol. 1). Rex Book Store.
25 30
See Thomas P. Matic, Jr., Taxation in the Philippines (Vol. I, pp. 79 – 80). Ibid.
22
 As stated earlier, the State may validly classify or discriminate among its subjects The provision of the constitution necessarily includes the liberty of the press which
so long as such is based on a rational basis. “The equal protection clause does not require is principally, although not exclusively, immunity from prior restraint and/or subsequent
34
the universal application of the laws, that is, that it operates on all people without distinction. censorship. To discuss further, it is not the censorship of the press per se which is the evil
31
Such an effect might in fact sometimes result in unequal protection.” Thus, in order that a sought to be prevented. It refers to any action of the government by means of which it might
classification to be a valid one, it must conform to the following: prevent such free and general discussion of public matters as seems absolutely essential to
35
prepare the people for an intelligent exercise of their rights as citizens.
a.) That it must be based on substantial distinctions;
b.) It must be germane it the purpose of the law;
c.) It must not be limited to the preexisting conditions; and,
32 CURTAILMENT OF FREEDOM
d.) It must apply equally to all members of the class.
Briefly put, immunity is granted to the press so as to help promote and develop an
informed citizenry. They exist as a vital source of public information. It sheds more light on
FREEDOM OF SPEECH AND OF THE PRESS the public and business affairs of the nation than any other instrumentality of publicity.
Public opinion, as the most potent of all restraints against the corrupt actions and practices
of the government, is afforded protection by nothing less than the constitution itself. A free
No law shall be passed abridging the freedom of speech, of expression, or of the press stands as one of the great interpreters between the government and the people. To
press,or the right of the people peaceably to assemble and petition the government for treat it otherwise, as to subject it to taxes, would amount to suppression and abridgement of
redress of grievances (Section 4, Article III, 1987 Constitution) publicity results to the curtailment of press freedom and freedom of speech and of
36
expression.

There are four (4) primary reasons why freedom of expression, which
encompasses speech, the press, assembly and petition, is essential to a free society. First, It has been held though that although granted immunity from certain taxes, they
the self – expression of an individual enables him to realize his full potential as a human can still be subject to general taxes. However, taxes that may still be validly imposed upon
being. Second, enlightened judgment is possible if one considers all the facts and ideas and them must be fair, reasonable, and just, and in accordance with the person’s right to the
test’s one’s own against it. It is vital to the attainment and advancement of knowledge. equal protection of laws. It must not be used as a tool to abridge the freedom of press under
Third, it is necessary to our system of governance. Democratic Societies’ development and the guise of valid tax, as when it is exercised by the state arbitrarily and capriciously,
advancement is largely dependent on how well – informed its citizenry is for if it would be singling out the press from other businesses or if such taxes are imposed only on a select
otherwise, the result would be tyranny and oppression. Lastly, it serves as a safeguard few press members. In such case, the Supreme Court has acknowledged the potential for
37
system of the public, developing a system of “checks and balances” against the possible abuse is present in differential taxation of the press.
33
corrupt practices of the State.

RELIGIOUS FREEDOM

34
Near v. Minnesota, 283 U.S. 697, 283 U.S. 707.
31 35
Cruz, I. (2000). Constitutional law (2000 ed., p. 125). Quezon City, Metro Manila, Cooley’s Constitutional Limitations, 8th ed. P. 866
36
Philippines: Central Lawbook Pub. Ibid.
32 37
Ormoc Sugar Co. Inc. v. Treasurer of Ormoc City, et al., L – 23794, 17 FEB 1968. Robert M. Howie, Leathers v. Medlock: The Supreme Court Changes Course on Taxing
33
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation the Press, 49 Wash. & Lee L. Rev. 1053 (1992), citing Minneapolis Tribune Co. v.
Law Compendium (2013 ed., Vol. 1). Rex Book Store. Minnesota Commissioner of Revenue, 460 U.S. 575 (1983)
23
 REQUISITES FOR CONSTITUTIONALITY

No law shall be made respecting an establishment of religion or prohibiting the free The wall of separation that must be maintained between church and state “is a
exercise thereof. The free exercise and enjoyment of religious profession and blurred, distinct, and variable barrier depending upon the circumstances of a particular
40 41
worship without discrimination or preference shall forever be allowed. No religious relationship.” The case of Lemon v. Kurtzman enunciated in a three – part test to assess
test shall be required for the free exercise of civil or political rights (Sec 5, Art. III, whether a law violates the Establishment clause:
1987 Philippine Constitution)
1.) Does the law have a secular purpose?
2.) Is the Primary effect either to advance religion or to inhibit religion?
3.) Does the law foster an excessive governmental entanglement with religion?
In accordance with the above stated provision, our Constitution and laws provide
an exemption from taxation properties which are devoted exclusively for religious purposes. If any of these questions are answered in the negative, then the law becomes
This grant of immunity of the fundamental law of the land and other tax laws were made to unconstitutional as it violates the Establishment Clause
further realize the declared principle of the State which is The Separation of the Church and
38
the State.
FREE EXERCISE CLAUSE

The Free Exercise clause, on the other hand, withdraws from the legislative power,
The Constitutional provision, like Sec. 1 of the Bill of Rights, can be further divided
state and federal, the extortion of any restraint on the free exercise of religion. It bars
in to 2 clauses: (a) the Non – Establishment clause; and (b) the Free Exercise clause.
“governmental regulation of religious beliefs as such, prohibiting the misuse of secular
governmental programs “to impede the observance of one or all religions even though the
42
burden may be characterized as being only indirect.
NON – ESTABLISHMENT CLAUSE

The non – establishment clause, in general, merely prohibits the State, or any of its
instrumentalities and political subdivisions, from setting up a church. Necessarily, it includes RELIGIOUS GROUPS ARE EXEMPT TO PAY TAXES
prohibitions such as:
Generally, religious groups, sects, and like organizations are exempt from paying
a.) The State cannot pass a law which aid nor discriminate a religion; taxes like Income tax, license fees, and similar taxes as it imposes a burden on the free
b.) It cannot force a person, nor influence him, to join, remain, or to leave a exercise of religion. Albeit, like the press, religious groups may still be subject to general
church or religious sect; taxes depending upon the circumstances.
c.) It cannot, openly or secretively, participate in the affairs of any religion or
church; and,
d.) No tax in any amount, large or small, can be levied to support any religious
activities or institutions, whatever they may be called, or whatever form they
39
may adopt to teach or practice religion.

40
Dizon, E. (2013). THE CONSTITUTIONAL LIMITATIONS OF TAXATION. In Taxation
Law Compendium (2013 ed., Vol. 1). Rex Book Store.
41
403 U.S. 602 (1970)
38 42
Sec. 6, Art II, 1987 Philippine Constitution See Dizon, citing Sherbert v. Verner 374 U.S. 398, 402 (1963), Braunfeld v. Brown, 366
39
see Everson v. Board of Education U.S. 599, 607 (1961)
24
Properties Actua PROHIBITION AGAINST IMPAIRMENT OF OBLIGATION OF Note: A latter statute may revoke exemption from taxation provided for in a franchise
CONTRACTS because the Constitution provides that a franchise is subject to amendment, alteration or
repeal. [Sec. 11 Art. XII]
No law impairing the obligation of contracts shall be passed. [Section 10, Article III,
Constitution] Case Reference

The power of taxation cannot be exercised in a manner that would impair the obligation of OPOSA vs. FACTORAN
contracts. What is prohibited is that a taxing statute be passed that would alter the relative
• Police power prevails over the non-impairment clause
rights of the parties with each other.
LA INSULAR vs. MANCHUCA
• A lawful tax on a new subject or an increased tax on an old one, does not interfere
The mere fact that a tax makes the conduct of a business more expensive or makes an
with a contract or impairs its obligation.
activity more difficult does not result in the impairment of the obligation of contracts.
• The constitutional guarantee of the non-impairment clause can only invoked in the
Contract is impaired only if the relative position of the parties to a contract (i.e. equality that
grant of tax exemption.
is assumed when the contract was entered into) is disturbed by the operation of a taxing
statute.
RULES:

• The obligation of a contract is impaired when its terms or conditions are changed
1. If the exemption was granted for valuable consideration and it is granted on the
by law or by a party without the consent of the other, thereby weakening the
basis of a contract.
position or rights of the latter.
 cannot be revoked
• An example of impairment by law is when a later taxing statute revokes a tax 2. If the exemption is granted by virtue of a contract, wherein the government enters
exemption based on a contract. But this only applies when the tax exemption has into a contract with a private corporation
been granted for a valid consideration.  cannot be revoked unilaterally by the government
3. If the basis of the tax exemption is a franchise granted by Congress and under the
• A later statute may revoke exemption from taxation provided for in a franchise
franchise or the tax exemption is given to a particular holder or person
because the Constitution provides that a franchise is subject to amendment,
can be unilaterally revoked by the government (Congress)
alteration or repeal.
 The non-impairment clause applies only to contracts and not to a
RULES: franchise.
a. When the exemption is bilaterally agreed upon between the government and the  The non-impairment clause applies to taxation but not to police power and
taxpayer – it cannot be withdrawn without violating the non-impairment clause. eminent domain.
b. When it is unilaterally granted by law, and the same is withdrawn by virtue of another  Furthermore, it applies only where one party is the government and the
law – no violation. other, a private individual.
c. When the exemption is granted under a franchise – it may be withdrawn at any time  As a rule, the obligation to pay tax is based on law. But when, for
thus, not a violation of the non-impairment of contracts instance, a taxpayer enters into a compromise with the BIR, the obligation
of the taxpayer becomes one based on contract.
Tolentino v. Sec. of Finance, supra:

25
1 issue that was raised was whether the imposition of the VAT on sales & leases on real
estate by virtue of contract s entered into prior to the effectivity of the law would violate the
Presidential power to grant reprieves, commutations and pardons and remit fines and
non-impairment of contracts rule in the constitution.
forfeitures after conviction (ART. VII, SEC. 19, 1987 CONSTITUTION)
HELD:
Due Process Equal Protection Uniformity
 It is enough to say that parties to a contract cannot, through the exercise of Taxpayer may not be Taxpayers shall be treated Taxable articles, or kinds
prophetic discernment, fetter the exercise of the taxing power of the state. deprived of life, liberty alike under like circumstances of property of the same
 For not only are existing laws read into contracts in order to fix obligations as or property without and conditions both in the class, shall be taxed at the
between parties, but the reservation of essential attributes of sovereign power is due process of law. privileges conferred and same rate. There should
also read into contracts as a basic postulate of the legal order. Notice must, liabilities imposed. therefore, be no direct
 The policy of protecting contracts against impairment presupposes the therefore, be given in double taxation
maintenance of a government which retains adequate authority to secure the case of failure to pay
peace & good order of society. taxes

Revenue bills shall originate exclusively from the House of Representatives

PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX

Section 24, Article VI, Constitution - All appropriation, revenue or tariff bills, bills authorizing Section 20, Article III, Constitution. No person shall be imprisoned for debt or non-payment
an increase of the public debt, bills of local application, and private bills shall originate of poll tax.
exclusively in the House of Representatives, but the Senate may propose or concur with The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a
amendments. surcharge, but not to other violations like falsification of community tax certificate and non-
payment of other taxes.
Case References
Community Tax v. Poll Tax

Tolentino v. Secretary of Finance

• Poll tax is a tax of fixed amount imposed on residents within a specific territory
regardless of citizenship, business or profession. Example is community tax.
 The Constitution simply means that the initiative for the filing of bills must come
• Community tax – Cities or municipalities may levy a community tax in accordance
from the House of Representatives, on the theory that, elected as they are from the
with the provisions of this article. 156 RA 7160.
districts, the members of the House can be expected to be more sensitive to the
local needs and problems.
Section 157. Individuals Liable to Community Tax. - (18) or over who has been regularly
 It is not the law – but the revenue bill – which is required by the Constitution to employed on a wage or salary basis for at least thirty (30) consecutive working days, or who
originate exclusively in the House of Representatives, because a bill originating in is engaged in business or occupation, or who owns real property with an aggregate
the House may undergo such extensive changes in the Senate that the result may assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to
be a rewriting of the whole, and a distinct bill may be produced. file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an
 The Constitution does not also prohibit the filing in the Senate of a substitute bill in annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of
anticipation of its receipt of the bill from the House, as long as action by the Senate income regardless of whether from business, exercise of profession or from property which
is withheld until receipt of said bill. [Tolentino v. Secretary of Finance] in no case shall exceed Five thousand pesos (P5,000.00).

26
In the case of husband and wife, the additional tax herein imposed shall be based upon the (1) (50%) shall accrue to the general fund of the city or municipality concerned;
total property owned by them and the total gross receipts or earnings derived by them. and

Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how (2) (50%) shall accrue to the barangay where the tax is collected.
created or organized, whether domestic or resident foreign, engaged in or doing business in
the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in
accordance with the following schedule: UNIFORMITY AND EQUITY IN TAXATION
- same class, same rate
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines - classification of taxpayers, subject or items to be taxed
owned by it during the preceding year based on the valuation used for the payment of real
property tax under existing laws, found in the assessment rolls of the city or municipality  The rule of taxation shall be uniform and equitable (Sec.28 (1), Art. III, 1987
where the real property is situated - Two pesos (P2.00); and
Constitution).
 The tax is uniform when it operates with the same force and effect in every
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it place where the subject of it is found. "Uniformity" means all property
from its business in the Philippines during the preceding year - Two pesos (P2.00). belonging to the same class shall be taxed alike. It does not signify an
intrinsic, but simply a geographic, uniformity (Churchill & Tait vs. Conception,
The dividends received by a corporation from another corporation however shall, for the 34 Phil. 969). Uniformity does not require the same treatment; it simply
purpose of the additional tax, be considered as part of the gross receipts or earnings of said requires reasonable basis for classification.
corporation.  The concept of equality in taxation requires that the apportionment of the tax
burden be more or less just in the light of the taxpayer’s ability to shoulder the
Section 159. Exemptions. - The following are exempt from the community tax: tax burden and if warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayer’s ability to pay.
(1) Diplomatic and consular representatives; and
Uniformity v. equity in taxation
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
 The concept of uniformity in taxation implies that all taxable articles or properties of
Section 160. Place of Payment. - The community tax shall be paid in the place of residence the same class shall be taxed at the same rate. It requires the uniform application
of the individual, or in the place where the principal office of the juridical entity is located. and operation, without discrimination, of the tax in every place where the subject of
the tax is found. It does not, however, require absolute identity or equality under all
circumstances, but subject to reasonable classification.
164 (c) The proceeds of the community tax actually and directly collected by the city or
municipal treasurer shall accrue entirely to the general fund of the city or municipality
concerned. However, proceeds of the community tax collected through the barangay The concept of equity in taxation requires that the apportionment of the tax burden be, more
treasurers shall be apportioned as follows: or less, just in the light of the taxpayer’s ability to shoulder the tax burden and, if
warranted, on the basis of the benefits received from the government. Its
cornerstone is the taxpayer’s ability to pay.

27
Case References kinds of amusements or places of amusement are taxed, is not argument at all
against the equality and uniformity of tax imposition."
Tolentino v. Sec. of Finance, supra, -  The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation.
 Equity and uniformity in taxation means that all the taxable articles or kinds of
properties of the same class be taxed at the same rate. The taxing power has the PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN
authority to make reasonable and natural classifications for purposes of taxation.
To satisfy this requirement, it is enough that the statute or ordinance applies FACTS: The ordinance imposes taxes for every case of soft drinks, liquors and other
equally to all persons, firms, and corporations placed in a similar situation. carbonated beverages, regardless of the volume of sales, shipped to the agents and/or
 It is inherent in the power to tax that the state be free to select the subjects of consignees by outside dealers or any person or company having its actual business
taxation & it has been repeatedly held that the inequalities which result from a outside the City.
singling out of 1 particular class for taxation or exception infringe no constitutional
limitation. ISSUE: Does the tax ordinance violate the uniformity requirement of taxation?

Manila Race Horse v. Dela Fuente – No arbitrary classification HELD: Yes. The tax levied is discriminatory.
 Even if the burden in question were regarded as a tax on the sale of said
 it was said there is equality and uniformity in taxation if all articles or kinds of
beverages, it would still be invalid, as discriminatory, and hence, violative of the
property of the same class are taxed at the same rate.
uniformity required by the Constitution and the law therefor, since only sales by
 The owners of boarding stables for race horses and, for that matter, the race horse "agents or consignees" of outside dealers would be subject to the tax. Sales by
owners themselves, who in the scheme of shifting may carry the taxation burden, local dealers, not acting for or on behalf of other merchants, regardless of the
are a class by themselves and appropriately taxed where owners of other kinds of volume of their sales, and even if the same exceeded those made by said agents
horses are taxed less or not at all, considering that equity in taxation is generally or consignees of producers or merchants established outside the City of Butuan,
conceived in terms of ability to pay in relation to the benefits received by the would be exempt from the disputed tax.
taxpayer and by the public from the business or property taxed.
 It is true that the uniformity essential to the valid exercise of the power of taxation
 Taking everything into account, the differentiation against which the plaintiffs does not require identity or equality under all circumstances, or negate the
complain conforms to the practical dictates of justice and equity and is not authority to classify the objects of taxation.
discriminatory within the meaning of the Constitution.
 The classification made in the exercise of this authority, to be valid, must, however,
 Equity in taxation is generally conceived in terms of liability to pay in relation to the
be reasonable and this requirement is not deemed satisfied unless:
benefits received by the taxpayer and by the public from the business or property
taxed. o (1) it is based upon substantial distinctions which make real differences;
o (2) these are germane to the purpose of the legislation or ordinance;
Eastern Theatrical Co. Inc., vs. Alfonso
o (3) the classification applies, not only to present conditions, but, also, to
 there is equality and uniformity in taxation if all articles or kinds of property of the future conditions substantially identical to those of the present; and
same class are taxed at the same rate. Thus, it was held in that case, that "the fact
o (4) the classification applies equally to all those who belong to the same
that some places of amusement are not taxed while others, such cinematographs,
class.
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other
28
Summary and Q&A manner to exclude; as enjoying a privilege exclusively.” Thus, if real property is
used for one or more commercial purposes, it is not exclusively used for the
Uniformity, Equitability And Progressivity Of Taxation (Art. VI, Sec. 28(1), 1987 Constitution) exempted purposes but is subject to taxation. Quoting the Supreme Court in Abra
Valley College case, the lease of a portion of school to a commercial
Uniformity – all taxable articles or kinds of property of the same class are taxed at the establishment is subject to tax.
same rate.
Equitability – the burden falls to those who are more capable to pay. b.) The “Extension” Rule

Progressivity – rate increases as the tax base increases. Prior to the 1973 and 1987 Constitution, the term “exclusively used”
considers incidental use also and that the exemption in favor of property used
exclusively for charitable or educational purposes is not limited to property actually
Q: Is a tax law adopting a regressive system of taxation valid? indispensable therefor, but also extends to facilities which are incidental to and
A: Yes. The Constitution does not really prohibit the imposition of indirect taxes which, reasonably necessary for the accomplishment of such purposes. Case in point:
like the VAT, are regressive. The Constitutional provision means simply that indirect taxes
Roman Catholic Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte
shall be minimized. The mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. (EVAT En Banc Resolution, Tolentino, et al vs Secretary of
Finance, October 30, 1995) The exemption in favor of the convent in the payment of the land tax,
include not only the land actually occupied by the church, but also the adjacent ground
lly, Directly and Exclusively Used for Religious, Charitable and Educational Purposes (which is being used for a vegetable garden) destined to the ordinary incidental uses
of man, comes under the exemption. Moreover, in regard to the lot which formerly was
the cemetery, while it is no longer used as such, neither is it used for commercial purposes
Article VI. Section 28 (3) of the Constitution provides:
and, is now being used as a lodging house by the people who participate in religious
festivities, which constitutes an incidental use in religious functions, also comes
Charitable institutions, churches and personages or convents appurtenant
within the exemption.
thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or educational
NOTE: The prevailing rule now is that the term “exclusively” does not cover incidental use.
purposes shall be exempt from taxation.
What is meant by actual, direct and exclusive use of the property for charitable purposes is
a.) Actually, Directly and Exclusively the direct and immediate and actual application of the property itself to the purposes for
which the charitable institution is organized.
The phrase is construed as the direct and immediate and actual
c.) Exemption from other taxes
application of the property itself to the purposes for which the charitable institution
is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes. 1997 NIRC states that the organizations below shall not be taxed with respect to
income received by them:
The test of exemption is the ACTUAL and EXCLUSIVE use of the Nonstock corporation or association organized and operated exclusively for
property. Exclusive is defined as possessed and enjoyed to the exclusion of religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong to or inures to the benefit
others; debarred from participation or enjoyment; and “exclusively” is defined, "in a
of any member, organizer, officer or any specific person.
29
 Such term, when used in laws granting tax exemptions, refers to schools,
NOTE: The income of whatever kind and nature from any of their properties, real or school seminary, college or educational establishment.
personal or from any of their activities for profit regardless of the disposition made of such
income shall be subject to tax. CIR vs CA, YMCA Inc.

Thus, being a non-stock and non-profit corporation does not by itself completely The school system is synonymous with formal education, which refers to the
exempt an institution from tax. An institution cannot use its corporate form to prevent its hierarchically structured and chronological graded learnings organized and provided by the
profitable activities from being taxed. formal school system and for which certification is required in order for the learner to
progress through the grades or move to the higher levels.
In cases of gifts or donations:
NOTE: Incomes which are unrelated to school operations are taxable.
Donations in favor of religious and charitable institutions are generally not
subject to tax provided, however, that not more than 30% of the said bequest, devise, or b.) Requirements and Coverage of the Exemption
legacy or transfer shall be used for administration purposes.
The educational institution must prove the ff:
d.) Non-Violation of the Establishment Clause • It is a non-stock, non-profit educational institution.
• Income MUST be derived from activities and/or used actually, directly
Walz vs Tax Commission of City of New York and exclusively for educational purposes.

The grant of tax exemption is not sponsorship of the organizations because the The exemption extends to incidental income from ancillary activities such as those
government does not transfer part of its revenue to churches but simply abstains from derived from canteen, bookstore, dormitory and other facilities.
demanding that the churches support the State. Instead, the tax exemption creates a more
minimal and remote involvement between church and state, far less than taxation of
churches would entail, and it restricts the fiscal relationship between them, thus tending to CIR vs Ateneo De Manila University
complement and reinforce the desired separation insulating each from the other.
A cafeteria/canteen is being leased by the school. Although it is owned
and operated by a concessionaire, the canteen is exempted from income tax and
Revenue and Assets of Educational Institutions VAT so as long as the rentals paid by concessionaire are actually, directly and
exclusively used for educational purposes.
Article XIV. Section 4 of the Constitution provides:
Importation of books, films, slides and other educational materials and equipment
All revenues and assets of non-stock, non-profit educational institutions such as computers to be actually, directly and exclusively used for educational purposes are
used actually, directly, and exclusively for educational purposes shall be exempt LIKEWISE EXEMPT from customs duties, provided guidelines under DO 137-87 are
from taxes and duties. observed.

a.) Meaning and Coverage of Educational Institutions Interest income from Philippine currency bank deposits and yield from deposit
substitute instruments used actually, directly exclusively are likewise exempt from 20% final
withholding tax subject to certain requirements.
30
 property tax and not income tax. However, it provides for the test of charity in our
c.) Taxability of Proprietary Educational Institutions jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the
burden of government. In other words, charitable institutions provide for free goods and
A Proprietary educational institution is any private school maintained and services to the public which would otherwise fall on the shoulders of government.
administered by private individuals or groups with an issued permit to operate from the
Department of Education, Culture and Sports (DECS), or the Commission on Higher As a general principle, a charitable institution does not lose its character as such
Education (CHED), or the Technical Education and Skills Development Authority (TESDA), and its exemption from taxes simply because it derives income from paying patients,
as the case may be, in accordance with existing laws and regulations. whether out-patient, or confined in the hospital, or receives subsidies from the government,
so long as the money received is devoted or used altogether to the charitable object
Proprietary educational institutions, including those cooperatively owned, may which it is intended to achieve; and no money inures to the private benefit of the
likewise be entitled to such exemptions, subject to the limitations provided by law, including persons managing or operating the institution.
restrictions on dividends and provisions for reinvestment. The presence of the word
“may” indicates only permissiveness, which means the Congress has the discretion to grant In order to be exempted from income tax, Sec. 30 (B) of the NIRC requires that
exemptions. These institutions, at present, are not exempt from income tax but only both the organization and operations of the charitable institution must be devoted
subject to a special lower rate. "exclusively" for charitable purposes. This is qualified by its last paragraph, which states that
if a tax exempt charitable institution conducts "any" activity for profit, such activity is not tax
Preferential Tax on Income and Predominance Test exempt even as its not-for-profit activities remain tax exempt. Thus, even if the charitable
institution must be "organized and operated exclusively" for charitable purposes, it is
Proprietary educational institutions and hospitals which are non-profit shall pay a nevertheless allowed to engage in "activities conducted for profit" without losing its
tax of ten percent (10%) on their taxable income. If the gross income from unrelated trade, tax exempt status for its not-for-profit activities.
business or other activity exceeds fifty percent (50%) of the total gross income derived by
such educational institutions or hospitals from all sources, the thirty (30%) normal income St. Luke's had total revenues of P1,730,367,965 from services to paying patients. It
tax shall be imposed on the entire taxable income. The term 'unrelated trade, business or cannot be disputed that a hospital which receives approximately P1.73 billion from paying
other activity' means any trade, business or other activity, the conduct of which is not patients is not an institution "operated exclusively" for charitable purposes. Clearly,
substantially related to the exercise or performance by such educational institution or revenues from paying patients are income received from "activities conducted for
hospital of its primary purpose or function. profit." St. Luke's claims that its charity expenditure of P218,187,498 is 65.20% of its
operating income in 1998. However, if a part of the remaining 34.80% of the operating
Illustration: income is reinvested in property, equipment or facilities used for services to paying and non-
X Educational Institution earned a net income of 300 million pesos, 150 million of paying patients, then it cannot be said that the income is "devoted or used altogether to the
which came from unrelated activities. On that note, 10% tax shall be imposed on the 300 charitable object which it is intended to achieve." The income is plowed back to the
million. But, if 151 million came from unrelated activities, 30% tax shall be imposed on the corporation not entirely for charitable purposes, but for profit as well.
300 million.
Government Educational Institutions

Doctrinal Pronouncement on CIR vs St. Lukes Medical Center Government educational institutions, like the University of the Philippines,
are likewise exempted from taxes with respect to revenues derived pursuant to
To be a charitable institution, however, an organization must meet the substantive its educational purpose and revenues actually, directly and exclusively used
test of charity in Lung Center. The issue in Lung Center concerns exemption from real therefor. Conversely, income from trade, business or other activity which is not
31
 related to their educational purposes or functions shall be subject to internal Prohibitions against Imprisonment for Non-Payment of Poll Tax
revenue taxes when the same is not actually, directly, exclusively used for
the intended purpose/s. A person may be imprisoned for non-payment of internal revenue taxes,
such as income tax as well as other taxes that are not poll taxes if expressly
Transmissions to Educational Institutions provided by law. A person cannot be sent to prison for failure to pay the community
tax.
Sec. 87 of the NIRC is explicit:

The following shall not be taxed: Origin of Revenue and Tariff Bills
• The merger of usufruct in the owner of the naked title;
• The transmission or delivery of the inheritance or legacy by the fiduciary
heir or legatee to the fideicommissary; This is based on the theory that, elected as they are from the districts, the
• The transmission from the first heir, legatee or donee in favor of another members of the House of Representatives can be expected to be more sensitive to
beneficiary, in accordance with the desire of the predecessor; and the local needs and problems.
• All bequests, devises, legacies or transfers to social welfare, cultural and
charitable institutions, no part of the net income of which insures to the NOTE: It is not the law but the revenue bill which must “originate exclusively” in the House
benefit of any individual: Provided, however, That not more than thirty of Representatives. The bill may undergo such extensive changes that the result may be a
percent (30%) of the said bequests, devises, legacies or transfers shall be rewriting of the whole. The Senate may not only concur with amendments but also propose
used by such institutions for administration purposes. amendments.

Non-Impairment of the Jurisdiction of the Supreme Court

The Supreme Court can review judgments or orders of lower CHAPTER 4: TAX EXEMPTIONS, ESCAPE FROM TAXATION & DOUBLE TAXATION
courts in all cases involving:
Tax Exemption
• The legality of any tax, impost, assessment, or toll; o Definition :
• The legality of any penalty imposed in relation thereto (Sec. 5[2][b],  it is a grant of immunity,
Art. VIII, 1987 Constitution) • express or implied,
• to particular persons or corporations
NOTE: These jurisdictions are concurrent with the Regional Trial Courts; thus, the petition  from the obligation to pay taxes
should generally be filed with the RTC following the hierarchy of courts. However, questions • in whole or in part
on tax laws are usually filed direct with the Supreme Court as these are imporessed with
paramount public interest. It is also provided under Sec. 30, Art VI of the Constitution that o Kinds of Tax Exemption:
“no law shall be passed increasing the appellate jurisdiction of the Supreme Court without  As to Source:
its advice and concurrence.” 1. Constitutional
2. Statutory
3. Treaty/Executive Agreements

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 4. Contractual (for a consideration)  Exclusion
 As to Manner of Grant: • Refers to the Total absence/ or want/ or lack of taxation
1. Express in a particular circumstance
o Verbally/oral o example:
o In writing/ statutes  the non-inclusion in the taxpayer’s
2. Implied taxable gross income of gifts,
o Manifested by conduct bequest, and devises under Sec 32
o Considering the totality of circumstances (B)(3) of the NIRC
 As to Scope
1. Total/full/All-in/All the way o Exemption vs. Deduction
o Relates to the whole/entire tax  Exemption
st
2. Partial/1 -base lang • Refers to removal from taxation of a particular class or
o Affects only a portion item; whereas
 Deduction
• Refers to the reduction of taxable items
Tax exemptions may be given to achieve long term economic objectives: • by way of subtraction of other items.
Exemptions, incentives and the likes are given, by the state, occasionally o example:
 To attract new business; as well as  Under Section 34 NIRC: the ordinary
 To stimulate and elevate our economy – towards economic business expenses and depreciation
prosperity and progress. are deductable.
o It’s designed, not to trigger off an instant surge of revenues on a one night
short term basis, but rather to achieve a longer term symbiotic o Deduction & Exclusion; Nature:
relationship which is way better than a one night-er.  They are in the nature of Tax Exemptions
 Thus, they are STRICTLY CONSTRUED
o What is the task of the Court?
 CIR vs. Procter and Gamble (204 SCRA 377)
 The task of the court is to GIVE EFFECT to the legislative design Approaches for Exemption
and objectives as they are written into the statute ** EVEN IF o P – I – Org - I
SOME REVENUES are lost in that very smart process. 1. Exemptions of Property
• Because the congress knows what they’re doing. lol. 2. Exemption of Individuals
• Basis: Separation of powers and stuff like that 3. Exemption of Organization
4. Exemptions of Income
Exclusions and Deductions:
o Exemption vs. Exclusion o Exemption of individuals
 Tax Exemption - certain classes of individual may be granted tax exemption within the tax
• Refers to a statutory exception from the payment of system which depends on multiple criteria.
taxes; whereas

33
  Specific monetary exemptions o Pensions which do not amount to income are not
- Monetary reduction of the tax base taxable.
o Personal allowance 4. Educational institutions
o Which may be claimed to reduce the
taxable income
- Similar to the 50k basic personal exemption o Exemptions of Income
and the 25k additional exemption for every  Includes:
dependent under Section 35 of the NIRC. • Income earned outside the taxing jurisdiction
 Tax exempt status • Income consisting of compensation for loss
- Includes the exemptions to senior • Inherited properties acquired by gifts
citizens and minimum wage earners • Income earned in specific areas, such as the Special
(RA 9994 & 9504) Economic Zone, enterprises zones, etc.
- A statute which provides a potential
tax payer complete relief from tax, or o Exemption of Property
a reduction on the rate, or a tax only  Certain properties used for religious/educational/charitable
on a portion of the items. purposes
 Properties owned by the BSP within 5 years from the effectivity
of the General Banking Law are exempt from taxes
o Exemptions of Organizations  Properties owned and used by Government, like for example the
 An exemption to organizations which meets certain conditions GSIS, provided that they comply with certain conditions.
imposed by the taxing authority
• It may be based on definitions or restriction or
characteristics set forth by law Reciprocal Exemptions
o Some tax jurisdictions allow tax exemptions Subject to Reciprocity
1. Charitable, Religious and non-profit organizations: o States may enter into a bilateral agreement which provides for certain tax
o These entities are considered to serve public purposes exemptions – this stipulation is common in:
2. Government and its entities  tax treaties
o General rule:  Cross border agreements
 The government and its instrumentalities are  DTA’s – Double Taxation Agreements
exempt from tax and the local government
may never ever ever ever tax the national
Limitation under the constitution
government. Them boys only have delegated
o Under Section 28(4) Article VI of the 1987 Constitution:
powers. The delegated powers cannot be
 “no law granting tax exemption shall be passed without the
superior to the powers of the one who
CONCURRENCE of a Majority of all the Members of the
delegated the power.
Congress”
3. Entities on pension schemes
o Based on social justice. It complements social
o NOT SUBJECT TO CONSTITUTIONAL LIMITATIONS:
legislation.
34
  Exemption is not the same as a total absence of taxation, thus:  An exemption from a common burden cannot be permitted to
 A repeal or withdrawal of a tax law resulting to non taxability of exist based on some vague implications (Asiatic Petroleum Co.
all taxpayers = or a total absence of taxation is not subject to the vs. Llanes)
constitutional limitations. 5. There must be Convincing Proof
 The term which grants exemption must be crystal clear, and
Strict Construction & Burden of Proof: convincing.

1. It is NOT PRESUMED. 6. F. Equity – it does not apply:

 Exemption is highly disfavored in law (CIR vs. Manila Jockey  it lacks statutory basis
Club)
• The law frowns on exemption, hence an exempting 7. Exemption is Not INHERENT:
provisions should be construed STRICTISSIMI JURIS.  Exemption cannot be deduced from concepts – an argument that
 General Rule: Taxation is the Rule exemptions are inherent in a special economic zone – is a
• Exception: Exemption is the Exception heresy.
o Thus , Exemptions are CONSTRUED  The exemptions of SE proceeds from the law, and not the other
STRICTLY against the grantee; and way around. The tail does not wag the dog. (John Hay vs. Lim
o LIBERALLY in favor of the Taxing authority. (2005))
 Burden of Proof:
• Rests upon the person who is claiming for the 8. it cannot be granted by Regulation
exemption. (Caltex Phil. Vs. Commission on Audit)  the subordinate legislation made by Quasi Judicial Bodies
o The party claiming the exemption must cannot be superior to the fundamental law. The Constitution
therefore be clearly/unequivocally/expressly provides for the mechanism for granting tax exemptions.
mentioned in the exempting law or at least
within the purview of the legislative intent. 9. There is No VESTED Right in a Tax Exemption
 It is a mere statutory privilege which may be modified or
2. it must be Justified by Words TOO Plain to be Mistaken withdrawn at the will of the granting authority, depending on the
(unequivocal/Clear/Direct to the point) external circumstances of the socio political and economic stuff;
 it must be expressly granted in a statute in a language too clear depending internally on their whims and caprices; depending
to be mistaken, and too categorical to be misinterpreted more importantly on your budget.

3. It is a PERSONAL Privilege: 10. A tax exemption CANNOT be GROUNDED upon the continued
 Exemptions, like taxes, are personal. It does not extend to yo existence of a statute which precludes its change or repeal
mama.  No law is irrepealable. Nothing is forever.
 Even Sasha Grey will be forgotten in time.
4. Never created by Implication:

Basis of Strictissimi Juris:

1. Doctrine of Strict interpretation
35
 I. The lifeblood theory 6. an exemption on the sale of machinery – does not extend to the products
• The blood is the life – thus exemptions are highly produced by such machinery
disfavored in law. 7. Maceda vs. Macaraeg Jr. the NPC was exempted from both direct and
II. Equal treatment of taxpayers indirect taxes – they are exempt from absorbing the economic burden of
• Strict construction in order to minimize differential taxes previously paid to the BIR – thus the NPC is entitled to be
treatment which results to partiality, unfairness and reimbursed by the BIR.
some bad stuff.
III. Sovereign Act
• Tax you if you claim to be exempt. Taxation is a high
prerogative of sovereignty whose relinquishment is
never presumed (Luzon Stevedoring vs. CA)

Exceptions to Strict Constructions:

1. If the law is clear , unambiguous, unequivocal– there is not room for Constitutional Grants do not need legislative enactment:
construction 1. They are presumed to be self executing (Manila Prince Hotel vs. GSIS;
2. When the law does not provide a qualification for tax exemption – then Oposa vs. Factoran) – unless stated otherwise.
the court cannot supply one  Otherwise the very purpose and intention of the fundamental law
 Ubi lex non distinguit nec nos non distinguerre debemus. could be nullified by the legislature; their effectivity would be
3. When the exemption refers to public property subject to the mercy of the congress.
 In this case the rule is exemption, taxation is the exception
4. Exemption in favor of the Government, its instrumentalities and agencies. Withdrawal of Exemption
5. When the law itself provide for liberal constructions 1. Exemption may be withdrawn at the pleasure of the taxing authority.
6. In case of special laws imposing a special tax  So if you don’t want your exemption to be withdrawn, you must
7. Exemption to Religious, Charitable, Educational institutions (the usual pleasure the taxing authority.
stuff) 2. Exception:
 When the exemption was granted based on a MATERIAL
Illustrations; Examples ; Application CONSIDERATION of a mutual nature, it partakes the nature of a
1. Tax exemption covering items used in Constructions Contract
 It does not apply to taxes on unrelated items • Non impairment Clause.
2. Exemptions to corporations on things directly connected to something,
does not cover those which are not directly related to it  Examples:
3. Tax exempt bonds received– is not exempt in computing income tax • If the exemption is based on the constitution:
4. Condonation is in a nature of a tax exemption – to be exempt – there o It may be withdrawn only by an amendment to
must be a clear cut provision in law condoning such taxes. the Constitution.
5. Salaries of Judges are taxable (Nitifan vs. CIR) - what the constitution • If the exemption is granted by a special law
prohibits is that their salaries may not be decreased during their o it cannot be withdrawn by a regulation,
continuance in office. o It cannot be withdrawn by a general law:

36
  EVEN when the terms of the general  It is illogical and impractical to determine who are exempted
law is so broad, as to include the without first determining who are covered by the tax provisions.
matter in general law, it cannot be 2. It is a HORNBOOK DOCTRINE in the interpretation of tax laws:
withdrawn  That a Statute will not be construed as imposing a tax
 Except – if there is a manifest intent >>>>Unless it does so Clearly, expressly, and
to alter or repeal the special law; if unambiguously.<<<<<
there is a special/specific provision in  A tax cannot be imposed without clear and express words for
the general law which clearly intends that purpose.
to repeal the special law. 3. The provision of a taxing act cannot be extended by mere implication.
• If the tax exemption is based on a TREATY 4. In case of doubt,
o May be revoked only pursuant to the  it is construed most strongly against the government and in favor
withdrawal provision of the treaty. of the tax payers,
Only Congress has the power to grant tax incentives  Because burdens are not to be imposed nor presumed to be
1. Taxation is an inherent power which is legislative in nature. The power to imposed beyond what statutes expressly and clearly import (CIR
select the subjects of tax, and the power to grant exemptions is inherent vs. CA)
in the legislature, since it involves the promulgation of laws.
2. Basis: REFUNDS
 Article VI Section 28(4) of the Constitution provides: “no law 1. Definition
granting any tax exemption shall be passed without the  Tax refunds is the return of excess amounts of income tax that a
concurrence of a majority of all the members of the taxpayer has paid to the state or local government throughout
CONGRESS… including Manny Pacquiao” the past year
 In Reality – it represents an interest free loan that a taxpayer
Tax-exempt buyer vs. Tax exempt transaction makes to the government – because the government merely
1. If the BUYER is EXEMPT returns the exact amount regardless of the period that has
 Seller is still taxable/liable – as the tax is not a tax on the buyer lapsed.
2. If the TRANSACTION is EXEMPT
 Seller is not liable for tax. There is no tax due. 2. NATURE:CONSTRUCTION; EVIDENCE
 If the buyer is not so smart – and he pays taxes despite the fact  Tax Refunds are in the nature of a tax exemption/ a derogation
that the transaction is exempt of sovereign authority
• It is the seller’s obligation to hold in trust for the buyer  Construed Strictissimi Juris against the person claiming the
the refunded tax refund; as well as the pieces of evidence presented – which
must be scrutinized.
HORNBOOK DOCTRINE in applying tax exemption principles  burden of proof is upon him who claims the exemptions
 Before determining if the person is tax exempt, we must first
determine if he falls within the scope covered by the law Persons entitled in case of indirect tax
imposing taxes 1. The Statutory Taxpayer
 The proper party

37
  The person on whom the tax is imposed by law, and who paid • They said that tax amnesties induces or provides
the same even if he shifts the burden to another. incentives to honest tax payer to start evading taxes, in
2. The person who shoulders the burden (indirect tax = part of the purchase hope of an amnesty in the future, and this shit tends to
price) has no cause of action against the taxing authority. weaken tax compliance.

TAX AMNESTY 4. Amnesty is not presumed

1. Definition  Strictissimi juris
 It is an OPPORTUNITY afforded to a taxpayer to RECTIFY  Not covered by the President’s Amnesty Powers under the RPC.
errors or omissions in past tax years or returns relieving Based on the Constitution Article 6 Section 28 – a tax exemption
delinquent tax debts and criminal prosecution. can only by granted with the concurrence of all the members of
 It is a GOVERNMENT PROGRAM (permanent or for a limited the congress.
period) which allows the taxpayers to address the collecting
agency and disclose inaccurate information from the past tax 5. Government is never estopped from questioning a tax liability even
years, without penalty or prosecution if amnesty tax payments were already received by it.
 The erroneous application of a tax law by a public officer – do
2. Nature and Characteristics not prohibit subsequent correction
 It partakes an absolute forgiveness or WAIVER by the • Basis: lifeblood
Government of its right to collect what otherwise would be due to
it, EXCEPTION
 And to give tax evaders and other fuckers, who wish to relent  Republic vs IAC(1991)
and are willing to reform, a chance to do so, to become part of • Issue: Won the payment of deficiency income tax
the new society with a clean slate. (CIR vs. Botelho corp) under the tax amnesty (PD#213) and its acceptance by
3 General Characteristics of a Typical Amnesty the government operated to divest the government of
I. Short lived (2-3 months) its right to further recover from the taxpayer, even if
II. Voluntary (participation is up to them) there was an existing assessment against the latter at
III. Waiver of fines and penalties – but not the principal amount of taxes the time he paid the amnesty tax.
that are due.(unless if the amnesty law provides otherwise) • HELD:
o Even assuming that the deficiency tax
3. CONTROVERSIAL ISSUE: Tax Amnesty assessment were correct, since the latter have
 The proponent of a tax amnesty –claims that the government already paid almost the equivalent amount to
can raise more tax revenue the government by way to amnesty taxes
• Not only in the short run from collecting overdue taxes under PD#213, and were granted not merely
• But also by bringing them old bitch fucks into the tax an exemption – BUT AN AMNESTY – for the
system for the long run. past tax failings, the Gov. is not ESTOPPED
 However, some questions as to whether this shit really produces from collecting the difference.
additional revenue given that they simply collect revenue that
could have been raised in a normal enforcement procedures.

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

39
 - Definition o Authorizes the CIR to distribute/allocate gross income or
 It is a place that deliberately provides an escape route for people deductions between 2 or more organizations owned directly or
or entities elsewhere, shielding them from whatever taxes, indirectly by the same interests if such distribution apportionment
criminal laws, licking their balls clean or allocation is necessary in order to prevent evasion of taxes or
 It is a State where certain taxes are levied at a low rate or not at clearly to reflect the income of any such organization, trade or
all while offering due process, good governance, and low business.
corruption rate. - Stateless Income/Homeless Income:
 It is a country that imposes little or no tax on profits. o It is the result of transfer pricing/mispricing.
- When is a place considered as a tax haven? o It means profit earned in a country other than where the firm is
 If it has a composite tax structure established deliberately to take headquartered and subject to tax only in another country which
advantage of a worldwide demand for opportunities to engage in imposes little or no tax.
tax avoidance o Particularly, stateless income comprises income derived for tax
- Examples? purposes by a multinational group from business activities in a
 Liechtenstein country other than the domicile of the group’s ultimate parent
 Panama company, but which is subject to tax only in a jurisdiction that is
 Bahamas neither the source of the factors of production through which the
 British Virgin Islands income was derived, nor the domicile of the group’s parent
Transfer Pricing company.
- It is the price charged by 1 segment of an organization
 For a product/service supplied to another segment of the same Tax Deferral
organization o Paying taxes in the future for income earned in the current year
 Especially, the charged assigned to an exchange of goods or o Some bitches leave their profits offshore untaxed – they don’t have to pay
services between a corporation’s organizational units. shit unless they repatriate said income to their home base
- When subsidiaries inside 1 company trade with each other across
borders, they can manipulate the internal transfer prices – in order to shift Tax Shelter
their cost into high tax countries, and shift the profit into low taxing o It is a sexy device used by a taxpayer to reduce or defer payment of
countries/haven. taxes; or any financial investment made in order to acquire expenses,
 Transfer Mispricing depreciation allowances, etc, or to defer income so as to reduce one’s
o Happens when transfer pricing is ABUSED. income tax.
- Unitary Taxation o It includes investment or deposits in accounts that are not heavily taxed
o Related to Transfer Pricing and shit (example long term deposits); and investing in real estate to avail
o The income of all related parts of the company are combined deductions such as mortgage loan interest, mortgage insurance and
and the profits are shared between different countries where property taxes.
they were actually created by using an agreed formula based on
a ratio of sales, employment costs and capital invested Tax Avoidance and Evasion
- There is a need to regulate it : because it has grave implications on tax o This 2 sons of bitches are the 2 most common ways used by your
liabilities. average motherfucker in escaping taxation (CIR vs Estate of Benigno
- Section 50 of NIRC: Toda)
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 o TO AVOID IS LEGAL resulting in the damage to another, or by which an undue and
o TO EVADE IS ILLEGAL unconscionable advantage is taken of another.
o Cannot be usually proven by direct proof
 It must be proven by circumstantial
Tax Avoidance/Loophole evidence and reasonable
o A tax saving device within the means sanctioned by law inference
o Should be used in good faith and at arms length. o Negligence is not equivalent to fraud(whether slight or gross)
o To get around/avoid the spirit of the law and the will of the legislature,  The fraudulent intent cannot be presumed
WITHOUT ACTUALLY BREAKING THE LAW  Intentional fraud must be established: he must act knowingly and
o It is the lessening of tax liabilities thru maximizations of deductions willfully
exclusion and exemptions and the minimization of income by legal o Assessment is not necessary
means.  Ungab vs. Cusi, Jr.
 An assessment of deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
Tax Evasion- Dodge/Dodging evade the income tax xxx A crime is complete when the
o A scheme used outside of those lawful means and when availed of, it motherfucker – with intent to evade - acted knowingly
usually subjects the taxpayer to further civil or criminal liabilities (CIR vs and willfully. The fact that the government failed to
Estate of Benigno Toda) discover the error and failed to assess promptly xxx has
o Illegal method of paying taxes no connection with the commission of the crime
 Criminal activity
 Usually thru deception o It must first be proved that a tax is due
o Elements of Tax Evasion; 3 factors  In CIR vs CA:
1. The END to be Achieved  before 1 is prosecuted for tax evasion, the fact that a
o Pay less- or not pay at all bitch tax is due must first be proven.
2. State of mind  No prima facie case – not fraudulent – unless and until
o It must be fucking intentional the BIR has made a final determination of what is
o Bad faith / willful supposed to be the correct tax, the taxpayer should not
3. A course of action or failure of action which is unlawful be placed in the crucible of criminal prosecution
 In Ungab vs. Cusi Jr:
Tax Fraud (intentional fraud)  For a criminal prosecution to proceed without
st
o The use of deceit in order to evade taxes assessment – there must 1 be a PRIMA FACIE
o Fraud showing of willful attempt to evade taxes.
1. Actual
2. Constructive  Substance over form
3. Anything calculated to deceive them bitches  The court should examine with particular care the forms
 Including all acts, omissions, and concealment involving a used by him for the accomplishment of his purpose and
breach of legal/equitable duty, trust or confidence justly reposed, if his ingenuity fails at any point, such court should not
lend him its aid by resolving doubts in his favor.
41
  Payment is NOT A VALID DEFENSE 10. Failure to file returns
 Payment – after apprehension is fucked up – it is not a 11. Destruction of records (acts)
valid defense. Because he already transgressed the
law. o Honest difference in opinion and inadvertence do not amount to
fraud
♠ There must be a clear and convincing evidence to prove that
o Prima facie evidence of fraud some part of the underpayment of a tax was due to fraud.
1. Sec. 248 B – NIRC: A Substantial Underdeclaration of taxable ♠ Intent is different from mere inadvertence, honest difference in
income/sales/receipt opinion, reliance on an incorrect technical advice, negligence or
 Or a Substantial OVERDECLARATION of Deductions carelessness.
o Shall constitute PRIMA FACIE evidence of
false or fraudulent return Tax credit
 Failure to report sales/income/ receipt in an amount Tax Credit vs Tax Deduction
exceeding 30% of that declared per return o Tax Credit
o And a claim of deductions in an amount  Generally refers to an amount that is subtracted directly from
exceeding 30% of actual deductions one’s total tax liability
o Shall render the taxpayer liable for substantial  It is an allowance against the tax itself, or a deduction from what
underdeclaration of sales, receipts or income is owed by a taxpayer to the government
or for overstatement of deductions  Examples
2. Failure to declare for taxation purposes True and Actual income • Withheld taxes, payments of estimated tax, and
derived from business for 2 consecutive years investment tax credits
3. Substantial under declaration of income in the tax returns for 4 o Tax Deductions
consecutive years coupled with intentional overstatements of  A subtraction from income for tax purposes, or an amount that is
deductions. allowed by law to reduce income prior to the application of the
tax rate to compute the amount of tax which is due.
o Must be proven by Circumstantial evidence and reasonable
inferences Tax Liability is required for tax credit
o It generally involves the following elements: o There ought to be a tax liability before a tax credit can be applied
1. Deception  Since the purpose of a tax credit is to reduce the tax liability.
2. Misrepresentation of material facts Without any tax liability, the tax credit is a piece of shit. It would
3. False or altered documents be PREMATURE and IMPRACTICAL.
4. Evasion/ diversion / omission o The existence of a tax credit – is not the same as the availment (tax credit
 Badges of Fraud is mandatory; whereas the availment of such credit is optional)
5. Improper deductions
6. Accounting irregularities Prior tax payment not necessary
7. Inconsistent explanation/behavior o While tax liability is necessary for the availment of a tax credit – prior tax
8. Attempt to conceal illegal acts payments are not. Payment is not indispensible.
9. Inadequate records
42
 o Nirc is replete with provisions granting tax credits even though no taxes  Taxing twice – the same subject matter -done by the same
have been previously paid taxing authority, within the same taxing district, for the same
 Examples purpose, in the same taxing period.
• Under Section 86(E) – in computing estate tax due – a o No constitutional prohibition
tax credit is allowed subject to certain limitations. The • It is not forbidden by our fundamental law
tax credit in this instance allude to the prior payment of • It is not favored but is still permissible
taxes, even if not made to out government.  Discretion of the Legislative
• Sec 110 – a VAT registered person engaging in • General Rule:
transactions is allowed a tax credit that includes a o Double taxation should not be permitted
ratable portion of any input tax xxx which does not need unless the legislature has authority to impose
to be paid etc etc. it.
• However
Tax credit is not the same as a discount o Since the taxing power is exclusively a
o Tax credit – legislative function, and since it is absolute
 Is a deduction after the income is computed and unlimited: it is generally held that there is
o Discount nothing to prevent the imposition of more than
 Is a deduction before the income is computed one tax on the same subject matter, in the
1. Cash discount absence of an express or implied
♠ One granted by business to credit customers for their prompt payment constitutional prohibition xxx such is a matter
♠ Purchase discount – is on the part of the seller within the discretion of the legislature.
2. Quantity discount
♠ Reduction in price allowed for purchase made in large quantities justified
by savings in packaging, shipping and handling  Kinds of double taxation
- A.k.a : Volume or Bulk discount
3. Trade discount 1. Direct Duplicate taxation (obnoxious double
♠ Percentage reduction from the list price allowed by manufacturer to taxation)
wholesalers. o In order to constitute double taxation in the
♠ Chain Discount – a series of discounts from one list price – is recorded at objectionable/prohibited sense:
net  The same subject matter must e
4. Functional discount taxed twice – for the same purpose,
♠ Similar to trade discount by the same taxing authority, within
the same taxing jurisdiction, during
the same period, and they must be of
Double Taxation the same kind or character.
Double Taxation
o Definition 2. Indirect duplicate taxation

43
 o When any or some of the requisites of direct  Foreign investments will only thrive in a fairly predictable and
duplicate taxation are not present. This is reasonable international investment climate and the protection
permissible. against double taxation is crucial in creating such a climate.

 Schemes to AVOID double taxation o 2 General Approaches to AVOID IJDT
1. Tax Credit 1. Territorial based system
o A sum deducted from the total amount a o The foreign source income is normally
taxpayer owes to the taxing authority exempted from domestic tax
2. Tax Deduction o it generally leaves the taxation of foreign
o Fixed amount or percentage write-off or income to the government whose territory the
permitted reduction in the gross amount on activity occurs
which a tax is calculated. 2. Worldwide income/global
3. Tax Reduction o This approach necessitated the development
o Relinquishing or reducing the amount or rate of specific mechanisms to reduce double
of tax a taxpayer has to pay. taxation when the country within whose
o Example borders the income had been derived also
 The TAX SPARING CREDIT RULE imposed a tax on that income
under Section28 of the NIRC. o Methods in tax treaties
st
4. Tax Exemption  1 method
o Immunity from this • Tax Treaty sets out the respective right to tax of the
5. Tax Treaties STATE OF SOURCE and the STATE OF RESIDENCE
o Agreement between 2 jurisdictions that with regard to certain classes of income or capital.
mitigates the problem of double taxation that • In some cases – an EXCLUSIVE right to tax is
can occur when tax laws consider a taxpayer a conferred on one state
nd
resident of more than 1 jurisdiction.  2 method
o The STATE OF SOURCE is given a full or
INTERNATIONAL JURIDICAL DOUBLE TAXATION (IJDT) limited right to tax together with the STATE OF
o The imposition of comparable taxes in 2 or more states on the same RESIDENCE
taxpayer in respect of the same subject matter and for identical periods.  In this case the treaties make it
incumbent upon the state of
o Rationale for doing away with this: residence to tallow relief in order to
avoid double taxation.
 To encourage free flow of goods and services and the 1. EXEMPTION METHOD
movement of capital, technology and persons between a. The income which is taxable in the state of
countries, conditions deemed vital in creating robust and source is exempted in the state of residence
dynamic economies. b. This may be done by using tax deduction
methods – which allows foreign income to be
deducted from the gross income :in effect
44
 exempting the payment from being further
taxed.
c. The focus is on the income or capital CHAPTER 5: TAX LAWS AND REGULATIONS
2. Credit Method
a. Although the income is taxed in both the State Tax Law – it is a body of rules under which the public authority has a claim on taxpayers
of Source and the State of Residence – the tax requiring them to transfer to the authority party of their income or their property
paid in the state of source is credited against
the tax levied in the state of residence. Tax laws may be:
b. The focus is on the tax 1. Material Tax Law – it is the analysis of the legal provisions giving rise to the
charging of tax
Income tax credit under Philippine law 2. Formal Tax Law – it concerns the rules laid down in the law as to assessment,
o NIRC enforcement, procedure, coercive measures, administrative and judicial appeal,
 Credit against Tax for taxes of Foreign countries and other matters.
- If a taxpayer signifies in his return his desire to have the
benefits of this paragraph, the tax imposed by this Title Tax provisions are:
shall be credited with: ▪ Mandatory – which means that the security of the citizens or which are
o Citizen and Domestic Corporation designed to ensure equality of taxation or certainty as to the nature and
o Partnership and Estates amount of each person’s tax.
 An alien individual and a foreign o Failure to follow renders invalid the act or proceeding to which it
corporation shall not be allowed relates.
the credits against the tax for the
▪ Directory – it is for the information or direction of officers or to secure
taxes of foreign countries allowed
methodical and systematic modes of proceedings
under this paragraph.
o Failure to follow makes the act merely irregular
 Read Sec 34 and 86 if NIRC.
 Limitations on Credit
Nature of Tax Laws
 Tax Credit for Estate Tax Paid to a Foreign Country
a. A public law - falls within the domain of public law
b. Special Law - prevails over a general law
Most favored nation clause
c. Not Political in Nature - deemed to be the laws of the occupied territory and not of
o The purpose of this clause is to grant to the contracting party treatment
the occupying enemy.
not less favorable than that which has been granted to the most favored
d. Not Penal – a statute is penal when it imposes punishment for the offense
among other countries.
committed against the state which is under the constitution. It is not a penal law but
o Intended to establish a principle of equality of international treatment by
a law with a penal sanction.
providing that the citizens or subjects of the contracting nations may
o Its main purpose is to cover the rules, policies and laws that oversee
enjoy the privileges accorded by either party to those of the most favored
the revenue-raising process.
nation.
 To allow the taxpayer of 1 state to avail the more liberal
Implications of Tax not being a Penal law
provisions granted in another tax treaty. For equality of
I. Prohibition on ex post facto law is not applicable
treatment.
45
 ▪ It applies only to criminal matters 1. The Constitution – the 1987 Philippine Constitution sets the restrictions on the
exercise of the power to tax. It is a limitation upon the lawmaking power of the
▪ Ex post facto law is one which alters the legal rules of evidence and
state’s legislature.
authorizes conviction upon less or different testimony than the law
Exception: local government taxation in the Philippines is based on the
required at the time of the commission of the offense.
Constitutional grant of the power to local governments. It gives the power
to create its own source of revenue
II. No retroactive effect even if beneficial to the tax payer
▪ Tax laws, even if beneficial to the taxpayer cannot be given retroactive 2. Laws – The National Internal Revenue Law; Local Tax Law; and Tariff and
effect in the absence of legislative intent to that effect Customs Code.
▪ However, the nature of the tax and the circumstances in which it is laid
must be considered before it can be said that its retroactive application is 3. Case Law – these are the decisions of the Supreme Court which form part of
so oppressive as to transgress the Constitutional limitation. the law of the land.

III. It is applied prospectively 4. Administrative Issuances/Interpretations – administrative agencies may fill in

▪ They are prospective in operation what the congress may have no opportunity or competence to provide.

▪ However, while it is not favored, a statute may still operate retroactively ▪ However, no provision of any regulation can supplant or modify the acts
provided that it is expressly declared or is clearly the legislative intent. of congress. A law cannot be amended by a regulation.
▪ The law must prevail over a regulation
IV. Res judicata is inapplicable ▪ A revenue regulation is binding on the courts as long as the procedure
▪ This is due to the difference in the quantum of proof in civil and criminal fixed for its promulgation is followed.
cases o The following requisites must be complied with:
▪ Double jeopardy is also inapplicable 1. It must be germane to the object and purpose of the law
2. It does not contradict, but conform to the standards the
▪ An acquittal of a charge of willful attempt to evade payment of taxes does
law prescribes
not bar assessment and collection of surcharge and penalties.
3. It must be issued for the sole purpose of carrying into
effect the general provisions of our tax laws.
Sources of Tax laws
▪ The power of the Commissioner of Internal Revenue and Secretary of
▪ It covers national and local taxes
Finance under Section 244 of the 1997 National Internal Revenue Code
are the following:
National Taxes – it comes from the National Internal Revenue Taxes and Tariff
o The Secretary of Finance, upon the recommendation of the
imposed and collected by the national government through the agencies
Commissioner promulgates rules and regulations for the
effective enforcement of the provisions of the Tax Code.
Local Taxes – it is imposed and collected by the local government
o It has the power of interpretation of the 1997 NIRC and other tax
laws which is under the exclusive and original jurisdiction of the
The following are the sources of tax laws:
Commissioner subject to the review of the Secretary of Finance.
o The Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals, has the power to decide disputed
46
 assessments, refund of internal revenue taxes, fees or other • refer to periodic issuances, notices and official announcements of the Commissioner of
charges, penalties imposed in relation thereto, or other matters Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain
arising under the NIRC or other laws administered by the Bureau specific issues of law or administration in relation to the provisions of the Tax Code,
of Internal Revenue. relevant tax laws and other issuances for the guidance of the public.

Difference between RR, RMO, RMR, RMC, RB and BIR Ruling: BIR Rulings
• are official positions of the Bureau to queries raised by taxpayers and other
Revenue Regulations (RRs) stakeholders relative to clarification and interpretation of tax laws.
• are issuances signed by the Secretary of Finance, upon recommendation of the
Commissioner of Internal Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions of the National Internal
Revenue Code (NIRC) and related statutes Principles on Interpretation/Construction of Tax Laws

1. Interpretation is not necessary when the statute is clear and categorical.

Revenue Memorandum Orders (RMOs)
• are issuances that provide directives or instructions; prescribe guidelines; and outline 2. The imposition of tax, in case of doubt, is construed strictly against the government
processes, operations, activities, workflows, methods and procedures necessary in the and liberally in favor of the taxpayer.
implementation of stated policies, goals, objectives, plans and programs of the Bureau
3. Tax laws shall not be interpreted to extend their provisions by implication beyond
in all areas of operations, except auditing.
the clear import of the language used or to enlarge their scope not particularly
specified.
Revenue Memorandum Rulings (RMRs)
4. In case of conflict, Special Tax laws shall prevail over General Tax statutes.
• are rulings, opinions and interpretations of the Commissioner of Internal Revenue with
respect to the provisions of the Tax Code and other tax laws, as applied to a specific 5. “Ubi Lex non distinguit neck now distinguire debemos “ (When the law does not
set of facts, with or without established precedents, and which the Commissioner may distinguish neither should we.)
issue from time to time for the purpose of providing taxpayers guidance on the tax
consequences in specific situations. BIR Rulings, therefore, cannot contravene duly 6. American jurisprudence has persuasive effect on the interpretation of our own tax
issued RMRs; otherwise, the Rulings are null and void ab initio laws.

7. Contemporaneous construction is given weight. The construction given by a

Revenue Memorandum Circular (RMCs) particular government agency that has acquired specialisation on the subject is entitled
• are issuances that publish pertinent and applicable portions, as well as amplifications, to great respect and should be accorded great weight by the courts.
of laws, rules, regulations and precedents issued by the BIR and other
agencies/offices. 8. Estoppel, generally, does not apply to the government. The state cannot be bound by
the errors or mistakes of its agents in the interpretation or execution of tax laws.

Revenue Bulletins (RB)

47
9. Enforcement of tax measures by responsible officers and agencies of government
should be interfered with at the lowest minimum. This is because delays in the
Rules promulgated to “fill in the details” of Rendition of opinion or statement of policy, in
implementation of such tax measures will only retard the operations of government by
existing law interpreting existing law
impairing the collection of taxes.

10. Words and phrases used in tax statutes shall be given their plain, ordinary and usual
meaning absent special circumstances indicating an intent to use such words or
phrases in a different light. Have the force and effect of law  Courts Merely advisory  Courts can exercise
must decide in accordance with these their power to interpret these rules, i.e., these
11. Administrative regulations, issued for the proper implementation and in accordance with
rules, even if they do not agree with the are subject to judicial determination of
tax laws shall have the same force and effect as the law itself. The sheer impossibility
underlying policy whether correct or not
and impracticality of Congress having to fill-in every minute detail in the statute makes it
necessary for administrative agencies to acquire the power to issue subordinate
legislations. To be valid however, the following requisites are imperative:

• Must be in harmony with the provisions of the law ( within the

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

• Must be reasonable

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

CATEGORIES:

48
Scrutiny Congressional Legislative Supervision CONSTITUTIONALITY
Investigation
It has been argued that oversight violates separation of powers because implementation
(i.e., post-legislation) is already within the domain of the executive department.
Passive oversight Active oversight Active oversight
The SC has ruled that oversight is not in itself unconstitutional, and may in fact enhance
separation of powers because it prevents too much authority from lodging in the executive
department. I.e., integral to checks and balances.

Reports and information More thorough Continuing and informed

But it qualified this holding to scrutiny and investigation only; in particular, (a) scrutiny
periodically required from solicitation of information awareness. Implies constant
over appropriations, budget, confirmation, and (b) investigation in aid of legislation as
agencies. Uses facts that from the agencies legislative guidance, e.g., through
provided in Art. VI. “Any action or step beyond that will undermine the separation of powers
are readily available. concerned a legislative committee especially
guaranteed by the Constitution. Legislative vetoes fall in this class.”
assigned to an area of admin
activity.
Legislative Veto

This is a form of legislative supervision exercised through veto provisions included in

enacted laws. Through veto provisions, Congress gives itself authority to approve or
disapprove the implementing rules and regulations promulgated by the executive before
they take effect.

For determining efficiency Exercise of Constitutional Examination of administrative

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

49
 Powers and Limitations
Promotes admin accountability Intrudes into powers vested on the Constitutional grant
judiciary Each local government unit shall have the power to create its own sources of revenues and
➔ Allows Congress to to levy taxes, fees and charges subject to such guidelines and limitations as the Congress
determine w/n the rules many provide, consistent with the basic policy of local governments. (Sec. 5, Article 10 of
conform to law 1987 Constitution)

Rationale: to safeguard viability and self-sufficiency of local governments by directly

“Too deeply embedded in our law and practice” Permits evasion of the President’s granting hem general and broad tax powers. (Fels Energy, Inc. vs. Province of Batangas)
own veto power
- Taxing power of local governments is NOT absolute.
o Limited by constitutional restrictions.
- Taxation not is not an inherent power of local governments.
- Local tax laws should be construed strictissimi juris
Ensures that the legislative intent behind an
- Doubts to be resolved against the local government.
enactment is carried through to implementation
- Tax power is deemed to exist.
➔ Problem often arises because o Municipal corporations have a general power to levy taxes and create
implementing agency did not participate in other sources of revenue. They no longer have to wait for statutory grant.
the crafting of the law, i.e., usually o Power of legislature is to reduce this power by imposing limitations.
ignorant of the policy sought to be o Congress cannot enact laws depriving LGUs of the power to tax.
enforced
Legislature must still see to it that:
o Taxpayer is not over-burdened or saddled with multiple and unreasonable
impositions
o Each local government unit will have its fair share of available resources
o Resources of the national government will not be unduly disturbed
o Local taxation will be fair, uniform, and just.
Permits incorrect enactments from being enforced
at all Doctrine of Necessary Implication
➔ Unlike mere scrutiny and investigation, - Legislative power to create political corporations for purposes of local self-
which can only act after the fact government carries with it the power to confer on such local government agencies
the power to tax.

Nature of the Taxing Power of LGUs

- Not an inherent power; may only be exercised if delegated by law or Constitution
CHAPTER 6: LOCAL TAXATION - Not absolute; subject to limitations provided by law or Constitution
- Legislative; can be exercised by local legislature
- Territorial; bound by geographical limits
50
 [NI-NA-LT] 5. Goods carried into or out of, or passing through territorial jurisdictions of LGUs
6. Agricultural and aquatic products
Sources of Revenue (sec. 287, NIRC) 7. Business enterprises certified to by the Board of Investments as pioneer or non-
1. Local sources pioneer for a period of six (6) and four (4) years, respectively from the date of
- tax revenues from real property tax and business tax registration;
- non tax revenues from fees and charges 8. Excise taxes on articles enumerated under the National Internal Revenue Code,
- receipts from government business operations as amended, and taxes, fees or charges on petroleum products;
- proceeds from sale of assets 9. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided in the LGC;
2. External sources 10. Taxes on the gross receipts of transportation contractors and persons engaged in
- Internal Revenue Allotment (IRA) the transportation of passengers or freight by hire and common carriers by air, land
- Special laws or water, except as provided in the LGC;
- Grants 11. Taxes on premiums paid by way of reinsurance or retrocession;
- Aids and borrowings 12. Taxes, fees or charges for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof, except tricycles;
13. Taxes, fees, or other charges on Philippine products actually exported, except as
Fundamental Principles of Local Taxation
otherwise provided;
a. Taxation shall be uniform
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
b. Taxes, fees and charges shall be:
cooperatives duly registered under Republic Act No. 6810 "Magna Carta for
• Equitable
Countryside and Barangay Business Enterprises (Kalakalan 20)" and Republic Act
• Based as far as practicable on taxpayer’s ability to pay
Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) "Cooperatives Code of
• For public purposes
the Philippines"
• NOT unjust, excessive, oppressive or confiscatory 15. Taxes, fees or charges of any kind on the National Government, its agencies and
• NOT contrary to law, public policy, national economic policy, or instrumentalities, and local government units.
in restraint of trade
c. Collection not to be left to private person. [VP-PRECIPITANCES]
d. Revenue to inure solely to the benefit of the LGU levying the tax Income Tax
e. Each LGU to have a progressive system of taxation. - tax on a person's income, emoluments, profits arising from property, practice of
profession, conduct of trade or business
- LGU cannot impose tax on income, except in case of banks and other financial
Common Limitations (15) institutions
LGUs’ power to tax shall not extend to any of the following (15): - gross receipts
1. Income tax, except when levied on banks and other financial institutions - from interest, commissions and discounts from lending activities, income from
2. Documentary stamp tax financial leasing, dividends, rentals on property, profit from exchange or sale of
3. Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa property, insurance premium
[AGILE]
4. Customs duties, registrations fees of vessels, and wharfage on wharves, tonnage Interest and Dividend Incomes
dues, all other kinds of customs fees
51
 - any tax imposed on interest or dividends received by non-bank and non-financial - tax partakes of the nature of an import duty, which is beyond the LGU's authority to
institutions assume the nature of income tax impose by express provisions of law
- banks and other financial institutions derive such gross receipts in the ordinary
course of their business as financial institutions Vessel Registration
- for non-bank and non-financial institutions, interest and dividend incomes are - Section 149 of the LGC, municipalities may impose license fees for the operation
merely passive investment income of fishing vessels of three (3) tons or less
- nature of ordinary business income Wharfage
- tax imposed thereon the nature of ordinary business tax - a fee assessed against the cargo of a vessel engaged in foreign or domestic trade
based on quantity, weight, or measure received and/or discharged by vessel
Documentary Stamp Tax - wharfage fee is prohibited only on wharves constructed and maintained by the
- tax on documents, instruments, loan agreements and papers evidencing the national government not on those owned and operated by the LGU
acceptance, assignment, sale or transfer of an obligation, right or property incident - Sections 153 and 155 of the LGC, LGUs, through their Sanggunian
thereto - imposition of toll fees or charges for the use of any public roads, pier, or wharf
- imposed on the privilege of conducting a particular business or transaction and not funded and constructed by them
on the business or transaction itself Goods Carried Into, Out of, or Passing Through
- the law taxes the document because of the transaction so that the tax becomes - on goods or merchandise
due and payable at the time the transaction is had or accomplished - also because it is an impediment or restraint against free flow of trade and
- cannot be imposed by the LGU pursuant to the LGC, presumably to avoid indirect commerce within the territory of the LGU, adjacent and adjoining LGUs and the
duplicate taxation country as a whole

No Unjust Enrichment on the Part of the Users

Taxes on Gratuitous Acquisitions - those benefits resulted from the infrastructure that the LGU is mandated by law to
- tax on these subjects is covered by the Tax Code and is collected by the national provide
government - no unjust enrichment where the one receiving the benefit has a legal right or
- estate tax is a tax on the net value of property left by a deceased on the date of his entitlement
death - when there is no causal relation between one's enrichment and the other's
- inheritance tax is a tax calculated on the property received by a person from a impoverishment
deceased through succession
- Section135 of the LGC, provinces and cities may impose a tax on the sale, Agricultural and Aquatic Products
donation, barter, or any other mode of transferring ownership or title of real - whether in their original form or not
property - imposition of the tax will definitely restrict the free flow because the price will have
to increase

Customs Duties, Vessel Registration Fees, and Wharfage Marginal Farmer as Fisherman
Custom Duties - individual engaged in subsistence farming or fishing limited to the sale, barter or
- customs duties is covered by the Tariff and Customs Code and implemented by exchange of agricultural or marine products produced by himself and his
the Bureau of Customs
- LGU cannot validly impose a tax based on a cargo manifest or bill of lading
52
 immediate family, and whose annual net income does not exceed Fifty Thousand - Under the Tax Code, in the course of trade as business, sells, barters, exchanges,
Pesos or the poverty line established by NEDA leases goods or properties, or renders services, and any person who imports
goods shall be subject to the value-added tax (VAT)
BOI-Certified Enterprises - any person whose sales or receipts are exempt and who is not a VAT-registered
- incentives to Registered Enterprises person shall be liable to pay a percentage tax of three percent (3%) of his gross
- six (6) years from commercial operation for pioneer firms and four (4) years for quarterly sales or receipts
non-pioneer firms, new registered firms shall be fully exempt from income taxes - a percentage tax is a "tax measured by a certain percentage of the gross selling
levied by the National Government price or gross value in money of goods sold, bartered or imported; or of the gross
No Retroactivity receipts or earnings derived by any person engaged in the sale of services
- only upon the effectivity of LGC which was on January 1, 1992 Authority to Levy Amusement Tax
Excise Taxes and Petroleum Products - provinces are not barred from levying amusement taxes even if amusement taxes
- LGUs are prohibited from imposing taxes on alcohol products, tobacco products, are a form of percentage taxes
petroleum products, miscellaneous products such as fireworks, cinematographic - "except as otherwise provided"
films, jewelry, perfume, mineral products because they are covered by the Tax - Section 140 of the LGC expressly allows the imposition of amusement taxes
Code Transportation Contractors
- specific tax based on the unit or number, weight or volume capacity or any other - LGUs may tax transportation contractors and common carriers on a basis other
physical unit of measurement of the objects to be taxed than gross receipts
- ad valorem tax based on the selling price or other specified value of the goods - exception is the business tax on contractors and other independent contractors,
- however, LGU may impose business tax on any business not exceeding two which is a fixed graduated tax based on gross receipts
percent (2%) of gross sales or receipts of the preceding calendar year
Common Carrier
Tax on Petroleum Business - legislative intent is to prevent a duplication of the so-called "common carrier's tax"
- Section 133(h) 'taxes, fees or charges on petroleum products' does not qualify the - common carrier is already paying 3% common carrier's tax on its gross
kind of taxes, fees or charges that could withstand the absolute prohibition sales/earning under the Tax
- absence of such a qualification leads to the conclusion that all sorts of taxes on
petroleum products, including business taxes, are prohibited by Section 133(h) Tax on Premiums
- The language of Section 133(h) makes plain that the prohibition with respect to - Reinsurance is a contract by which an insurer procures a third person to ensure
petroleum products extends not only to excise taxes thereon, but all 'taxes, fees him against loss or liability by reason of original insurance
and charges' - retrocession is the practice of one reinsurance company essentially insuring
- While local government units are authorized to burden all such other class of another reinsurance company by accepting business that the other company had
goods with 'taxes, fees and charges,' excepting excise taxes, a specific prohibition agreed to underwrite
is imposed barring the levying of any other type of taxes with respect to petroleum - tax on insurance premiums is not included in the prohibition
products - only receipts of insurance premiums may be taxed by the LGU

Percentage Tax and VAT Motor Vehicle Registration

- except tricycles

53
 - a motor vehicle is any vehicle propelled by any power other than muscular power o Assets, do not exceed Five hundred thousand pesos (Php500,000.00)
using the public roads excluding road rollers, trolley cars, street-sweepers, before financing;
sprinklers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and o Principal office and location located in the countryside
cranes if not used on public roads, vehicles which run only on rails or tracks, - exemption does not extend to service charges or rental for the use of property and
tractors, trailers, and traction engines of all kinds used exclusively for agricultural equipment or public utilities owned by LGU
purposes
National Government
Power over Tricycles - exemption does not include government-owned or controlled corporations
- under Section 458[a][3][VI], the power to regulate their operation and to grant
franchises for the operation thereof Power to prescribe penalties for violation of tax ordinance
- must not have had the effect of withdrawing the express power of LTO to cause - sanggunian is authorized to prescribe fines subject to the following limitations:
the registration of all motor vehicles and the issuance of licenses for the driving o in no case shall fines be less than Php1,000.00 nor more than
thereof Php5,000.00;
o Nor shall the imprisonment be less than one (1) month nor more than six
Registration and Licenses not Included (6) months
- delegated powers to LGUs pertain to the franchising and regulatory powers - sangguaniang barangay prescribe a fine of not less than One hundred pesos
exercised by the Land Transportation Franchising and Regulatory Board (Php100.00) nor more than One thousand pesos (Php1,000.00)
("LTFRB") and not registration of motor vehicles and issuance of licenses for the
driving thereof Adjustment of Rates of Tax
- motor vehicles "used or operated on or upon any public highway" - subject to the following limitations:
o not oftener than once every five (5) years
Export Products o in no case shall such adjustment exceed ten percent (10%) of the rates
- Philippine products actually exported fixed under the Local Government Code
- foreign products are not covered by the limitation
- prohibition pertains to the exported products, while business tax, to the business
exporting itself EXCEMPTION FROM LOCAL TAXES
Grant of Tax Exemptions
Countryside and Barangay Business Enterprises and Cooperatives - grant tax exemptions, incentives or reliefs
- "countryside and barangay business enterprises" means any registered business - tax exemptions are conferred through, non-transferable tax exemption certificate
entity, association or cooperative whose: - does not apply to regulatory fees because they are levied under the police power
o Number of employees does not exceed twenty (20) at any time for the of the LGU
purpose of undertaking a productive business enterprise recommended
by the Department of Trade and Industry (DTI) provincial office that will Guidelines
help develop the economy in its area. - grant of tax exemptions or tax reliefs:
 "productive business enterprise" shall not apply to business o may be granted in cases of natural calamities, civil disturbance, general
enterprises engaged principally in: professional services, failure of crops, or adverse economic conditions
retailing, wholesaling or trading of commodities, products or o through an ordinance
merchandise o exemption or relief granted to a type or kind of business shall apply to all
business similarly situated

54
 o only during the next calendar year for a period not exceeding 12 months Congress Prevails over LGU
as may be provided in the ordinance - legal effect of the constitutional grant to local governments simply means that in
o shared revenues, the exemption or relief shall only extend to the LGU interpreting statutory provisions on municipal taxing powers, doubts must be
granting resolved in favor of municipal corporations
- grant of tax incentives - in case Congress enacts a later law granting exemption, same prevails over the
o same shall be granted only to new investments in the locality and the provision withdrawing exemption under the LGC
ordinance
o grant shall be for a definite period of not exceeding one (1) calendar year
o grant shall be by ordinance passed prior to the 1st day of January of any ENACTMENT OF LOCAL TAX ORDINANCES
year Conduct of public hearing is mandatory
o any grant to a type or kind of business shall apply to all business similarly - public hearings conducted for the purpose
situated Procedure
Withdrawal of Tax Exemption Privileges - within ten (10) days from filing of any proposed tax ordinance published for three
- Section 193 (3) consecutive days in a newspaper of local circulation at least four (4)
- tax exemptions or incentives granted to, or presently enjoyed by all persons are conspicuous public places
hereby withdrawn upon the effectivity of this Code - sanggunian shall cause the sending of written notices of the proposed ordinance,
enclosing a copy to the interested or affected parties operating or doing business
General Withdrawal within the territorial jurisdiction of the LGU concerned
- the taxpayer has the heavy burden of proving exemption - specify the date or dates and venue of the public hearing or hearing shall be held
not earlier than ten (10) days from the sending out of notice or the last day of
The later general law prevails publication, or date of posting thereof, whichever is later
- the rule that a special law must prevail over the provisions of a later general law - all affected or interested parties shall be accorded an opportunity to appear and
does not apply as the legislative purpose to withdraw tax privileges enjoyed under present or express their views, comments and recommendations until all issues
existing laws or charters is apparent from the express provisions of Sections 137 have been presented fully deliberated upon or consensus is obtained
and 193 of the LGC - secretary of the sanggunian prepare the minutes attach to the minutes the position
The exemption is limited to three entities papers, memoranda, other documents submitted by those who participated
- local water districts Burden of Proof
- cooperatives duly registered under Republic Act No. 6938 - lack of a public hearing is a negative allegation essential to the taxpayer's cause of
- non-stock and non-profit hospitals and educational institutions action
Regional or Area Headquarters (RHQs) and Regional Operating Headquarters - taxpayer is the party asserting has the burden of proof
(ROHQs) - general rule regularity of the enactment of an officially promulgated statute or
- regional or area headquarters and regional operating headquarters of multinational ordinance may not be impeached by parol evidence or oral testimony
companies exempt from all kinds of local taxes, fees or charges imposed by a local - presumption in favor of the regularity of official conduct absent a clear showing to
government unit except real property tax the contrary

Exemption is Limited to Taxes Approval of Ordinance

- are liable to pay building permit and related fees
55
 - ordinance enacted by the sangguniang panlalawigan, sangguaniang panlungsod, NOTE: The appeal has no effect of suspending the effectivity of the ordinance and the
sangguniang bayan presented to the provincial governor or city or municipal mayor accrul of the payment of the tax, fee or charge levied therein.
- ordinances enacted by the sangguaniang barangay signed by the punong If the Secretary of Justice did not act on the appeal or after the lapse of 60 days, the
barangay aggrieved party may file an “appropriate proceedings” with a court of competent jurisdiction.
- affix his signature on each and every page
- veto it and return the same with his objections Power of Supervision. The review power of the Secretary of Justice of tax measures
- sangguanian concerned may override the veto of the local chief executive by two- enacted by the local government unit to determine if the officials performed their function in
thirds (2/3) vote of all its members, making the ordinance or resolution effective for accordance with law, the same is an act of mere supervision, not control.
all legal intents and purposes
- veto shall be communicated by the local chief executive concerned to the Power of RTC Judge. An RTC judge has the authority to pass upon the validity of a city tax
sanggunian within fifteen (15) days in the case of a province, ten (10) days in the ordinance even after its validity had been contested by the Secretary of Justice and a
case of a city or a municipality; otherwise, the ordinance shall be deemed decision rendered thereon by said official.
approved as if he had signed it Applicable case: San Miguel Corporation v. Avelino, GR No. L-39699, March 14, 1979
Facts: A city demanded from a taxpayer the payment a specific tax, but the latter contested
Publication and Dissemination that the ordinance was illegal or void. The taxpayer went to the Secretary of Justice who
- published and disseminated rendered the opinion that it is of doubtful validity. However, a suit for collection was filed by
- within ten (10) days after their approval, certified true copies of all provincial, city, the city where it squarely put in issue the validity of such ordinance, thus contesting the
municipal tax ordinances or published in full for three (3) consecutive days in a opinion of the Secretary of Justice. The taxpayer moved to dismiss the case on the ground
newspaper of local circulation of lack of jurisdiction. The Supreme Court held the issue on this manner.
- at least two (2) conspicuous and publicly accessible places
- barangay tax ordinances furnished the respective local treasurers for public Mandatory Periods
dissemination Under the LGC, a dissatisfied taxpayer who questions the validity or legality of a tax
- if the tax ordinance or revenue measure contains penal provisions, the gist of such ordinance must file his appeal to the Secretary of Justice within 30 days from effectivity
tax ordinance or revenue measure published in a newspaper of general circulation thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for
within the province where the sanggunian concerned belongs the aggrieved party to go to court. But if the Secretary does not act thereon after the lapse
- shall be considered as falling at the beginning of the next ensuing quarter the of 60 days, a party could already proceed to court to seek relief.
taxes, fees, or charges, due to accrue therefrom
A decision is rendered--- 30 days to appeal to the Secretary of Justice.
Purpose of Publication
Another 30 days to go to court after the appeal is decided upon by the Secretary.
- a condition precedent to the effectivity and enforceability of an ordinance to inform
In case of inaction of the Secretary or after the lapse of 60 days, the aggrieved party may
the public of its contents before rights are affected by the same
go directly to the court to seek relief.

Review of Ordinance. The Secretary of justice reviews the validity of the tax ordinance or NOTE: These three separate periods are clearly given for compliance as a prerequisite
revenue measure. before seeking redress in a competent court. This is MANDATORY.
On appeal, the constotutionality or legality of tax ordinances or revenue maesures may be
raised within 30 days form the effectivity thereof to the Secretary of justice who shal render Purpose: To prevent delay as well as enhance the orderly and speedy discharge of judicial
a decision within 60 days from the date of receipt of the appeal. functions. Consequently, any delay in implementing tax measures would be to the detriment

56
of the public. It is for this reason that protests over tax ordinances are required to be done EXCEPTION: Issues which the LGU has authority arise (meaning there is a question
within certain time frames. whether the LGU has authority to tax or not) when a business enterprise operates in several
jurisdictions as when the principal office, branch, factory, etc. are situated in different LGUs.
Suspended or Disapproved Ordinance. (Meaning, business decisions are made in the principal business while the implementation
A suspended or disapproved tax ordinance or revenue measure cannot be enforced. If is carried out through the business units.)
enforced despite due notice of disapproval or suspension, the same is sufficient ground for To address this issue, the LGC provides for rules on situs to ensure that each of the LGU
administrative discilinary action against the local officials and emloyees responsible thereof. gets a rightful share in the collection.

Reserved/Residual Taxing Power. Definitions:

The LGUs exercise the power to levy taxes, fees,charges on any base or subject not
otherwise specifically provided in the LGC or taxed under the provisions of the NIRC, as Principal Office- the head or main office of the bisiness appearing in the pertinent
amended, or other applicable laws PROVIDED THAT: documents submitted to the SEC or DTI or other appropriate agencies, as the case may be.
1. The taxes, fees, or charges shall not be unjust, excessive, MEANING, the city or municipalityspecificially mentioned in the in the AOI of official
oppressive, confiscatory, or contrary to the declared national policy; registration papers as being the official address of said principal office sahll be considered
2. A prior public hearing was conducted for that purpose. the situe thereof.

NOTE: The exercise of such residual/reserved taxing power mustobserve and conform to NOTE: In case of relocation of the the principal office to another city or municipality, it shall
the inherent and constitutional limitations, common limitations, fundamental principles and be the duty of the owner, operator or manager of the business to give due noticeof such
the procedures under the LGC. transfer to the local chief executive (mayor) of the cities or munics concerned within 15 days
after such transfer is effected.
Principle of the Pre-emption/Exclusionary Doctrine and Concurrent Power
Branch or Sales Office- a fixed place in a locality which conducts operations of the
Pre-emption- refers to the instance where the national government elects to tax a particular business as an extension of the principal office. Example- warehouses which accept
area, impliedly withholding from the local government the delegated power to tax the same orders and/or issue sales invoises independent of a branch with sales office are considered
field. This doctrine primarily rests upon the intention of the Congress. as sales offices.
The pre-emption will not apply if there is express grant of autority (i.e allow municipal NOTE: Offices used as display areas of the products are not wihtin the purview of branch or
corporations to cover fields of taxation it already occupies). sales office.
Pre-emption applies to the following taxes (hence, may not be levied by the LGU):
Taxes levied under the NIRC; taxes, fees imposed under the TCC; taxes charge under Warehouse- a building utilized for the storage of products for sale and from which goods
special laws. are withdrawn for delivery to customers or dealers or by persons acting in behalf of the
NOTE: Pre-emption does not apply between or among LGUs. They may tax the same business.
subject as long as it is within their jurisdiction. In this case, there exists concureent taxing
power where the power is shared by both the national and local government. The power SALES ALLOCATION. Recording of sales shall be governed by the following rules:
may also be exercised simultaneously within the same territory and in relation to the same 1. Sales made in a locality where there is a branch or sales office or warehouse shall
subject. be recorded in said branch and the tax shall be payable to the city or munic where
the same is located.
SITUS OF LOCAL TAXATION
General Rule: An LGU has tax jurisdiction over tax subjects within its territory.
57
 2. In cases where there is no such branch, the sale shall ne recorded in the principal Situs of Sale. The place of the consummation of the sale determines the situs. An LGU can
office along with the sales made by the principal office and the tax shall accrue to validly tax the sales to customers outside of its territory as long as the orders were booked
the city or munic where said principal office is located. and paid for in the company’s branch office in the city.

3. In case where there is a factory project office or plantation in the pursuit of the SPECIFIC TAXES THAT MAY BE LEVIED BY LGUs
business, 30 per cent of all sales recorded in the principal office shall be taxable by Taxing Powers of Provinces
the city or munic where the principal office is located and 70 per cent of all sales The province may levy only the following taxes, fees and charges:
recorded in the principal office shall be taxable in the principal office where the 1. Taxes on transfer of Real Property Ownership at rate not more than 50
factory projecto office or plantation is located. per cent of 1 per cent of total consideration;
2. Franchise tax- at a rate not exceeding 50 per cent of 1 per cent of the
NOTE: LGUs where only experimental farms are located shall not be entitled to the sales gross receipts for the preceeding calendar year;
allocation. 3. Tax on Sand, gravel and other Resources- at a rate not more than 10 per
A.) In case of a plantation located in a locality other than that where the factory is cent of fair market value;
locadted, the 70 per cent sales allocation shall be divided as follows: 4. Tax on business of Printing and Publication- at a rate not exceeding 50
a.) 60 per cent to the city or munic where the factory is located per cent of 1 per cent;
b.) 40 per cent to the city or munic where the plantation is located 5. Professional Tax- at a rate not more than 300 pesos annually.
B.) In case where there are 2 or more factories, plants located in different localities, 6. Amusement Tax- at a rate not more than 10 per cent of gross receipts
the 70 per cent sales allocation shall be prorated among the localities where such from admission fees;
factories or plants are located in proportion to their respective volumes of 7. Annual fixed tax for every Delivery truck or van of manufacturers in
production during the period for which the tax is due. certain products- at a rate not exceeding 500 pesos annually.
C.) The foregoing sales allocation shall be applied irrespective of whether or not slaes
are made in the locality where the factory or plantation is located. [PD FRAPS]
D.) In case of manufacturersor producers which engage the services of an Taxes on transfer of Real Property Ownership. Taxes on the sale, donation, barter or on
independent contractor to manufacture or produce some of their products, these any other mode of transferring ownership or title of real property at rate not more than 50
rules on situs of taxation shall apply except that the factory or plant and warehouse per cent of 1 per cent of total consideration involed in the acquisition of property or their fair
of the contractor utilized for the production and storae of the manufacturer’s market value in case the monetary consideration involved in the transfer is not substantial,
products shall be considered as the factory or plant or warehouse of the whicever is higher.
manufacturer. Exemption. The sale, transfer or any disporition of real property pursuant to RA No. 6657
(The Comprehensive Agrarian Reform Law of 1998). Also, socialize housing for the benefit
Port of Loading. The city or munic where the port of loading is located shall not levy and of the underprivileged and homeless is exempt from transfer tax. Also, the change in
collect the tax impossable on business and occupation UNLESS the exporter maintains in ownership of the corporation will not trigger the tax on transfer of real property. Moreover,
said city or municipality its prinicpal office. the subsequent registration of title to the land in the name of condominium corporation is not
subject to transfer tax.
Situs of Excise Tax. The situs of an excise tax depends upon the place in which the act is NOTE: Transfers without monetary consideration such as donations, braters and succesion
performed or occupation engaged in. it does not depend on the domicile of the person are taxbale. What is being taxed is the exercise of privilege to transfer or convey a property.
subject to the excise tax nor upon the physical location of the property but depends upon The determining factor is whether or not there is indeed a transfer of ownership or title over
the place in which the act is performed or occupation engaged in. the real property.

58
The acquisition for official use of embassies, consulates or diplomats is exempted from The Regalian doctrine does not apply because tax a burdens and are construed strictissimi
transfer tax under the generally accepted principles of international laws. juris against the government.
The authority to impose taxes on such nature belongs to the province and not to the
Tax on business of Printing and Publication. Tax on the business of persons engaged in municipalitywhere they are found.
the printing of and publication of books, cards, posters, leaflets, etc. at a rate not exceeding
50 per cent of 1 per cent of the gross annual receipts for the preceeding calendar year. In Professional Tax. Annul professiznal tax on each person engaged in the exercise or
case of a newly started business, it shall not exceed the 1/20 of 1 per cent of the capital practice of a profession requiring government examination at such amount and resaonable
investment. classification as the sangguniang panlalawigan may determine but shall in no case exceed
Exemption: the recepts from the printing of books or other reading materials prescribed by 300 pesos.
the DepEd as school texts or references. Where to pay? It shall be paid to the province where he practices his profession or where he
maintains his principals in case he practices his profession in several places. However,
Franchise Tax. Tax on the business enjoying franchise at a rate not exceeding 50 per cent such person who has paid the corresponding professional tax shall be entitled to practice
of 1 per cent of the gross receipts for the preceeding calendar year based ont eh incoming his profession in any part of the Philippines without being subject to any other national or
receipt realized within its territorial jurisdiction. In case of a newly started business, it shall local tax, license, or fee for the practice for such profession.
not exceed the 1/20 of 1 per cent of the capital investment. In the succeeding year, the tax It is the duty of the employer to require the payment of his employee’s profesional tax on his
shall be based on the gross receipts for the preceeding claendar year. profession beofre employment and annually thereafter. It shall be payable annuall or on or
st
Franchise- a right or privilege, affected with public interest which is conferred upon private before the 31 day of January.
persons or corporations, under such terms and conditions as the government may impose NOTE: Professionals exclusively employed in the government shall be exempt from the
in the interest of public welfare, security and safety. payment of this tax.
Franchise tax- tax on the privilege of transacting business in the state and exercising Those covered professionals are those who only passed the bar examination or any board
ccorporate franchise by the State. It is a concurrent power simultaneously exercised by or other examinations conducted by the PRC.
national and local governments. Aside form national franchise tax, the franchisee is still
liable to pay a local franchise tax, unless it is expressly and unequivocally exemtped from Amusement Tax. Provinces may levy tan amusement taxt to be collected from the
the payment thereof. proprietors, lesees or operatoers of theathers, cinemas, concert halls, boxing stadiaand
Territorial Limits. Provinces should impose the franchsie tax on businesses whitin its other places of amusements at a rate not more than 10 per cent of gross receipts from
territorial jurisdiciton, thus excluding the territorial limits of any city located therein. admission fees.
Amusment is a pleasurable diversion and entertainment. It is synonymous to relaxation,
Tax on Sand, gravel and other Resources. Levy and collect at a rate not more than 10 pastime or fun.
per cent of fair market value in the locality per cubic mter of ordinary stones, sand, gravel EXEMPTION: The holding of operas, concerts, dramas, paintings, flower shows, musical
and other os similar nature as defined in the NIRC extracted from public lands or from the programs, literay and oratorical presentations except pop rock or similar concerts shall be
beds of seas, lakesm streams, creeks and other public waterswithin its territorial jurisdiction. expemt from the payment of the tax.
The proceeds on the tax shall be distributed as follows: The proceeds from the amusment taxt shall be shared equally by the province and the
• Province- 30 per cent municipality where such amusement places are located.
• Component city or municipality where the sand, gravel, etc are extracted - Amusement not covered by amusment tax:
30 per cent 1. Professional basketball games
• Barangay where the sand, gravel, etc. are extracted- 40 per cent 2. Resorts, swimming pools, bath houses, hot springs and tourist spots

NOTE: The permit to extract shall be issued exclusively by the provincial governor. NOTE: LGUs cannot impose amusement tax pursuant to the principle of pre-emption.
59
Annual fixed tax for every Delivery truck or van of manufacturers in certain products. the tax on sand, gravel, and other quarry resources extracted from within the boundaries of
Annual fixed tax for every truck, van or any vehicle used by manufactures, producer, the city.
wholesalers, dealers, etc in the delivery or distribution of distilled spirits, fermented liquors, The taxes, fees and charges levied and collected by highly urbanized and independent
soft drinks, cigars, etc wihtin the province at a rate not exceeding 500 pesos annually. component cities shall accrue to them. The provinces do not have a share as such cities are
fiscally and politically independent from the province
Taxing Powers of Municipalities
Municipalities may levy taxes, fees and charges not otherwise levied by the province. Taxing Powers of Barangays
Tax on business. See Section 143 of the LGC.
NOTE: SERVICE is not an article of commerce. The word article refers to such material or As stated, cities have the greatest scope of taxing. As a contrast, barangays have the
corporeal things as goods or physical property, which is distinguished from service which is narrowest scope of taxing and has the least revenue-raising powers. Its scope of taxation is
intangible product. listed in Section 152 of the Local Government Code, and it states that barangays may levy
or collect the following:
Taxing Powers of Cities
There are three classifications of cities provided in the Local Government Code, namely, (1) 1. Taxes on stores or retailers with fixed business establishments with
highly urbanized city, which is a city of at least 200,000 inhabitants AND an income of at gross sales of receipts of the preceding calendar year of fifty thousand
least 50 million pesos at 1991 prices; (2) component city, which is a city which that does not pesos (P50,000.00) or less, in the case of cities and Thirty thousand
meet the criteria for highly urbanized cities; and (3) independent component city, which is a pesos (P30,000.00) or less, in the case of municipalities, at a rate not
component city whose charter prohibits its inhabitants from voting in the provincial elections. exceeding one percent (1%) on such gross sales or receipts.
Among local government units, the city has the widest scope of taxing. Section 151 of the
Local Government Code states: 2. Service fees or charges for services the barangay rendered in
[A] city may levy the taxes, fees, and charges which the province or municipality connection with the regulations or the use of barangay-owned properties
may impose… The rates of taxes that the city may levy may exceed the maximum or service facilities such as palay, copra, or tobacco dryers.
rates allowed for the province or municipality by not more than fifty percent (50%)
except the rates of professional and amusement taxes. 3. Barangay clearance fees for the issuance of such barangay clearance,
From that provision, a city covers the scope of taxing of either a municipality or a province. It which is a document required for the issuance of any license or permit for
is also authorized to collect a higher tax rate, i.e. 50% of the maximum rates allowed for the any business.
province or municipality. (Insight) The reason why a city is provided a much wider scope
and a greater power is that cities are generally the centers of commerce, transportation, 4. Other fees and Charges on
religion, education, finance, and culture of a certain province or locality. Being centers of
such activities, cities need more revenues to fund its many activities and projects that are
(1) Cockfights, cockpits, and commercial breeding of fighting cocks,
involved in the mentioned activities.
The provision above is the general scope of taxation for cities. In addition to such general
scope, cities may also levy and collect a percentage tax on any business not provided in the (2) Billboards, signboards, neon signs, and outdoor advertisements, and
list of specific businesses a municipality may taxed on, at rates not exceeding three percent
(3%) of the gross sales or receipts of the preceding calendar year. Moreover, cities may (3) Recreation places which charge admission fees.
collect a professional tax at a rate of 300.00 Pesos per calendar year per professional, and
an amusement tax on paid admission at a rate not exceeding 10% of the gross receipts [BROS-CAR]
from admission fees. Lastly, highly urbanized cities has a share of 60%, of the proceeds of
60
Common Revenue-Raising Powers of Local Government Units 4. Has been regularly employed on a wage or salary basis for at least 30
consecutive working days.
Under Sections 153-155 of the Local Government Code, any local government unit may
collect the following: [BROS]

They shall pay an annual community tax of five pesos and an addition tax of one peso for
1. Service Fees and Charges for services rendered.
every one thousand pesos of income, which in no case shall exceed 5,000 pesos.
As for juridical persons, every corporation no matter how created or organized, whether
2. Toll Fees or Charges for the use of any public road, pier, or wharf,
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an
waterway, bridge, ferry or telecommunication system funded and
annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which,
constructed by the local government unit concerned.
in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following
schedule:
3. Public Utility Charges for the operation of public utilities owned,
1. For every Five thousand pesos (P5,000.00) worth of real property in the
operated and maintained by them within their jurisdiction.
Philippines owned by it during the preceding year based on the valuation
used for the payment of real property tax under existing laws, found in the
[SToP] assessment rolls of the city or municipality where the real property is
situated - Two pesos (P2.00); and
Toll fees may not be collected from the following classes of people: (1) Members of the PNP
and AFP who are on mission; (2) post office personnel delivering mail; (3) physically- 2. For every Five thousand pesos (P5,000.00) of gross receipts or earnings
handicapped individuals; and (4) disabled individuals who are at least 65 years old. Toll fees derived by it from its business in the Philippines during the preceding year
may also not be collected when public safety and welfare so require. - Two pesos (P2.00).

Community Tax There are only two kinds of persons who are exempt from paying the community tax, and
A community tax, or a residence tax (certificate), is a form of identification, which has its they are:
origins from the Spanish period. (Insight) The English term ‘community tax certificate’ is a 1. Diplomatic and consular representatives, for reasons of international
euphemism of the Spanish word cédula (sedula in Tagalog), which has a strongly negative comity; and
connotation due to the events that took place during the Philippine Revolution, particularly 2. Transient visitors when their stay in the Philippines does not exceed three
43 months, which is often the period granted to tourists arriving in the
when the revolutionaries cried “Punitin and sedula!” at Pugadlawin as a sign of protest and
revolt against the Spaniards who had been taxing the Filipinos heavily for centuries. country. (Insight) As the community tax certificate is a residence
Although it has been a traditional form of identification for centuries, for notarial purposes, certificate, it is illogical to impose such to transient visitors for the simple
however, it is no longer valid. reason that they do not intend to reside here.
Individuals who are liable for community tax are inhabitants of legal age who:
1. Is engaged in business or occupation; or Since a community tax certificate is a form of identification, it is required to be presented on
2. Is required by law to file an income tax return; or certain occasions when an individual or juridical person transacts with the State, particularly:
3. Owns real property with an aggregate assessed value of 1,000 pesos or
more; or 1. When an individual acknowledges any document before a notary public, takes
the oath of office upon election or appointment to any position in the
43
government service; receives any license, certificate. or permit from any public
“Tear all cedulas!”
61
 authority; pays any tax or free; receives any money from any public fund; Remedies for Collection of Revenues
transacts other official business; or receives any salary or wage from any There are two major remedies for the collection of revenues, and they are (1) the imposition
person or corporation with whom such transaction is made or business done of a local government’s lien and the (2) availing of civil remedies.
or from whom any salary or wage is received; and A local government’s lien, which is superior to all liens, charges or encumbrances in favor of
any person, enforceable by appropriate administrative or judicial action, is imposed to any
2. When, through its authorized officers, any corporation receives any license, property or rights therein, which includes property used in business, occupation, practice of
certificate, or permit from any public authority, pays any tax or fee, receives profession or calling, or exercise of privilege, for the payment of local taxes, fees, charges
money from public funds, or transacts other official business. and other revenues. The lien may only be extinguished upon full payment of the delinquent
local taxes fees and charges including related surcharges and interest.
For voter’s registration purposes however, the individual is not required to present such Civil remedies may either be an administrative action through the distraint of personal,
community tax. (Insight) The reason is that the State, and no less other than the including incorporeal, property, and the levy upon real property and interest in or rights to
Constitution, recognizes the sanctity of the right of an individual to vote. It is an exercise of real property, or a judicial action.
civil rights that enjoys a higher privilege over the State’s need to have a system of For distraint of personal property, the procedure is as follows:
identifying its citizens. The State has means, other than requirement of presentation of the 1. Seizure
community tax certificate, to identify a registrant. 2. Accounting of distrained goods;
3. Publication;
Collection of Local Taxes 4. Release upon payment before sale;
Generally, the tax period is the calendar year. The taxes may be paid in quarterly 5. Sale;
installments. (Insight) Such manner of payment is for the benefit of the taxpayer. This is 6. Disposition of proceeds
also consistent with the prevailing Filipino culture that favors small payments so as not to
44
feel the impact of spending a big amount in one transaction to pay his or her taxes. [Sisa And Pepe Rizal Shall Die]

As for accrual, it is on the first day of January, or New Year’s Day. Payment should be made In seizure, upon failure to pay a tax within the required time, the LGU treasurer or his deputy
within twenty days from the date of accrual of the tax, that is until January 20, or for shall send a written notice to the delinquent taxpayer. After sending the notice, the treasurer
installments, until April 20, for the second quarter; until July 20, for the third; and until then shall proceed to “seizure proper” and before doing so, he shall issue a duly
October 20, for the last. authenticated certificate based upon the records of his office showing the fact of
delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate
The Sanggunian, however, may extend the time for payment without imposing any shall serve as sufficient warrant for the distraint of personal property, subject to the
surcharges or penalties, but only for a period not to exceed six months. taxpayer's right to claim exemption under the provisions of existing laws. He may thereafter
If payment is not made within the allotted time, a surcharge not exceeding 25%, and an seize or confiscate any personal property belonging to that person or any personal property
interest not exceeding 2%, may be imposed. Interest shall, however, stop from accruing at subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in question.
th
the end of the 36 month. Distrained personal property shall be sold at public auction in the manner hereon provided
It is the treasurer of the local government unit (i.e. the barangay, municipal, city, or for.
provincial treasurer) or his duly authorized deputy who shall collect the taxes, fees and other
charges. Such treasurer has the power to examine the books of accounts and pertinent
records of any natural or juridical person for the purpose of ascertaining, assessing and
collecting the correct amount of tax.
44
Based on literary, historical, philosophical and biological truths.
62
Right after seizing, the officer executing the distraint shall make an accounting and issue a
copy of such to the owner, to the person who had possession of the property seized or to
someone of suitable age and discretion who is found at the residence or place of business
of the person whose property is seized. Notice of levy
A notice of sale shall be posted at three public and conspicuous places and such notice Written notice shall be served upon:
shall be published. 1. The assessor
2. Registrar of deeds
If, however, before the consummation of the said sale, the person whose property has been 3. The delinquent taxpayer
seized, pays up his delinquent taxes, charges or fees, the property so seized may be
released.
During the sale, the property shall be awarded to the highest bidder for cash. If the property
remains unsold for a period of 120 days from the day of distraint, the property shall be
considered sold to the LGU for the amount of the assessment made by the Committee on Advertisement
Appraisals. Within 30 days after levy, the LGU treasurer shall advertise for at least 30 days the
sale or auction of the property levied.
Finally, the proceeds shall be disposed by applying it to satisfy the tax, and to the penalties,
interests and surcharges that accrued because of the delinquency. Also it shall be applied
to the expenses of the sale.

If the proceeds are not sufficient, another distraint may be effected. Staying of Sale Sale
At any time before the date of The sale shall proceed if the taxpayer
For levy on real property, it may be done before, simultaneously or after distraint of personal the sale, the taxpayer may fails to stay the sale through payment
property. The procedure may be best demonstrated by the following: stay the proceedings by
paying the taxes, fees
Duly Authenticated Certificate charges, penalties and
Such certificate shall be issued by the local interests.
treasurer for the purpose of identifying the
delinquent taxpayer, his unpaid taxes, and the
fees, charges or penalties.

Post-Sale Incidentals
1. Within 30 days after the sale, a report
shall be made and delivered to the sanggunian.
Writing Upon Certificate a Description of the Property 2. A certificate of sale shall be issued to
Levy shall be effected upon writing the the purchaser
description of the property to be levied and upon 3. Any excess of the proceeds shall be
notice to interested persons turned over to the owner.

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 (e) His necessary clothing, and that of all his family;
(f) The professional libraries of doctors, engineers, lawyers and judges;
(g) One (1) horse, cow, carabao, or other beast of burden, such as the
Redemption Final Deed to Purchaser delinquent taxpayer may select, and necessarily used by him in his
Within one year from the sale, If the taxpayer fails to ordinary occupation;
the delinquent taxpayer has redeem, a final deed shall (h) Implements and tools necessarily used by the delinquent taxpayer in
the right to redeem the be issued to the purchaser. his trade or employment;
property upon payment of the
taxes, etc. plus an interest of [PUBIC AngHIT]
2% per month on the purchase
price. For the other major remedy of judicial action, the procedure is (Insight) the same as any
other ordinary civil action akin to a petition for a collection of debt. The real party-in-interest
is the local government unit concerned, through its treasurer. The cause of action, however,
prescribes within five years.

Prescription
The following is a table of the periods of prescription of certain tax collection-related
activities, and the corresponding suspensions of the periods:
Just like distraint, levy may be repeated once or several times as long as the full amount
due has not been extinguished. Tax Collection Period Suspension of the Period
Although either may be exercised several times, the law provides certain exemptions from Activity
distraint or levy. (Insight) Such exemptions are provided in order for the delinquent Period of assessment, 5 years, from the 1. The treasurer is legally prevented
taxpayer’s dignity be recognized and that he be afforded his human rights to a decent living, in general due date from making the assessment of
to health, to exercise his profession, and to survival. Furthermore, it is intended by the law collection.
that the delinquent taxpayer be left with sufficient properties so that he could recover from Period of assessment 10 years, from 2. The taxpayer requests for a
his financial woes. when fraud is involved discovery of fraud reinvestigation and executes a
The following are the exempted properties: Period to collect 5 years, from the waiver
date of assessment 3. The taxpayer is out of the country
(a) Provisions, including crops, actually provided for individual or family
use sufficient for four (4) months; Remedies of the Taxpayer
(b) Household furniture and utensils necessary for housekeeping and The taxpayer has two major remedies: (1) administrative and (2) judicial action. For
used for that purpose by the delinquent taxpayer, such as he may administrative remedies, the taxpayer has the following remedies:
select, of a value not exceeding Ten thousand pesos (P10,000.00); 1. Before assessment, an appeal to the Secretary of Justice;
(c) One fishing boat and net, not exceeding the total value of Ten 2. After assessment, a protest of assessment, a claim for refund or tax
thousand pesos (P10,000.00), by the lawful use of which a fisherman credit, and redemption
earns his livelihood; [JARRed]
(d) Any material or article forming part of a house or improvement of any
real property.
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The appeal to the Secretary of Justice should involve questions of law, or specifically, Refund date of payment. two-year period is about to
questions on the constitutionality or legality of tax ordinances or revenue measures. Such expire, a taxpayer may
appeal shall be made within 30 days from the effectivity of such ordinance or measure. The proceed to court without
Secretary has 60 days to act upon the appeal. If he denies, the taxpayer may file a court waiting for the decision of
action within 30 days from receipt of notice of such denial. However, after the lapse of 60 the treasurer.
days from the filing of appeal before the Secretary, and the latter has not acted upon it, a
party can seek judicial relief even without any prior decision from the Secretary. For declaratory relief, the same procedure as stated in the 1997 Rules of Court shall
apply.
A protest of assessment may be filed before the local treasurer within 60 days from the Finally, for injunction, this may be availed by a taxpayer when he wishes to enjoin the
notice of assessment. The local treasurer shall decide within 60 days and may accept or collection of a local tax.The issuance of a writ of injunction is prohibited if the subject matter
reject wholly or partially the protest. is a national internal revenue tax. The requisites of the issuance of a writ of injunction are:
As for claim of refund or tax credit, this is required to be filed before the local treasurer (1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent
before a a taxpayer may proceed to judicial relief. If a tax credit is granted, this is not and paramount necessity for the writ to prevent serious damage. Although the two
refundable to cash but may be applied to future tax obligations. requisites may be present, the judge has the ultimate discretion to issue such writ. It is not a
As for redemption, the delinquent taxpayer may redeem real property sold within one year matter of right especially that writs of injunction against local taxes are frowned upon.
from the date of sale.
For judicial remedies, the taxpayer has the following options: Sources:
1. Court action; The Local Government Code of the Philippines (Republic Act No. 7160)
2. Declaratory relief; and Efren Vincent Dizon, Taxation Law Compendium, Volume 1 (2013).
3. Injunction.
CHAPTER 7: REAL PROPERTY TAX
For a court action, the following table demonstrates the procedure:
A. Definitions and Taxing Authority
Mode Period to file the Period to file the Court
Administrative Action Action PROPERTY TAX are taxes assessed on all property or on all property of a certain class
Appeal to the Secretary of 30 days from effectivity of tax 30 days if the Secretary located within a certain territory on a specified date in proportion to its value, or in
Justice ordinance or measure decides the appeal; accordance with some other reasonable method of apportionment. It is ordinary measured
After the lapse of 60 days by amount of property on a given day and not on total amount owned by him during the
from filing with the year.
Secretary, if the Secretary
does not act upon the REAL PROPERTY TAX (RPT) is the most important and ideal source or of revenue for
appeal. local governments. It is the largest contributor to the total own-source revenues of LGUs,
Denial of Protest of 60 days from receipt of the 30 days from the receipt of and remains to be the most reliable income source where local governments can raise an
Assessment notice of assessment the denial or from the lapse overwhelming share of their own-source tax revenues.
of the 60-day period to
appeal to the court. Basis of Real Property Tax: A Real estate tax is a direct tax on the ownership of lands and
Denial of Claim for Tax Within two years from the In refund cases, when the buildings or other improvements thereon, not specially exempted, and is payable regardless

65
of whether the property is used or not, although the value may vary in accordance with such 6. Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar
factor. nature, in case their owner has placed them or preserves them with the intention to
have them permanently attached to the land, and forming a permanent part of it;
Taxing real property on the basis of ACTUAL USE, even if user is not the owner; ACTUAL the animals in these places are included
USE refers to purpose for which the property is principally and predominantly utilized by the 7. Fertilizer actually used on a piece of land
person in possession. Same policy was adopted in the Local Government Code. 8. Mines, quarries and slag dumps, while matter forms part of the bed and waters
either running or stagnant
NATURE OF REAL PROPERTY TAX 9. Docks and structures though floating, are intended by their nature and object to
1. Usually single or indivisible, although land and building or improvements erected remain at a fixed place on a river, lake or coast
are assessed separately, except when land and building belong to separate 10. Contracts for public works and servitudes and other real rights over immovable
owners property
2. Fixed proportion of assessed value and requires intervention of assessors
3. Collected or payable at appointed times; constitutes as a lien on and is MACHINERY should be actually, directly and exclusively used to meet the needs of the
enforceable against property subject to tax and not by imprisonment particular industry, business or activity and which by their very nature and purpose are
4. Tax in rem against realty designed for, or necessary to its manufacturing, mining, logging, commercial, industrial, or
agricultural purposes.
Note: RPT being an ad valorem tax, cannot be treated as local tax
IMPROVEMENT: valuable addition made to a property or an amelioration in its condition,
REAL ESTATE includes all land within the district by which the tax is levied and all rights amounting to more than a mere repair or replacement of parts involving capital expenditures
and interests in such land, and all buildings and other structures affixed to the land, are the and labor, which is intended to enhance its value, beauty or utility or to adapt it for new or
property of the tenant and may be removed by him at the termination of the lease. When further purposes.
there are separate owners of land, separate assessments of property of each shall be It can also be artificial alterations of the physical condition of the ground that are reasonably
made. permanent in character.

IMMOVABLE PROPERTY (ART 415) PERMANENCE: “permanence intended in its construction and use”; expression
ART 415: The following are immovable property “permanent” as applied to an improvement does not imply that the improvement must be
1. Lands, buildings, roads and constructions of all kinds adhered to soil used perpetually but only until the purpose to which the principal realty is devoted has been
2. Trees, plants and growing fruits, while attached to land or form an integral part of accomplished. It is sufficient that the improvement remain as long as the land to which it is
an immovable annexed is still used for that purpose.
3. Everything attached to an immovable in a fixed manner, such way it cannot be LGUS WITH POWER TO IMPOSE REAL PROPERTY TAX—following may levy an annual
separated without breaking the material or deterioration of object ad valorem on real property not specifically exempted
4. Statues, reliefs, paintings or other objects for use or ornamentation placed in 1. Provinces
buildings or on lands by the owner of the immovable in such a manner that it 2. Cities
reveals the intention to attach them permanently to the tenements 3. Municipalities within Metro Manila
5. Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a B. Fundamental principles, exempt properties and classification of property
piece of land and which tend directly to meet the needs of the said industry or FUNDAMENTAL PRINCIPLES
works 1. Real property shall be appraised at its current and fair market value.
66
 2. Real property shall be classified for assessment purposes on the basis of its actual supply and distribution of
use. water and/or generation
3. Real property shall be assessed on the basis of a uniform classification within each and transmission of
LGU. electric power
4. Appraisal and assessment of real property shall be equitable. 3. Machinery and equipment
exclusively used for
EXEMPT PROPERTIES pollution control and
1. All RP owned by Republic or any of its political subdivisions environmental protection
a. EXCEPTION: when the beneficial use has been granted to a taxable
person
2. Charitable institutions, churches, parsonages or convents appurtenant to and all
lands, buildings and improvements actually, directly and exclusively used for 1. All RP owned by Republic or any of its political subdivisions
religious, charitable or educational purposes EXCEPTION: when the beneficial use has been granted to a taxable person
3. All machinery and equipment that are actually, directly and exclusively used by Note: LGU cannot tax the national government
local water districts and GOCCs engaged in the supply and distribution of water Liberal construction of exemption—General Rule: Tax exemption is strictly construed
and/or generation and transmission of electric power. against the taxpayer claiming the exemption.
4. All real property owned by registered cooperatives in RA 6938
5. Machinery and equipment exclusively used for pollution control and environmental EXCEPTION: When Congress grants an exemption to a national government
protection instrumentality from local taxation, such exemption is construed liberally in favor of the
national government instrumentality

Ownership exemptions Character exemptions Usage exemptions EXCEPTION TO EXCEPTION: When legislature clearly intended to tax government
On basis of ownership; On basis of their On basis of actual, direct and instrumentalities for delivery of essential public services for sound and compelling policy
Owned by character exclusive use to which they are considerations.
1. Republic 1. Charitable devoted There must be express language in the law empowering local governments to tax national
2. Province institutions 1. All lands, buildings and government instrumentalities.
3. City 2. Houses and improvements actually, SEC 133 LGC “unless otherwise provided”
4. Municipality temples of directly and exclusively
5. Barangay prayer used for religious, DOCTRINE OF EXEMPTION OF NATIONAL GOVERNMENT FROM LOCAL TAX
6. Registered 3. Non-profit or charitable or educational emanates from SUPREMACY OF NATIONAL GOVERNMENT
cooperatives religious purposes
cemeteries 2. All machinery and SEC 234 LGC--- government property being used by a taxable person or entity is subject to
equipment that are tax
actually, directly and Real property, although owned by the Republic, is not devoted to public use or public
exclusively used by local service but to private gain of taxable person.
water districts and
GOCCs engaged in the

67
EXCEPTION: when national government are subject to any kind of tax by local
governments. To qualify for exemption, use must be devoted to supply and distribution of water or
Exception to the exemption applies only to real estate tax and not to any other tax. generation and transmission of electric power. Machinery must be actually, directly and
Title of government property exclusively used for such purpose.
1. In the name of Republic
2. In the name of agencies or instrumentalities Contractual exemption—contractual assumption of the obligation to pay real property tax is
a. Republic may grant beneficial use of its real property to any agency or not sufficient to make one compellable to pay taxes due. It must be supplemented by an
instrumentality when real property is transferred to it even as Republic interest that the party assuming the liability has on the property tax.
remains the owner.
Thus, where vendee assumed liability for taxes, vendee is liable because he acquired use
Tax liability of beneficial use—corresponding liability for payment devolves on taxable and possession of the property, even though title remained with the vendor pending full
beneficial user and not the government. payment of the purchase price in a contract of conditional sale.
Property over which government has right to use—if the government has right to use the
property, the same may be exempted from realty tax Liability is prospective and does not cover delinquent taxes. This is because of the principle
that user of the property bears the tax. He cannot assume where he has no possession.
RECLAIMED AREAS—foreshore and submerged areas belong to the public domain and
are inalienable unless reclaimed, classified as alienable lands upon to disposition and Assumption of tax by an exempt entity—tax exempt entity may not validly assume the tax in
further declared no longer needed for public service. a contract with a taxable beneficial user with the intention of indirectly extending the
rd
Ownership remains with the State unless it is withdrawn by law or presidential proclamation former’s exemption to the latter. Such does not bind the LGU, a 3 party not privy to the
from public use. agreement and the beneficial user remains to be liable. Realty tax is directly chargeable to
Even if alienable lands of public domain were transferred to Philippine Reclamation the beneficial user.
Authority and issued land patents or certificates of title, it did not automatically made such
lands private. Reclaimed lands being leased or sold by PRA are not private lands. Only 4. All real property owned by registered cooperatives in RA 6938
when qualified private parties acquire these lands will the lands become private lands.
EMBASSIES—ART 23 Vienna Convention of Diplomatic Relations: sending state and head COOPERATIVE: autonomous and duly registered association of persons, with a common
of mission shall be exempt from all national, regional or municipal dues and taxes in respect bond of interest, who have voluntarily joined together to achieve their social, economic and
of premises of mission, whether owned or leased. cultural needs and aspirations by making equitable contributions to the capital required.
2. Charitable institutions, churches, parsonages or convents appurtenant to
and all lands, buildings and improvements actually, directly and exclusively Purposes of cooperative
used for religious, charitable or educational purposes 1. Encourage thrift and savings mobilization among members
2. Generate funds and extend credit to members for productive and provident
Partial exemption is possible if only a part of the property is used for exempted purpose. purposes
Real properties, although owned by taxable persons, which are actually, directly and 3. Encourage among members systematic production and marketing
exclusively being used by an exempt entity for religious, charitable or educational purposes, 4. Provide goods and services and other requirements to members
are exempted from payment of real property tax 5. Develop expertise and skills among its members
3. All machinery and equipment that are actually, directly and exclusively used 6. Acquire lands and provide housing benefits for members
by local water districts and GOCCs engaged in the supply and distribution of 7. Insure against losses of members
water and/or generation and transmission of electric power. 8. Promote and advance the economic, social and educational status of members
68
 9. Establish, own, lease or operate cooperative banks, cooperative wholesale and materials or of goods produced by its members into finished or
retail complexes process products for sale
10. Coordinate and facilitate activities of cooperatives
11. Advocate cause of cooperative movements c. All other taxes unless otherwise provided
12. Ensure viability of cooperatives through utilization of new technologies d. Donations to charitable, research and educational institutions and
13. Encourage and promote self-help reinvestment to socioeconomic projects within the area of operation may
14. Undertake any and all other activities for effective implementation of Cooperative be tax deductible
Code
3. All cooperatives regardless of amount of accumulated reserves and undivided net
Tax Treatment of cooperative—duly registered cooperatives which do not transact any savings shall be exempt from payment of local taxes and taxes on transactions
business with non-members or the general public shall not subject to any taxes and fees with banks and insurance companies
imposed under internal revenue laws. a. Sales or services for non-members shall be subject to applicable
Cooperatives transacting business with both members and nonmembers shall not be percentage taxes by producers, marketing or service cooperatives
subjected to tax on their transaction with members. Transactions of members with the b. Nothing in law shall preclude examination of books of accounts
cooperative shall not be subject to any taxes and fees, final taxes on members’ deposits
and documentary tax.
Tax exemptions of cooperatives dealing with nonmembers 5. Machinery and equipment exclusively used for pollution control and
1. Cooperatives with accumulated reserves an undivided net savings of not more environmental protection
than 10M shall be exempt from all national and local taxes. RA 7942 (Philippine Mining Act)—POLLUTION CONTROL AND INFRASTRUCTURE
a. Such cooperatives shall be exempt from customs duties, advance sales DEVICES: infrastructure, machinery, equipment and improvements used for impounding,
or compensating taxes on their importation of machinery, equipment and treating or neutralizing and cleansing mine industrial waste.
spare parts and which are not available locally a. Pollution control devises shall not be considered as improvements on
b. All tax free importations shall not be sold nor the beneficial ownership be land or building they are attached and not subject to real property tax
transfer to any person until after 5 years, otherwise cooperative and i. However, payment of mine wastes and tailing fees is not
transferee shall be solidarily liable to pay twice the amount of imposed tax exempted
b. Claim of exemption must be supported by evidence that property is
2. Cooperatives with accumulated reserves an undivided net savings of not more actually, directly and exclusively used for pollution control and
than 10M shall pay the following taxes at full rate environmental protection
a. Income tax—amount allocated for interest on capitals
i. Same tax is not consequently imposed on interest received by WITHDRAWAL OF EXEMPTION—exemption from payment of real property tax previously
members granted or enjoyed by all persons was withdrawn by LGC
ii. Cooperatives are exempt from income tax from date of
registration with CDA Taxability of Squatted Property
Express grant of temporary exemption—LGU may, by ordinance, expressly exempt
b. VAT—on transactions with nonmembers squatted lands on a temporary basis. Exemption is automatically lifted when owner has full
i. Exemption under NIRC shall include sales and operated by control of property.
members to undertake production and processing of raw CLASSES OF REAL PROPERTY FOR ASSESSMENT PURPOSES
1. RESIDENTIAL: land principally devoted to habitation
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 2. AGRICULTURAL: land devoted to planting trees, raising of crops, livestock and sources stated in LGC necessary in order to materials and labor costs to
poultry, dairying, salt making, inland fishing estimate the sum which reproduce a new replica of the
3. COMMERCIAL: land devoted for object of profit might be invested in the improvement
4. INDUSTRIAL: land devoted to industrial activity as capital investment purchase of the property
5. MINERAL: land in which minerals exist in sufficient quantity to justify necessary
expenditures to extract and utilize such No rigid rule
6. TIMBERLAND: land covered with trees suitable for carpentry C. Rates of Levy, Penalties and Condonation
7. SPECIAL: all lands, buildings and other improvements actually, directly and UNIFORM RATE OF BASIC REAL PROPERTY TAX
exclusively used for hospitals, cultural or scientific purposes; and those owned and 1. Province: not exceeding 1% of the assessed value of real property
used by local water districts and GOCCs for public services in supply of water and 2. City or municipality within Metro Manila Area: not exceeding 2% of the assessed
generation and transmission of electric power value of real property

Real property shall be classified based on its actual use Local Government Unit authorized to collect real estate tax on properties:
1. Valued 1. Within its territorial jurisdiction; and
2. Assessed 2. Unquestionably within its geographical boundaries.

Zoning—city or municipality within Metropolitan Manila Area, through their sanggunian, shall In case of BOUNDARY DISPUTE between two local governments, while the case is
have the power to classify lands in accordance with their zoning ordinances pending:
Tax declarations are not conclusive. It only enables the assessor to identify it for 1. if the taxpayer already paid real property tax in one unit, no liability to pay in the
assessment levels. It does not bind the provincial/city assessor, for appraisal and other unit
assessment are based on actual use irrespective of any previous assessment or taxpayer’s 2. if he has yet to pay, deposit due real property taxes in an escrow account with a
valuation which is based on a taxpayer’s declaration. government bank.
Incidental and reasonably necessary use- classification of property as special is not limited No public hearing shall be required before the enactment of a local tax ordinance levying
to property actually indispensable but to facilities that are incidental to and reasonable the basic real property tax.
necessary for the accomplishment of its purpose SPECIAL LEVIES ON REAL PROPERTY
Approaches in determining fair market value—assessor uses any or all in analyzing data 1. Additional levy for the Educational Fund
gathered to arrive at the estimate fair market value to be included in the ordinance 2. Additional Ad Valorem tax in idle lands
containing the schedule of fair market values. 3. Special levy by local government units, through a tax ordinance describing with
reasonable accuracy the:
a. Nature
1. Sales analysis or market 2. Income capitalization 3. Replacement or b. Extent
data approach approach reproduction cost approach c. Location of the public works projects or improvements to be undertaken
Price paid in actual market Value of an income Factual approach used d. State of the estimated cost thereof
transactions is considered producing property is no exclusively in appraising man- e. Specify the metes and bounds by monuments and lines; and
by taking into account valid more than the return derived made improvements such as f. The number of annual installments for the payment of the special levy
sales data accumulated from it. An analysis of the buildings and other structures, which in no case shall be less than 5 nor more than 10 years.
from among various income produced is based on such data as *The Sanggunian concerned shall conduct a public hearing before the enactment
of an ordinance imposing a special levy.
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 4. Socialized Housing Tax: additional 0.5% tax in the assessed value of all lands in *30 days from filing of declaration property, claim for Tax Exemption for such property, if
urban areas in excess of Php 50, 000.00 any, shall be filed with the provincial, city or municipal assessor
LISTING IN THE ASSESSMENT ROLL: real property shall be listed, valued and assessed
PENALTIES FOR VIOLATION OF TAX ORDINANCES in the name of the owner or administrator, or anyone having interest in the property
1. Sanggunian of local government unit:
a. Fine – Php 1, 000.00 to Php 5, 000.00; and/or APPRAISAL OF REAL PROPERTY: at the current and fair market value prevailing in the
b. Imprisonment – 1 month to 6 months locality where the property is situated
2. Sangguniang barangay:
a. Fine – Php 100.00 to Php1, 000.00 Schedules of Fair Market Value:
1. Published in a newspaper of general circulation in the province, city or municipality;
CONDONATION OR REDUCTION OF REAL PROPERTY TAX or in the absence thereof
By the sanggunian concerned, upon recommendation of the Local Disaster Coordinating 2. Posted in the provincial capitol, city or municipal hall and in 2 other conspicuous
Council in cases of: public places therein
1. General failure of crops
2. Substantial decrease in the price of agricultural or agri-based products ASSESSMENT: the assessment levels to be applied to the fair market value of real property
3. Calamity to determine its assessed value shall be fixed by ordinances of the sangguniang
By the President of the Philippines in cases: panglalawigan, sangguniang panglungsod or sangguniang bayan of a munipality at the
4. When public interest so requires rates not exceeding those provided in Section 218 of the Local Government Code.
*General revision of real property assessments shall be undertaken by the assessor
D. Declaration, Assessment, and Appraisal of Real Property within 2 years after the effectivity of the Local Government Code and every 3 years
COMPUTATION OF REAL PROPERTY TAX thereafter.
Steps:
i. Determine the market value; E. Duties of Certain Local Officials, Private Individuals, and Entities
ii. Ascertain the assessment level of property Registrar of Deeds
iii. Multiply the market value by the applicable assessment level of the property to • To ascertain whether or not any real property entered in the Register of
determine the assessed value; and Property has escaped discovery and listing for the purpose of taxation.
iv. Find the tax rate which corresponds to the class of the property and multiply the • To submit to the provincial, city, or municipal (PCM) assessor an abstract of
assessed value by the applicable tax rates. his registry which includes brief but sufficient description of real properties
Formula in computing real property tax: entered therein, present owners, and the dates of their most recent transfer or
1. Fair Market Value x Assessment Level = Assessed Value alienation.
2. Assessed Value x Tax Rate = Real Property Tax • To require every person who shall present for registration a document of
transfer, alienation, or encumbrance (TEA) of real property to accompany the
DECLARATION OF REAL PROPERTY: the sworn declaration of real property shall be filed TEA with a certificate that the real property subject of the TEA has been fully
with the assessor concerned paid of all real property taxes due thereon.
1. every 3 years during the period from January 1st to June 30th commencing with • Failure to provide such certificate: ROD will refuse the registration of the
the calendar year 1992; and document.
2. within 60 days after the acquisition of such property or upon completion or
occupancy of the improvement.
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Officials Issuing Building Permits or Certificates of Registration of Machinery - Motion for reconsideration is not allowed by the procedure to be filed by the
• To transmit a copy of such permit or certificate within 30 days of its issuance property owner to the local assessor.
to the assessor of the province, city, municipality (PCM) where the property is - Notice of appeal is the last action which gives the owner of the property the right
situated. to appeal to the Local Board of Assessment Appeals (LBAA).
- Whenever the local assessor sends a notice to the owner or lawful possessor of
Geodetic Engineers the real property, the assessor shall no longer have jurisdiction to entertain any
• To furnish free of charge the assessor of the province, city, municipality (PCM) request or readjustment.
where the land is located with a white or blue print copy of each of all - Where should the taxpayer go? The aggrieved party may bring his appeal to
approved original or subdivision plans or maps of surveys within 30 days from the LBAA as provided by law.
receipt of such plans from Lands Management Bureau (LMB), Land
Registration Authority (LRA) or the Housing and Land Use Regulatory Board Who is the Proper Party to File a Protest?
(HLURB). - A person who is legally burdened with the obligation to pay for the tax imposed
on a property has a legal interest in the property and he has the personality to
Registrar of Deeds and Notaries Public protest a tax assessment on the property.
• To furnish the provincial, city, or municipal (PCM) assessors with copies of all - Liability for taxes generally rests on the owner of the real property at the time the
contracts selling, transferring, or otherwise conveying, leasing, or mortgaging tax accrues.
real property received by or acknowledged before them. - However, a personal liability for realty taxes may also expressly rest on the entity
with the beneficial use of the real property.
Insurance Companies to Furnish Information - In those cases, the unpaid realty tax attaches to the property but is directly
• To furnish the provincial, city, or municipal (PCM) assessor copies of any chargeable against the taxable person who has actual and beneficial use
contract or policy insurance on buildings, structures, and improvements and possession of the property even though he is not the owner.
insured by them or other documents necessary for the proper assessment
thereof. Examples:
-Tax on property owned by the government but leased to private persons or
F. Assessment Appeals entities.
-When the tax assessment is made in the basis of the actual use of the property.
Remedy of Dissatisfied Taxpayer Against Assessment
- The Dissatisfied Taxpayer may appeal to the Board of Assessment Appeals of - Legal interest should be an interest that is actual, material, direct and
the city or province, within 60 days from the date of receipt of the written immediate, not simply contingent or expectant.
notice of assessment.
How? Lessee may protest
• By filing a petition under oath in the form prescribed for the purpose. When? if granted full power and authority to represent the lessor in any
• Together with the copies of the tax declarations and such affidavits or proceeding regarding real property assessment.
documents submitted in support of the appeal
Composition of the Board Assessment Appeals
Motion for Reconsideration is not allowed - The Register of Deeds as Chairman
- The Provincial or City Prosecutor as member
- The Provincial or City Engineer as member
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 In case there is no Provincial or City Engineer, the district engineer shall serve as - The Board shall decide the appeal within 120 days from the date of receipt of
member of the Board. such appeal.
What will happen in the absence of Registrar of Deeds, or the provincial or city Exception to Exhaustion of Administrative Remedies
prosecutor, or the provincial or city engineer or the district engineer? the persons - Exhaustion of administrative remedies does not apply in cases where the
performing their duties, whether in an acting capacity or as a duly designated officer in controversy does not involve questions of fact but only of law.
charge, shall automatically become the chairman or member, respectively of said Board, as - In this case, the jurisdiction is with the trial court.
the case may be.
Estoppel in Questioning Jurisdiction
Oath or Affirmation of Office - A party cannot invoke a court’s jurisdiction to secure affirmative relief and,
- The Chairman and members of the Board of Assessment appeals shall after failing to obtain the requested relief, question that same jurisdiction.
assume their respective positions without need of further appointment or Appeal of Unfavorable Decision
special designation immediately upon the effectivity of the LGC. - The party who is not satisfied with the decision of the Board may, within 30
days after the receipt of the decision of said Board, may appeal to the Central
Board Meetings Board of Assessment Appeals.
- The Board of Assessment Appeals of the province or city shall meet once - The decision of the Central Board shall be final and executory.
a month and as often as may be necessary.
- No member of the Board shall be entitled to per diems or travelling Composition of the Central Board of Assessment Appeals
expenses for his attendance in Board Meetings. - Chairman
Exception: - 2 Members to be appointed by the President, who shall serve for a term of 7
When conducting an ocular inspection regarding a case under appeal. years without reappointment

No Suspension of Collection despite Appeal • Hearing Officers

• Appeal on assessments of real property made under the provisions of LGC - shall be appointed by the Central Board of Assessment Appeals pursuant to the
does not suspend the collection of the corresponding realty taxes on the civil service laws, rules, and regulations.
property involved. - shall serve for 6 years, without reappointment until their successors have been
appointed and qualified.
Powers of the Board in the Exercise of its Appellate Jurisdiction
1. Summon witnesses • Fact-Finding Function
2. Administer Oaths - CBAA’s authority is not limited to the exercise of its appellate jurisdiction.
3. Conduct Ocular Inspection Why? Because the Supreme Court, in the exercise of its extraordinary jurisdiction,
4. Take Depositions may also designate it as a “court appointed fact-finding commission to assist the
5. Issue Subpoena and Subpoena Duces Tecum court in factual decisions” raised in certain actions such as prohibition.

Decision and Degree of Evidence Required G. Collection of Real Property Tax

- The Board after hearing, shall render its decision based on substantial evidence Date or Accrual of Tax
or such relevant evidence on record as a reasonable mind might accepts as - The real property tax for any year shall accrue on January 1
adequate to support the conclusion. - From that date, it shall constitute a lien on the property.

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 - Such lien shall be superior to any other lien, mortgage, or encumbrance of What happens if the last day of the quarterly payment falls on a holiday or
any kind. non-working day? the next succeeding business day is considered the last day
- It will only be extinguished upon the payment of the delinquent tax. of payment of the tax.

Person Responsible for Collection of Tax Tax Discount for Advanced Prompt Payment
• City or Municipal Treasurer - If the basic real property tax and the additional tax accruing to the Special
- Collection of the real property tax with interest thereon and related Education Fund are paid in advance, the sanggunian shall grant a discound not
expenses, and the enforcement of the remedies. exceeding 20% of the annual tax due.
• Barangay Treasurer Repayment of Excessive Collections
- May be deputized by the city of municipal treasurer to collect all taxes on • Assessment of basic real property tax or any other tax is found to be illegal
real property located in the barangay provided that the barangay treasurer or erroneous
is properly bonded. - Taxpayer may file a written claim or refund or credit for taxes and
interests within 2 years from the date that the taxpayer is entitled to such
Collection by Municipalities reduction or adjustment.
- Real property tax is a provincial imposition - The provincial or city treasurer shall decide the claim for tax refund or
- But the collection of which is delegated to the component municipalities through credit within 60 days from receipt thereof.
their respective Municipal Treasurers who shall issue official receipts for payments - Claim for tax is denied – the taxpayer may avail of assessment appeals.
received and recorded in the reports of collections and deposits and in the cash Payment under Protest
books. - No protest shall be entertained unless the taxpayer first pays the tax.
- There shall be annotated on the tax receipts the words “paid under protest”.
Conversion of Municipality to City Protest Not Required in Refund
1. The remittance of the share of the mother Province from the basic real property - Protest is not a requirement in order that a taxpayer who paid under a mistaken
taxes is a statutory obligation of the component municipalities which are only deputized belief that it is required by law, may claim for a refund.
to collect real property tax.
2. A component municipality that has been converted into a city remains obligated to
remit the share of the mother province from any real property tax due before its Procedure
conversion, but were paid and collected thereafter. - Should the taxpayer or real property owner question the excessiveness of
3. A newly converted city that has not enacted its own real property tax ordinance, but reasonableness of the assessment, the taxpayer should first pay the tax due
collects real property tax using the real property tax ordinance of the province is before his protest can be entertained.
obligated to remit the share therefrom of the latter. - There shall be annotated on the tax receipts the words “paid under protest”
4. Once the newly converted city enacts its own property tax due and collected - The local treasurer would not entertain the protest unless the tax due has been
pursuant thereto shall accrue exclusively to the city. paid.
- If the local treasurer denies the protest or fails to act upon it within the 60-day
Payment of Real Property Taxes in Installments period, the taxpayer or real property owner may then appeal or directly file a
- The owner of the real property of the person having legal interest therein may pay verified petition with the LBAA within 60 days from denial of the protest or receipt
the basic real property tax and the additional tax for Special Education Fund due of the notice of assessment.
thereon without interest in four equal instalments.
Pretemission of Holiday
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H. Delinquency in Payment of Real Property Taxes I. Levy on Real Property
After the expiration of the time required to pay the basic real property tax or any
Notice of Delinquency other tax, the subject real property may be levied upon through the issuance of a
- The provincial, city, or municipal treasurer shall immediately cause a notice of warrant on or before, or simultaneously with the institution of the civil action for the
delinquency when the real property tax or other tax becomes delinquent. collection of the delinquent tax.
- The notice must be posted at the main entrance of the provincial capitol, or city or
municipal hall and in a publicly accessible and conspicuous place in each Warrant of Levy
barangay. - Provincial or city treasurer or a treasurer of a municipality within Metro Manila
- The notice shall also be published once a week for 2 consecutive weeks in a shall prepare a duly authenticated certificate showing the name of delinquent
newspaper of general circulation in the province, city, or municipality. owner of the property or person having legal interest therein, description of the
- The notice shall specify: property, amount of tax due, and interest thereon.
i. Date upon which the tax became delinquent - It shall operate with the force of legal execution throughout the province, city, or
ii. That personal property may be distrained to effect payment a municipality within Metro Manila.
iii. That at the time before the distraint of personal property, payment of the • Service of Warrant
tax with surcharges, interests and penalties may be made - It shall be mailed to or served upon delinquent owner or person having legal
iv. Unless the tax is paid before expiration of the year for which the tax is interest therein
due, the delinquent real property will be sold at public auction, and the - In case the person is out of the country or cannot be located, to the
title to the property will be vested in the purchaser, subject to the administrator or occupant of the property.
delinquent owner’s right to redemption within 1 year from date of sale - Notice is mandatory
 An essential and indispensable requirement; non-fulfillment of which
Interests on Unpaid Real Property Tax vitiates the sale
- Taxpayer shall pay interest at the rate of 2% per month on the unpaid amount of  Holding of a tax sale despite the absence of requisite service is
basic real property tax or any other tax upon the expiration of the periods for tantamount to violation of delinquent taxpayer’s substantial right to due
payment, or when due, until the delinquent tax shall have been fully paid. process.
- In no case shall the total interest on the unpaid tax or portion thereof exceed 36 - No presumption of regularity
months. - Registered Owner Rule
 For purposes of real property taxation, the registered owner of the
Remedies for the collection of Real Property Tax property is deemed the taxpayer.
- LGU concerned may avail of:  Local treasurer cannot rely solely on the tax declaration but must verify
1. Administrative action thru: (i) levy on real property, or (ii) judicial action with the Register of Deeds
2. Civil action in any court of competent jurisdiction. The civil action shall be filed • Annotation
by the local treasurer within the prescribed period. - Written notice of the levy with the attached warrant shall be mailed to or served
- Basic real property tax and any other tax constitutes a lien on property subject to upon the assessor and the Registrar of Deeds (RD) of the province, city, or
tax, superior to all liens, charges or encumbrances in favor of any person, and may municipality within Metro Manila
only be extinguished upon payment of the tax and the related interests and - Assessor shall annotate the levy on the tax declaration while RD shall annotate
expenses. on the title of the property
• Report

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 - Within 10 days after receipt of warrant by owner, levying officer shall submit a o Exception: If a local ordinance provides that the one-year redemption
report on the levy to the sanggunian concerned period should be counted from the date of annotation of the sale of the
property at the proper registry
Advertisement and Sale o In cases involving redemption, the law protects the original owner.
- Within 30 days after service of warrant of levy, local treasurer shall publicly - Payment will invalidate the certificate of sale issued to the purchaser; owner or
advertise for sale or auction the property or a usable portion thereof person with legal interest shall be entitled to a certificate of redemption, issued
- Advertisement shall be effected by posting a notice at the main entrance of the by local treasurer or his deputy
provincial, city or municipal building, and in a publicly accessible and conspicuous - From date of sale until expiration of the period of redemption, delinquent owner or
place in the barangay where the real property is located, and by publication once person with legal interest shall be entitled to the income and other fruits of the
a week for 2 weeks in a newspaper of general circulation in the province, city or subject property.
municipality - Local treasurer or his deputy, upon receipt of certificate of sale, shall return to the
- Advertisement shall specify the amount of delinquent tax, interest due thereon purchaser the entire amount paid by him plus interest of not more than 2% per
and expenses of sale, date and place of sale, the name of the owner of the real month.
property or person having legal interest therein, and a description of the property
to be sold. Final Deed of Purchase
• Stay of Proceedings - Local treasurer shall execute a deed conveying the property to purchaser in case
- Owner or person having legal interest may stay the proceedings by paying the owner or person with legal interest fails to redeem the property.
delinquent tax, interest due and expenses of sale at any time before the date • Purchase by LGU
fixed for the sale. - Local treasurer shall purchase the real property in behalf of LGU concerned if
- Payment of delinquent tax even at the auction stage is allowed, provided the (i) there’s no bidder or (ii) the highest bid is for an amount insufficient to pay the
entire amount with interest and expenses is paid. The public auction will be real property tax and the related interest and costs of sale
stopped. - RD shall transfer the title of the forfeited property to the LGU without necessity
- The sale shall be held at the main entrance of the provincial, city, or municipal of an order from a competent court
building, or on the property to be sold, or at any other place as specified in the - Taxpayer or his representative may redeem the property within 1 year from
notice of the sale. date of such forfeiture, by paying the full amount of the real property tax and
- Local treasurer shall prepare and deliver to the purchaser a certificate of sale. the related interest and costs of sale.
- Proceeds of the sale in excess of the delinquent tax shall be remitted to the owner - If not redeemed, ownership shall be fully vested on the LGU.
or person having real interest therein. • Property under Litigation
- Local treasure may, by ordinance duly approved, advance an amount to defray the - The court may motu proprio or upon representation of the provincial, city, or
costs of collection. municipal treasurer award ownership, possession, or succession to any party to
the action upon payment to the court of the taxes with interest and other costs.
Redemption of Property Sold
- Right to redeem exists within 1 year from the date of sale, upon payment to the Resale of Real Estate Taken for Taxes, Fees, or Charges
local treasurer of the amount of the delinquent tax including interests and - The sanggunian may by ordinance duly approved and upon notice of not less than
expenses of sale, plus interest of not more than 2% per month on the purchase 20 days, sell and dispose of real property acquired by the LGU. The proceeds of
price from date of sale to the date of redemption the sale shall accrue to the general fund of the LGU.

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

Interruption or Suspension of Prescriptive Period Fees Charged by the Bureau of Customs (WHAT-BS)
The period to collection shall be interrupted or suspended in the following instances:
i. Local treasurer is legally prevented from collecting the tax
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 What Who Pays d. Opium pipes and parts thereof
Wharfage Amount assessed against the cargo of the Owner, consignee, or agent 2. Qualifiedly prohibited articles – those that may be imported subject to certain
due vessel engaged in foreign trade based on the of the owner or consignee conditions or limitations
quantity, weight, or measure received or of the article a. Dynamite, gunpowder, ammunition and other explosives, firearms and
discharged by such vessel weapons of war
Harbor fee Payment for each entrance into or departure Owner, agent, operator or b. Devices used for gambling (roulette wheels, gambling outfits, loaded dice,
from a port of entry in the PH master of a vessel marked cards)
Arrastre Payment for the handling, receiving, and Owner, consignee, or agent c. Lottery and sweepstakes tickets except those authorized by the PH
charge custody of the imported or exported article or of the owner or consignee government
baggage of the passengers of the article or baggage d. Any article manufactured in whole or in part of gold, silver or other precious
Tonnage Amount paid based on the net tonnage of the Owner, agent, operator, or metals or alloys thereof, the stamps, brands or marks of which do not indicate
due vessel or weight of the articles discharged or master of the vessel the actual fineness of quality of said metals or alloys
laden in PH e. Marijuana, opium poppies, coca leaves, heroin and other narcotics or
Berthing Amount assessed against a vessel for mooring Owner, agent, operator, or synthetic drugs which are declared habit-forming by the president of PH
charge or berthing at a pier or wharf at any port in the master of the vessel
PH Conditionally-free Importations – articles that are exempt from payment of import duties
Storage Amount assessed on articles for storage in Owner, consignee, or agent upon compliance with prescribed formalities or regulations
charge customs premises, cargo shed and of the owner or consignee
warehouses of the government of the article Fraudulent practice – any article sold, bartered, hired or used for purposes other than that
they were intended without prior payment of duties, taxes or charges due and payable at the
Articles Subject to Duty – goods, ware, merchandise and anything that may be made the time of entry
subject of importation or exportation
1. Freely-importable articles – articles that may be imported without regulation, Temporary admission/temporary imports – those conditionally-free importations that may
prohibition, or prior clearance from the government be imported without payment of duties upon posting of a bond equivalent to 150% of the
2. Regulated articles – articles which may be imported in the PH subject to taxes due thereon conditioned on the re-exportation thereof within a specified period
clearances or permits from appropriate regulatory government agencies or Example:
departments a. Articles brought for repair to be re-exported upon completion of the repair
3. Money, checks, and money orders b. Articles used exclusively for public entertainment, public display or exhibition
c. Articles brought by foreign film producers directly and exclusively used for making
Prohibited Articles or recording motion picture films on location in the PH (THINK: Jason Bourne
1. Absolutely prohibited articles movie)
Example: d. Personal and household effects and vehicles of foreign consultants and experts
a. Written or printed articles advocating or inciting treason, rebellion, sedition, hired by the government
insurrection or subversion against the government of PH e. Imported material used in manufacturing, packaging, covering, branding and
b. Written or printed articles, negatives, or cinematographic film, photograph and labeling articles in a bonded manufacturing house
similar articles representing obscene or immoral character
c. Articles, drugs, instruments for producing unlawful abortion “Drawbacks” – a refund of duties especially on imported products subsequently exported
or used to produce a product for export
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 Who pays: Bureau of Customs b. amount for profit and general expenses reflected in
When paid: 60 days after receipt of properly accomplished claims the sale of goods;
c. freight insurance fees and other transportation
B. Basis of Dutiable Value and Weight expenses;
d. Any assist, if its value is not included under par. (a);
1. Valuation System/Hierarchical Order of Application and
-stated sequentially. e. cost of containers and packing.
-application is done in order.
-when the dutiable value cannot be determined under the particular method, the Method Six: Fallback Value – using other reasonable means and on the basis of data
next method in the sequence can be used. available in the Philippines.

Method One: Transaction Value – the price actually paid or payable for the goods when *Limitations: No dutiable value shall be determined under this method on the basis
sold for export to the Philippines, adjusted by adding: of:
a. fees to the extent that they are incurred by the buyer but not included in the 1. selling price in the Philippines of goods produced in the Philippines;
price actually paid or payable for the imported goods; 2. system that provides for the acceptance for customs purposes of the
b. the value of the proceeds of any subsequent resale, disposal or use of the higher of 2 alternative values;
imported goods; 3. price of goods in the domestic market of the country of exportation;
c. cost of transport; 4. cost of production, other than computed values, that have been
d. loading/unloading and handling charges; and determined for identical or similar goods
e. cost of insurance 5. price of goods for export to a country other than the Philippines;
6. minimum customs values; or
Method Two: Transaction Value of Identical Goods – transaction value of identical 7. arbitrary or fictitious values.
goods sold for export and exported at or about the same time as the goods being valued.
*Identical goods: same in all respects (physical characteristics, quality, reputation) *Release of Goods in Case of Delay – if it becomes necessary to delay the final
determination of such dutiable value, the importer shall secure the release of the
Method Three: Transaction Value of Similar Goods – transaction value of similar goods imported goods by filing sufficient guarantee in an amount equivalent to the
for export and exported at or about the same time as the goods being valued. imposable duties and taxes on the imported goods. However, goods prohibited by
*Similar goods: although not alike in all respects, have like characteristics and like law to be imported shall not be released.
component materials which enable them to perform the same functions and to be
commercially interchangeable. *Right of Collector of Customs: When a declaration has been presented and when
the customs administration has reason to doubt the truth or accuracy of such
Method Four: Deductive Value – based on the unit price sold in the Philippines in the documents produced, he may ask the importer to provide further explanation that
greatest aggregate quantity to persons not related to the persons from whom they buy such the declared value was adjusted in accordance with the provisions of Method One.
goods. If, after receiving further information, or in the absence of a response, he
still has reasonable doubt therein, it may be deemed that the customs value of the
Method Five: Computed Value - computed value which shall be the sum of: imported goods cannot be determined under Method One, without prejudice to an
a. cost or value employed in producing the imported importer’s right to appeal.
goods;
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2. Bases of Dutiable Weight.
C. REGULAR AND SPECIAL DUTIES
a. dutiable by the gross weight – weight of the same, together with the weight of
all containers, packages, holders, and packing of any kind at the time of 1. Regular Duties/Tariff Barriers – Taxes that are imposed or assessed upon
importation. merchandise from, or exported to a foreign country for the purpose of raising revenue. It
b. dutiable by the legal weight - weight of the same, together with the weight of may also limit the amount of goods, which can be imported into a country.
immediate containers, packages, holders, and packing in which such articles are
usually contained at the time of importation and/or, when imported in retail Purpose of Tariff Barriers: Designed to protect the domestic manufacturers or producers
packages, at the time of their sale to the public in usual retail quantities. from foreign competition.
c. dutiable by the net weight – only the actual weight of the articles at the time of
importation. Kinds of Regular Duties/Tariff Barriers
d. articles affixed to cardboard, wood, paper or similar common material – dutiable
together with the weight of such holders. Four ways to assessed Custom Duties:
e. single package contains imported articles dutiable according to different
weights –common exterior receptacles shall be prorated. 1.1 Ad valorem Duty – Assessed as percentage of the import value of goods(e.g., 30% of
Free on Board price).
3. Rate of Exchange – value and prices quoted in foreign currency shall be converted into 1.2 Specific Duty - Assessed on the basis of some units of measurement such as
the currency of the Philippines at the current rate of exchange by the BSP. quantity (e.g., Php500.00 per dozen) or weight, either net, legal or gross weight.
1.3 Alternating Duty – Alternates ad valorem and specific duties.
4. Effective Date of Rates of Import Duty 1.4 Compound Duty – Assessed as a combination of the specific duty and ad valorem
*Imported articles – existing at the time of entry or withdrawal from a warehouse duty (e.g., Php 200.00 per kilogram net, plus 30% of FOB price).
in the Philippines for consumption.
*Articles Abandoned/Forfeited/Seized – on the date of the public auction 2. Special Duties/Non-tariff Barriers – Imposed and collected in addition to the ordinary
*Dutiable Weight/Quantity/Volume of Articles – at the time of their entry into the custom duties on specific kinds of imported articles under certain conditions usually for the
warehouse or date of abandonment, forfeiture and/or seizure. protection of consumers and manufacturers as well as Philippine products from undue
competition posed y foreign-made products.
5. Entry or Withdrawal from Warehouse, for Consumption:
Kinds of Special Duties/Non-Tariff Barriers
*deemed “entered” in the Phil. for consumption – when specified entry form is
properly filed and accepted, together with any related documents required, at the port or 2.1. Anti – Dumping Duty - It refers to a special duty imposed on the importation of a
station, by any the customs official designated to receive such and the required fees have product, commodity or article of commerce into the Philippines at less than its normal value
been paid provided that the article has previously arrived within the limits of the port of when destined for domestic consumption in the exporting country. (Formula: Anti-Dumping
entry. Duty =Normal Value – Export Price)

*deemed “withdrawn” from a warehouse in the Phil. For consumption – when Elements of Dumping:
the specified form is properly filed and accepted at the time of withdrawal by the customs a. Like Product
official designated to receive the withdrawal entry and any fees required to be paid at the b. Price Difference
time of withdrawal have been deposited. c. Injury
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 d. Causal Link j. Preliminary Determination
k. Final Determination
Effects of Dumped Products: l. Issuance of Department Order
a. Price Depression m. Judicial Review
b. Price Suppression
c. Price Undercutting Subsidy – Any specific Assistance directly or indirectly provided by the government of the
country of export or origin in respect of the product imported into the Philippines.
Procedure:
a. Filing of Anti –Dumping Protest a. Yellow Subsidies or Actionable subsidies – Neither non-actionable nor
b. Filing a Bond prohibited subsidies
c. Prima Facie Determination b. Green Subsidies or Non- Actionable Subsidies – Permitted as they are of a
d. Preliminary Determination general nature
e. Final Determination c. Red Subsidies or Prohibited Subsidies – Include export subsidies that are
f. Issuance of Department Order contingent on export performance and on the use of domestic over imported
g. Judicial Review goods.
Note:
Dumped Import Product - Refers to any product commodity or article of commerce Industries are deemed to have received subsidy as a result of : ( i) Direct or potential
introduced into the Philippines at an export price less than its normal value in the ordinary transfer of government fund (ii) The government foregoing the revenue that should have
course of trade which is causing material injury to the domestic industry. otherwise been collected ( iii) The government providing goods or services or purchasing
goods
Note: Dumping occurs when foreign producers sell their products to an importer in the
domestic market at prices lower than in their own national market. It is a form of price Subsidy in order to be countervailable must be ( i) Specific (ii) An industry sector or
discrimination between two national markets. group of industries (iii) A designated geographic region within the jurisdiction of the granting
authority
2.2. Countervailing Duty – It is levied, in addition to the regular duty and other charges by
an importing country on its imports which have been found to be subsidized in the country of 2.3. Marking Duty – It is imposed on every article of foreign origin imported into the
origin or exportation. It is equal to the ascertained amount of subsidy calculated in terms of Philippines which is not marked in any official language of the Philippines in a conspicuous
subsidy per unit of the subsidized export product. place as legibly, indelibly and permanently as the nature of the article or its container will
permit (in such a manner as to indicate to an ultimate purchaser in the Philippines) the
Elements: name of the country of origin of the article.
a. Product Compatibility
b. Subsidy Note:
c. Injury The failure or refusal of the owner or importer to mark the articles within a period of thirty
d. Causal Link days after due notice shall constitute as an act of abandonment of said articles.
e.
Procedure: 2.4 Discriminatory Duty – It is imposed on articles wholly or in part the growth or product
h. Filing a Petition of or imported in a vessel of any foreign country whenever such country:
i. Prima Facie Determination
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 (i.) Imposes directly or indirectly upon the disposition or transportation in transit
through or re-exportation from such country of any article wholly or in part the D. FLEXIBLE TARIFF CLAUSE
growth.
Basis: The Congress, may, by law authorize the President to fix within the specified limits,
(ii.) Discriminates in fact against the commerce of the Philippines, directly or and subject to such limitations and restrictions as it may impose, tariff rates, import and
indirectly, by law or administrative regulation or practice, by or in respect to export quotas, tonnage and wharfage dues, and other duties or imposts, within the
any customs, tonnage, or port duty, fee, charge, exaction, classification, framework of the national development program of the government. (Section 28(2) of Article
regulation, condition, restriction, or prohibition in such manner as to place the VI of the 1987 Constitution)
commerce of the Philippines at a disadvantage compared with the commerce *May be exercised even for revenue purposes only
of any foreign country.
Tariff Powers of the President:
Note: 1) Increase, reduce, or remove existing protective rates of import duties including the
If such foreign country increased its said discrimination against the commerce of the necessary changes in the classification
Philippines, the president if he deems it consistent with the interest of the Philippines, issue Condition: increase in the rate cannot exceed 100% ad valorem
further proclamation that the said product and articles of the foreign country imported in its 2) Establish import quota or ban import of any commodity whenever necessary
vessel, shall be excluded from importation into the Philippines. 3) Impose additional duty on ALL imports, not exceeding 10% ad valorem whenever
necessary
2.5. Safeguard Measure Duties - It is imposed to protect domestic industries and 4) Cause a gradual reduction of protection levels upon periodic investigations by the
producers from increased imports which cause or threaten to cause serious injury to those Tariff Commission and recommendation of NEDA
domestic industries and producers.
Requisites for the Exercise of Power
Note: 1) In the interest of national economy, general welfare and/or national security
The Secretary shall apply a general safeguard measure upon a positive final determination 2) Recommendation of NEDA to the President
of the Commission that a product is being imported into the country in increased quantities a) Tariff Commission must conduct an investigation
as to be a substantial cause of injury or threat to the domestic industry. b) Public hearing shall be held
c) Report shall be submitted to NEDA within 30 days after termination of the
General Safeguard Measure administered by: public hearing
Except: in the imposition of additional duty not exceeding 10% ad valorem
a. Department of Trade and Industry/ Bureau of Import Services
b. Department of Agriculture Power to modify the form of duty: the corresponding ad valorem or specific equivalents of
c. Tariff Commission the duty with respect to imports from the principal competing foreign country for the most
d. DTI or DA Secretary recent representative period shall be used as bases

Note: Powers of the President Regarding Foreign Trade

The DA Secretary shall issue a DO requesting the DF Secretary to impose additional For the purpose of:
special safeguard duty on agricultural product if: (i) Its cumulative import volume in a given 1) Expanding foreign markets for Philippine products as a means of assistance in
year exceeds its trigger volume and (ii) Its actual import price is less than its trigger price, the economic development of the country
both subject to conditions of RA 8800. 2) Overcoming domestic unemployment
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 3) Increasing the purchasing power of the Philippine peso Privilege (livelihood
4) Establishing and maintaining better relations between Philippines and other tools): US$ 2,000
countries
All other passengers US$ 1,000 US$ 250
The President is authorized to: (Tourists and Filipinos
1) Enter into trade agreements with foreign governments or instrumentalities traveling to or returning
thereof from abroad)
2) Modify import duties and other import restrictions
2) As to Quantity
E. DUTY FREE SHOPPING, BALIKBAYAN BOXES AND IMPORTED VEHICLES
Cigarettes – 2 reams
Duty Free Shopping Tobacco – 2 tins
Duty Free Stores: retail establishments licensed by the government to sell duty and Liquor and/or wine – 2 bottles
tax-free merchandise for the convenience of travelers Non-consumable items (value exceeds US$ 200) – 1 only

Duty and tax-free flow of goods 3) Purchase shall only be made in US$ or other acceptable foreign currencies
- allowed in Economic Zones provided such are consumed therein 4) Purchases shall be made within
- subject to applicable duties and taxes when brought out of the • 48 hrs from date of arrival for regular passengers
ecozones • 15 days from date of arrival of balikbayan; extended to 30 days
- Special Economic Zones: selected areas of the country with highly during Christmas season (Nov 15 to Jan 15)
developed infrastructure or which have potential to be developed into • 1 year from date of arrival of senior citizen/handicapped
agri-industrial tourist/recreational, commercial, banking, investment, balikbayan
financial centers 5) Non-transferrable
6) Balikbayan privilege can only be availed once a year; if balikbayan arrives
All passengers arriving from abroad are entitled and can avail of the privilege upon again within the year – considered a regular passenger for shopping purposes
presentation of: 7) Minors: consumable items only; cannot purchase liquors, wines, cigarettes,
1) Valid passport electronics, home appliances
2) Flight ticket and 8) Tourist can purchase electronic and home appliance but subject to payment
3) Boarding pass of duties and taxes Balikbayan boxes
Subject to the following limitations:  packages of personal effects; “pasalubongs” sent by Filipinos
1) As to amount working or residing abroad to their families or relatives in the
18 years old and above Minors Philippines
 only non-commercial goods/not in commercial quantity strictly for
Balikbayans Tax Exempt Purchase: US$ 250 personal use only
US$ 1,500  value must not exceed US$ 500
 consignor/sender is allowed to send 1 box during a 6-month
Kabuhayan Shopping period

83
  opened by Philippine Customs 4. its book value serves as the tax base (not the purchase price nor the
 100% examination is required by law to: acquisition cost)
 Protect the legitimate interests of 5. spare parts are taxed separately
consignors/senders and their consignees and the 6. older model: depreciation schedule is 10% per year counted
transacting public downwards from current year (which has 0% depreciation rate)
 Protect the interest of the government 7. with piston displacement of 2000 cc: max depreciation of 50%;
 Prevent and suppress smuggling and other fraud below 2000 cc: max of 70%
upon customs
F. EXPORT DUTIES
Importation of a brand new motor vehicle no longer require prior authority
Criteria to be satisfied: E.O. No. 26, July 1, 1986 abolished the export duties on all export products
a) of current or advance year model • except: logs as imposed under Section 154 of the TCC
b) never been registered or used • export duty imposed on logs: 20% of the gross FOB value at the time of shipment
c) covered by certificate of first ownership based on the prevailing rate of exchange
d) of the year of the immediate preceding year in the country of origin • only planted trees are subject to the export duty, since all naturally grown trees are
and/or manufacturer provided: banned from being exported
i) mileage not more than 50 km
ii) acquired by the importer from the dealer as first owner CHAPTER 9: ADMINISTRATION OF TARRIFF AND CUSTOMS

Importation of used vehicles continue to be regulated, require prior authority from A. TARIFF COMMISSION
BIS, DTI a. Chief Officials
Individuals may be allowed to bring in used vehicles: i. Chairman
a) returning Filipino/former Filipino citizen (stayed abroad for more than ii. 2 Member Commissioners to be appointed by the President
a year) b. Investigative Functions
b) immigrant to the Philippines (at least a holder of a 13G Visa duly i. Administration and effects of tariff and custom laws
issued by BID) ii. Relation between duty rates between raw materials and finished
Provided: products
i) only 1 unit per family; iii. Effects of Ad Valorem and Specific Duties
ii) registered in his name for at least 6 months prior to iv. Questions related to schedules and classification
shipment; and v. Tariff relations
iii) proof can be presented that it was acquired out of the vi. Importations vs. domestic production
earnings abroad vii. Effects of competition with foreign industries
viii. Investigative Operations
Requirements and applicable duties ix. Nature and composition of articles
1. personal presence of the car-owner c. Duties of the Commission
2. vehicle must be left-hand drive i. Ascertain conversion and production costs in principal centers
3. subject to 40% Customs duty, 10% VAT and Ad Valorem Tax from and in foreign countries
15% to 100% (depending on its piston displacement)
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 ii. Select representative articles a. Kinds
iii. Ascertain import costs and selling prices i. Freely Importable
iv. Ascertain other facts which affect competition ii. Regulated
v. Ascertain effects of tariff modifications and import restrictions iii. Prohibited
vi. Annual reports iv. Conditionally free
d. Commission has access and compulsory process to any document, b. Importation begins upon entry into jurisdiction and terminated upon
summons, testimony, oaths, subpoenas payment of duty
c. Owner of Imported Articles
B. BUREAU OF CUSTOMS i. Person to whom the same are consigned
a. Chief Officials ii. Holder of bill of lading
i. Chief iii. Consignee
ii. Assistant Chief d. Importer is personally liable
b. Powers: e. Government imports also subject to tax
i. Assessment and collection of lawful revenues from import f. Liability limited to the value
ii. Prevention and suppression of smuggling g. Transit cargo is an exemption to importation
iii. Supervision and control over entrance and clearance of vessels
and aircraft
iv. General supervision of vessels carrying passengers or freight D. JURISDICTION OVER IMPORTATION
v. Prohibition of unnecessary noise a. Collector shall cause all articles to be entered into a customhouse,
vi. Exclusion of 150 ton vessels from Pasig River appraised, classified, assess, collect, hold until payment of duties
vii. Registration and inspection of vessels b. Collector shall exercise this jurisdiction
viii. Enforcement of quarantine regulations and of tariff and custom c. Commissioner liable for lost shipment
laws
ix. Licensing of marine/pilots E. ENTRY AT CUSTOMHOUSE
x. Supervision and control over handling of foreign mail a. Persons authorized
c. Territorial Jurisdiction i. Importer or holder of bill of lading
i. Over all seas within Philippine jurisdiction ii. Duly licensed customs broker
ii. Exclusive control in respective ports of entry iii. Agent or attorney-in-fact
d. Hot Pursuit b. Import entry is a declaration to the BOC showing the particulars of the
i. May continue beyond maritime zone imported article
e. Collection Districts c. Informal entry if article is commercial in nature or personal/household
i. Collector of Customs at each port of entry effects
f. Visitorial Power d. Formal entry if for immediate consumption or if there is a domestic letter
i. In any place where foreign articles are openly offered for sale of credit
ii. Kept in storage e. Declaration of import entry
g. Search Warrant is needed in case of dwelling house i. Full account of the value
ii. Invoice and bill of lading are genuine and true
C. IMPORTATION IN GENERAL
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F. EXAMINATION b. Ipso facto deemed property of the government
a. Conditions for examination
i. If surveyor seal is tampered K. RECORDS
ii. Container is damaged a. All importers required to keep records for a period of 3 years from the
iii. If shipment is covered by alert orders date of importation
iv. If the manifest differs from the actual number, weight, measure b. Compliance audit
b. Appraisers shall ascertain, estimate, determine the value and describe all i. Full and free access
the articles ii. BOC has contempt powers
c. Readjustment of Appraisal, Classification, Return upon request in the c. Scope
form of a timely protest i. Firms selected by computer-aided risk management system
ii. Errors in import declaration detected
G. DELIVERY OF ARTICLES iii. Voluntary request to be audited
a. Collector not liable for any defect in the bill of lading d. Record to be kept by Customs
b. No delivery if no bill of lading i. Articles of Incorporation
c. Cash deposit required for immediate delivery of packages ii. Company Structure
d. An importer of record may authorize delivery to another iii. Key importations
e. Collector shall withhold delivery until the satisfaction of the lien iv. Privileges
f. Customs expenses constitute a lien on the articles v. Penalties
g. No delivery until fines, surcharges are paid
L. SEARCH, SEIZURE, ARREST
H. LIQUIDATION OF DUTIES a. No obstruction of customs premises
a. Shall be made on the face of the entry b. Customs service shall exercise surveillance for protection of revenue and
b. Tentative liquidation if an action is required to determine the exact amount prevention of smuggling
c. Finality is 3 year from the date of payment of final duties c. To be exercised within the limits of the collection district, particular vessel
d. Customs official or any authorized officer may exercise the power of
I. ABATEMENTS AND REFUNDS seizure and arrest
a. No abatement for damage incurred during voyage e. General warrant allowed if specific description is unavailable
b. Abatement for missing articles allowed upon proof and certification by the f. Warrantless search not allowed in dwelling house
importer g. Right to search vessels, aircraft, persons, articles, vehicles, beasts,
c. Abatement for deficiency in package contents also allowed persons
d. Abatement of duty on dead or injured animals allowed
e. Investigation is required M. ADMINISTRATIVE PROCEEDINGS
f. Claim for refund must be made in writing and forwarded to the collector a. Collector shall issue a warrant for the detention of the property
b. Seizure to be reported to the commissioner and auditor and the
J. ABANDONMENT corresponding notice to owner/importer
a. Kinds c. Legality of seizure can only be contested by those whose rights have
i. Express been impaired
ii. Implied d. Settlement involves the payment of fine or the appraised value
86
 e. Redemption prohibited for prohibited articles 5. Administrative fines and forfeitures shall be enforced by the seizure of the vehicle,
f. Scope shall be limited to subject matter vessel, aircraft
g. Reliquidation if protest is proper 6. Vessel or aircraft may be seized for delinquency of owner
h. 15 days review by the commissioner 7. Burden of proof shall lie upon the claimant
i. Automatic review if adverse to the government 8. Commissioner may authorize seizure of other articles if no evidence of payment of
j. Confirmation of decision duties is shown
k. Notice of decision 9. False or fraudulent practice to make an entry of article shall be punished
l. Reliquidation a. Undervaluation – reduce duty, escape filing of formal entry, circumvent
m. Government has the right to compulsory acquisition to protect revenues quota restrictions
against undervaluation i. False invoice description
ii. False country of origin
N. JUDICIAL PROCEEDINGS b. Overvaluation
i. Avoid imposition of anti-dumping duties
1. Actions instituted under the authority of the Tariff and Customs Code shall be ii. Reduce internal revenue tax base
brought in the name of the Philippine government and conducted by customs. c. Forfeiture in case of fraud requisites:
Approval of the Commissioner is required in an action for recovery of duties. i. Wrongful making of any declaration or invoice
2. Aggrieved party may appeal to the CTA. If no appeal, ruling of the Commissioner is ii. Such declaration or invoice is false
final and conclusive.
3. BOC has exclusive jurisdiction over imported goods for enforcement of custom P. DISPOSITION OF PROPERTY IN CUSTOMS CUSTODY
laws. Seizure and forfeiture is for the Collector and then the Commissioner.
4. Exclusive original jurisdiction of the Collector pertains only to goods seized 1. Property under customs custody shall be subject to sale:
pursuant to the authority under the Tariff and Customs Code. a. Abandoned articles
b. Articles entered under warehousing entry not withdrawn nor duties or
O. SURCHARGES, FINES AND FORFEITURES taxes paid
c. Seized property after liability to sale shall have been established
1. Violations subject to surcharges, fines and forfeitures d. Any article subject to a valid lien for customs duties
2. Properties subject to forfeiture 2. Property shall be sold or disposed of upon the order of the Collector of the port
a. Unmanifested cargo which is unloaded is subject to forfeiture where the property in question is found.
b. Possession of smuggled articles is sufficient to authorize conviction 3. Property shall be sold at public auction after 10 days notice. No customs official or
c. Illegally withdrawn articles may be validly seized employee shall be allowed to bid.
3. Prima facie presumption shall exist: 4. The following charges shall be paid from the proceeds of the sale in the order
a. If the conveyance has been used for smuggling at least twice before named:
b. If the owner is not in the business for which the conveyance is generally a. Expenses of appraisal, advertisement and sale
used b. Duties except in the case of abandoned and forfeited articles
c. If the owner is not financially in a position to own such conveyance c. Taxes and other charges
d. Common carriers if the owner has knowledge of its use in smuggling d. Government storage charges
4. Forfeiture shall be effected only when and while the article is in the custody or e. Arrastre and private storage charges
within the jurisdiction of the customs authorities f. Freight, lighterage or general average, on the voyage of importation
87
 5. Any surplus remaining after the satisfaction of all unlawful charges shall be i. Those who disclose confidential information without authority
retained by the Collector for 10 days subject to the call of the owner. 3. Offenses punishable under the Tariff and Customs Code:
6. Perishable articles may be sold at auction, after public notice, not exceeding 3 a. Concealment or destruction of evidence of fraud
days. b. Breaking of seal on car
7. Disposition of articles unfit for use or sale or injurious to public health shall be c. Alteration of marks on any package of warehoused articles
ordered by the Collector in such a manner as the case may require. d. Fraudulent opening or entering of warehouse
8. Disposition of contraband: e. Fraudulent removal or concealment of warehoused articles
a. Ammunition and weapons to the AFP f. Violation of custom laws and regulations in general
b. Highly dangerous shall be destroyed 4. Liability for unlawful importation
c. Contraband coin and bullion to BSP a. Duty to declare
d. Other contraband of commercial value and capable of legitimate use may b. Administrative penalty is separate and distinct of criminal liability for
be sold under such restrictions smuggling
9. Disposition of articles for want of bidders shall be used by BOC to promote c. A Penal provision:
collection of taxes or channeled to official use of other offices. i. Fraudulently imports
10. Dangerous explosives shall be subject to disposition in the discretion of the ii. Assists in so doing
Commissioner. iii. Transportation, concealment, sale
11. Disposition of Smuggled Articles: d. Kinds of smuggling
a. Written or printed articles inciting treason or rebellion 1. Outright – secretly contrary to law without paying duties
b. Written or printed articles or other representation of an obscene or imposed
immoral character 2. Technical – fraudulent or erroneous declaration to avoid
c. Articles, instruments, drugs for unlawful abortion duties
d. Apparatus or devices used in gambling ii. Contraband – refers to articles of prohibited importations and
e. Opium pipes exportations.
iii. Elements
Q. OFFENSES 1. Fraudulently or knowingly imported contrary to law
2. The respondent if not the importer himself must have in
1. Failure to report fraud is punishable. any manner facilitated the transportation, concealment
2. Statutory offenses of officials and employees: or sale of the merchandise
a. Extortion or willful oppression 3. Knowledge or possession
b. Those who knowingly demand other or greater sums than are authorized 4. Knowledge that the goods have been imported contrary
by law to law
c. Those who willfully neglect to give receipts iv. Mere possession is enough to convict and payment of tax due
d. Those who willfully make opportunity for any person to defraud the after apprehension is not a defense
customs revenue
e. Those who permit the violation of the law R. SUMMARY OF CARGO CLEARANCE AND REMEDIES
f. Those who make or sign any false entry in any book
g. Those who fail to report any fraud 1. Cargo clearance/Classification procedure
h. Those who without authority attempt to collect payment
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 a. Importer shall accomplish IED and pay vi. Furnish samples of goods
advance duty to AAB b. Refund
b. IEIRD to be submitted to BOC along with other i. Missing packages
forms ii. Deficiencies in contents
c. Computation of duties and taxes iii. Lost articles
d. BOC conducts review of submitted documents iv. Dead or injured animals
e. Importer given 10 days to justify accuracy of v. Manifest clerical errors
declared value vi. Drawback
f. VCRC will calendar the classification issue for c. Settlement of any seizure by payment of fine
deliberation or redemption
g. Elevation to CVCRC i. Instance of fraud
h. Resolution 1. Use of spurious documents
i. Endorsement and implementation 2. Prima facie evidence of
j. Subject to only one MR fraud
2. Remedies of the BOC 3. False machinations,
a. Tax lien concealment of facts
b. Administrative fines and forfeitures 4. Similar cases
c. Reduction of customs duties/compromise d. Appeal to the Commissioner within 15 days
d. Search, Seizure, and Arrest e. Abandonment
i. Collector of customs has exclusive f. Appeal to the CTA within 30 days
jurisdiction over seizure and forfeiture i. BOC liable to pay the value if
ii. In case of grave abuse of discretion, shipment can no longer be delivered
an appeal lies to the Commissioner without interest
then the CTA
iii. Not criminal in nature
1. Proof beyond reasonable CHAPTER 10: THE COURT OF TAX APPEALS
doubt not required
iv. Warrant is sine qua non condition ★A. NATURE, COMPOSITION, AND POWERS ★
before any forfeiture proceeding
e. Judicial remedies
1. HIGHLY SPECIALIZED BODY
3. Remedies of the taxpayer
a. Protest
The CTA is a highly specialized body speicifically created for the purpose of reviewing
i. Writing
tax cases. The SC will not set aside the conclusion of the CTA which is dedicated
ii. Point out the particular decision or
exclusively to the study and consideration of tax problems and has developed an
ruling
expertise on the subject unless there has been abuse or improvident exercise of
iii. State the grounds
authority.
iv. Limited to the subject matter
v. Filed within 15 days after payment
89
 1.1. ACCORDED RESPECT • In a division session, presence of two (2) members is necessary to constitute
a quorum and the same number of votes to render a valid decision.
Its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if substantial 4. POWERS OF, AND PROCEEDINGS IN, THE CTA
evidence or a showing of gross error or abuse on the part of the Tax Court does not
support them. • To administer oaths
• To receive evidence
2. LAW CREATING THE CTA AND ITS AMENDMENTS • To summon witnesses by subpoena
• To require production of papers or documents by subpoena duces tecum
• Originally created by R.A. 1125 (June 16, 1954) • To punish contempt
• Amended by R.A. 9282 (March 30, 2004) • To promulgate rules and regulations for the conduct of its business
• Pursuant to the amendment: • To assess damages against appellant if appeal to it is found to be frivolous or
o The CTA was elevated to the same level as the CA dilatory
o Consequently, appeals from its decision (en banc) shall be made before the SC • To suspend the collection of the tax pending appeal
o Jurisdiction of the CTA was expanded to include: • To render decisions on cases brought before it
 EXCLUSIVE ORIGINAL JURISDICTION:
• To issue order authorizing distraint of personal property and/or levy of real property
• Over tax collection where the amount is less than PhP 1,000,000.00
• all criminal offense under the NIRC, and Tariff Customs Code, BIR, and 4.1. NATURE OF PROCEEDINGS
BOC where the amount of taxes and fines is PhP 1,000,000.00
 EXCLUSIVE APPELLATE JURISDICTION: They are judicial in nature but it is not bound by the technical rules of evidence. They are
• In criminal offense over appeals from the RTC governed by the Revised Rules of the CTA. The Rules of Court apply “by analogy or in a
• Over tax collection where the amount is less than PhP 1,000,000.00 suppletory character and whenever practicable and convenient” and “shall be liberally
 APPELLATE JURISDICTION over the RTC decisions on local taxes construed in order to promote their objective of securing a just, speedy and inexpensive
disposition of every action and proceeding.”
3. COMPOSITPOIN AND APPOINTMENT OF MEMBERS

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

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

90
 • Decisions by the Commissioner of the BIR involving:
o Disputed assessments
o Refunds of Internal Revenue Taxes, fees or other charges
o Penalties in relation to the abovementioned
o Other matters arising under the National Internal Revenue or
CRIMINAL CASES:
other laws administered by the BIR
• Inaction by the Commissioner of Internal Revenue in cases invlolving: • Criminal offenses from violation of the:
o Disputed assessments a. NIRC
o Refunds of Internal Revenue Taxes, fees or other charges b. Tariff and Customs Code
o Penalties in relation to the abovementioned c. Other laws administered by the BIR or the BOC
o Other matters arising under the NIRC or other laws EXCLUSIVE • Offenses or felonies where the principal amount of taxes and
administered by the BIR where the NIRC provides a specific ORIGINAL fees, exclusive of charges and penalties, claimed is less than
period of action in which case the inaction shall be deemed a
JURISDICTION PhP 1,000,000.00 shall be tried by the regular courts and that
denial
OVER the jurisdiction of the CTA shall be appellate
• Decisions or resolutions of the RTC in local tax cases originally decided
or resolved by them in the exercise of their original or appellate CRIMINAL
jurisdiction OFFENSES TAX COLLECTION CASES:
• Decisions of the Commissioner of Customs in cases involving: • Tax collection cases involving final and executor assessments
o Liability for custom duties, fees or other money charges for taxes, fees, charges and penalties
o Detention or release of property attached • Collection cases where the principal amount of taxes and
o Fines, forfeitures, other penalties in relation to the fees, exclusive of charges and penalties, is less than PhP
EXCLUSIVE abovementioned
1,000,000.00 shall be tried by the MTC and the RTC
APPELLATE o Other matters arising under the customs law or other laws
JURISDICTION administered by the BOC
• Decisions of the Central Board of Assessment Appeals in the exercise of
its appellate jurisdiction over cases involving:
o Assessment and Taxation of real property originally decided by C. JURISDICTION OF CTA En Banc
the provincial or city board of assessment appeals
• Decisions of the Secretary of Finance on cases elevated to him for The CTA En Banc has exclusive appellate jurisdiction over the following cases:
automatic review from decisions of the Commissioner of Customs which
are adverse to the Government under the tariff and customs code
1. Decisions, resolutions or orders of the RTC in the exercise of its appellate jurisdiction
• Decisions of the DTI Secretary in the case of non-agricultural product,
over local tax cases and tax collection cases
commodity, or aritcles
• Decisions of the Secretary of Agriculture in the case of agricultural
product, commodity, or aritcles involving dumping and counter ailing 2. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
duties under the Tariff and Customs Code. jurisdiction over cases involving the assessment and taxation of real property

TAX COLLECTION CASES: 3. Decisions of CTA Divisions

• Appeals from the judgments, resolutions or orders of the RTC in tax

collection cases
★D. MODE OF APPEAL TO THE CTA ★
• Petitions for review of the judgments, resolutions or orders of the RTC in
the exercise of their appellate jurisdiction over tax collection cases
originally decided by the RTCs. 91
1. HOW APPEAL IS MADE • The Tax Code does not require that the Collector of Internal Revenue to
rule first on a taxpayer’s request for reconsideration before he can go to the
• By filing a petition for review provided under Rule 42 of the Rules of CivPro with court for the purpose of collecting the tax assessed.
the CTA within 30 days from receipt of the decision or ruling or in the case of • The Commissioner of Internal Revenue must state that his decision is final
inaction, from the expiration of the period fixed by law to act thereon. for the 30-day period to appeal to run.
• With respect to decisions or rulings od the Central Board of Assessment Appeals
and the RTC in the exercise of its appellate jurisdiction, it shall be made by filing 3. NEW ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL
a petition for review provided under rule 42 of the Rules of CivPro with the CTA
which shall hear the case en banc. • It is a well-settled underlying principle of prior exhaustion of administrative
• All other cases involving rulings, orders or decisions filed with the CTA shall be remedies, on the judicial level, that issues not raised in the lower court cannot be
raffled to its Divisions. raised for the first time on appeal. However, the exception is that the issue of
• One adversely affected by such decision of a Division of the CTA may file prescription may be raised for the first time since this is a statutory right. An
a motion for reconsideration before the same Division within 15 days from exception to the exception would be that errors committed by administrative
notice thereof. officials may be raised even for the first time on appeal because the State can
• One adversely affected by such decision of a Division of the CTA on a motion for never be in estoppel, however, the Government must follow the same rules of
reconsideration or new trial, may file a petition for review with the CTA en banc. procedure which bind the private parties.
• In criminal cases, the general applicable in regular Courts on matters of
prosecution and appeal shall likewise apply. 4. WHO MAY APPEAL
• One adversely affected by a decision or ruling of a CTA en banc may file with the
SC a verified petition for review on certiorari pursuant to Rule 45 of the Rules of • Any taxpayer adversely affected by a decision or ruling or inaction of:
CivPro. a. The Commission of Internal Revenue
b. The Commissioner of Custom
2. PERIOD TO APPEAL c. The Secretary of Finance
• In case of assessment by the BIR, the taxpayer shall appeal within 30 days from d. The Secretary of Trade and Industry
receipt of decision or ruling or upon the lapse of 180 days. e. The Secretary of Agriculture
o The 30-day period runs from the date the taxpayer receives the appealable f. The Central Board of Assessment Appeal
decision and that failure to lodge his appeal: g. The RTC may appeal to the CTA
i. Bars his appeal and renders the questioned decision final and executor • Stockholders may file an appeal in cases of dissolved corporations because they
ii. The assessment is considered correct and all that is necessary is for the could be held liable for the unpaid deficiency assessments of the dissolved
Commissioner to enforce the collection of the tax by summary remedies corporation in proportion to their distributive shares.
or judicial action • It is incumbent of the taxpayer to prove there what is the correct and just liability
iii. The taxpayer may only raise defenses of absence of jurisdiction, collusion by a full and fair disclosure of all pertinent data in his possession in appealing the
between the parties, or fraud Collector’s assessment that he claims to be erroneous.
• The 30-day period, it is not extendible. • Tax assessments by tax examiners are presumed correct and made in good faith
• A motion for reconsideration does not toll the 30-day period to appeal to the and it is up to the taxpayer to prove otherwise or else, it will not be disturbed.
CTA.
5. THE CTA HAS NO JURISDICTION ON A FINAL AND EXECUTORY ASSESSMENT

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 • Self explanatory
10. GROUNDS FOR NEW TRIAL
6. THE NON-SUSPENSION RULE
• An appeal does not automatically suspend the collection of taxes. i. FAME = Fraud, Accident, Mistake, Excusable negligence
• A motion to suspend collection of taxes may be filed together with a petition for ii. Newly discovered evidence, which he could not, with reasonable diligence, have
review or with the answer, or in a separate motion filed by the interested party at discovered and produced at the trial and which, if presented, would probably alter the
any stage of the proceedings result.
• If the motion for new trial is anchored on this, it must be established that:
7. THE NO INJUNCTION RULE a. The evidence was discovered after the trial
• The NIRC provides that no court has the authority to grant a writ of injunction to b. Such evidence could not have been discovered and produced at the trial with
restrain the collection of any internal revenue tax, fee, or charge imposed by the reasonable diligence
code. c. It is material, not merely cumulative, corroborative or impeaching
• If in its opinion the collection of taxes may jeopardize the interest of the d. It is of such weight that it will probably change the judgment
government and/or the taxpayer, the CTA may enjoin the same provided that a
deposit is made in the amount of the disputed assessment or a surety bond is 11. SECOND MOTION FOR RECONSIDERATION OF A DECISION, FINAL
placed for not more than double the amount at issue. RESOLUTION OR ORDER FOR NEW TRIAL IS PROHIBITED
• Self explanatory (kahit book nagsabi)
8. DISPOSITION OF CASES
12. WHEN APPEAL IS WITHDRAWN, THE ASSAILED DECISION BECOMES FINAL
• The CTA shall decide the cases filed before it within 30 days after the same has AND EXECUTORY
been submitted for decision.
• Non-compliance with the period does not affect the validity of the decision. • Whenever one withdraws an appeal, he is deemed to accept the decision of the
• The decision must be in writing stating the facts and the law on which they are CTA. So, for example, the CTA had already denied a request for the issuance of,
based and signed by the judges who concurred. lets say, a tax credit certificate for insuffiency of evidence, it may no longer be
• Decisions shall be published in the Official Gazette. included in the taxpayer’s future claims. Kumbaga, barred na siya by gawing
dahilan yon to raise his contention in sa susunod na kabanata ng kaniyang life.
9. RECOURSE OF THE PARTY ADVERSELY AFFECTED BY THE DECISION • A taxpayer cannot be allowed to circumvent the denial of its request for a tax credit
by abandoning its appeal and filing a new claim.
• IF IT IS AN ORDER OR DECISION OF A DIVISION OF THE CTA: He may file a • An appellant who withdraws his appeal must face the consequences of his
motion for reconsideration or new trial before the same Division within 15 days withdrawal, such as the decision of the court a quo becoming final and executory.
from notice.
• IF IT IS A RESOLUTION OF A DIVISION OF THE CTA ON A MOTION FOR
RECONSIDERATION OR NEW TRIAL: He may file a petition for review with the NIRC SECTIONS 1 TO 21 AND NIRC REMEDIES
CTa en banc.
• IF IT IS A DECISION OR A RULING OF THE CTA En Banc: He may file with the TITLE I
SC a verified petition for review on certiorari pursuant to Rule 45 on the Rule on ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE
POWERS AND DUTIES OF THE BIR:
CivPro.

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 1. Assessment and collection of all national internal revenue taxes, fees, and assignment of internal revenue officers and employees of the Bureau to special
charges. duties shall not exceed one (1) year.
2. Enforcement of all forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favour by the Court of Tax POWERS OF THE COMMISIONER THAT CANNOT BE DELEGATED:
Appeals and the ordinary courts. 1. The power to recommend the promulgation of rules and regulations by the
3. Shall give effect to and administer the supervisory and police powers conferred Secretary of Finance;
to it by this Code or other laws. 2. The power to issue rulings of first impression or to reverse, revoke or modify
any existing ruling of the Bureau;
COMPOSITION OF THE BIR: 3. The power to compromise or abate, under Sec. 204 (A) and (B) of this Code,
Chief Commissioner and four assistant chiefs to be known as Deputy any tax liability; and
Commissioners. 4. The power to assign or reassign internal revenue officers to establishments
POWERS OF THE CHIEF COMMISSIONER: where articles subject to excise tax are produced or kept.
1. The exclusive original jurisdiction to interpret the provisions of the NIRC and other
tax laws subject to review by the Secretary of Finance. DUTIES OF THE COMMISIONER:
2. To decide disputed assessments, refunds of internal revenue taxes, fees or other 1. To prescribe, provide, and distribute to the proper officials the requisite licenses
charges, penalties imposed in relation thereto, or other matters arising under the internal revenue stamps, labels all other forms, certificates, bonds, records,
NIRC or other laws or portions thereof administered by the Bureau of Internal invoices, books, receipts, instruments, appliances and apparatus used in
Revenue subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. administering the laws falling within the jurisdiction of the Bureau.
3. To obtain information and to summon, examine and take testimony of persons. 2. To acknowledge the payment of tax if payment was made, expressing the amount
4. To make assessments and prescribe additional requirements for Tax paid and the particular account for which such payment was made in a form and
administration and Enforcement. manner prescribed therefor by the Commissioner.
5. To delegate powers vested in him to any subordinate officials with a rank 3. Furnish its appropriate Committee pertinent information including but not limited to:
equivalent to a division chief or higher subject to the provisions of the code and the industry audits, collection performance data, status reports in criminal actions
rules promulgated by the Secretary of Finance. initiated against persons and taxpayer's returns.
6. Shall employ, assign, or reassign internal revenue officers involved in excise tax 4. Submit to the Oversight Committee referred to in Section 290 hereof, through the
functions, as often as the exigencies of the revenue service may require, to Chairmen of the Committee on Ways and Means of the Senate and House of
establishments or places where articles subject to excise tax are produced or kept: Representatives, a report on the exercise of his powers pursuant to the said
Provided, That an internal revenue officer assigned to any such establishment section, every six (6) months of each calendar year.
shall in no case stay in his assignment for more than two (2) years, subject to rules JURISDICTION OF THE REVENUE REGIONAL DIRECTOR:
and regulations to be prescribed by the Secretary of Finance, upon 1. Implement laws, policies, plans, programs, rules and regulations of the department
recommendation of the Commissioner. or agencies in the regional area;
7. Assign or reassign internal revenue officers and employees of the Bureau of 2. Administer and enforce internal revenue laws, and rules and regulations, including
Internal Revenue, without change in their official rank and salary, to other or the assessment and collection of all internal revenue taxes, charges and fees.
special duties connected with the enforcement or administration of the revenue 3. Issue Letters of authority for the examination of taxpayers within the region;
laws as the exigencies of the service may require: Provided, That internal revenue 4. Provide economical, efficient and effective service to the people in the area;
officers assigned to perform assessment or collection function shall not remain in 5. Coordinate with regional offices or other departments, bureaus and agencies in the
the same assignment for more than three (3) years; Provided, further, That area;
6. Coordinate with local government units in the area;
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 7. Exercise control and supervision over the officers and employees within the region; 3. Value-added tax;
and 4. Other percentage taxes;
8. Perform such other functions as may be provided by law and as may be delegated 5. Excise taxes;
by the Commissioner. 6. Documentary stamp taxes; and
7. Such other taxes as are or hereafter may be imposed and collected by the Bureau
Duties of Revenue District Officers and Other Internal Revenue Officers: of Internal Revenue.
1. To ensure that all laws, and rules and regulations affecting national internal
revenue are faithfully executed and complied with, and to aid in the prevention,
detection and punishment of frauds of delinquencies in connection therewith. NIRC REMEDIES
2. To examine the efficiency of all officers and employees of the Bureau of Internal OUTLINE OF REMEDIES
Revenue under his supervision, and to report in writing to the Commissioner, REMEDIES OF THE GOVERNMENT
through the Regional Director, any neglect of duty, incompetency, delinquency, or Basic Remedies:
malfeasance in office of any internal revenue officer of which he may obtain 1. Assessment
knowledge, with a statement of all the facts and any evidence sustaining each 2. Collection
case.
OTHER CLASSIFICATIONS
Agents of the Commissioner: I. As to procedure
1. The Commissioner of Customs and his subordinates with respect to the A. Assessment and Collection
collection of national internal revenue taxes on imported goods; B. Collection without assessment
2. The head of the appropriate government office and his subordinates with II. As to the nature of proceeding
respect to the collection of energy tax; and A. Administrative Remedies
3. Banks duly accredited by the Commissioner with respect to receipt of 1. Exercise of power to make assessments
payments internal revenue taxes authorized to be made thru bank. 2. Remedies in collection stage
a. Tax lien
AUTHORITY OF REVENUE OFFICERS:
b. Distraint of personal property or garnishment of bank deposits
1. Examine taxpayers within the jurisdiction of the district pursuant to a letter of
c. Levy of real property
authority issued by the Revenue Regional Director in order to collect the correct
d. Compromise and abatement (Discussed under Remedies of the
amount of tax, or to recommend the assessment of any deficiency tax due in the
Taxpayer)
same manner that the said acts could have been performed by the Revenue
e. Penalties and fines (Discussed under Tax Administration and
Regional Director himself.
Enforcement)
2. To administer oaths and to take testimony in any official matter or investigation
f. Non-availability of injunction to restrain collection of taxes
conducted by them regarding matters within the jurisdiction of the Bureau.
3. Other remedies
3. To make arrests and seizures for the violation of any penal law, rule or regulation
a. Forfeiture
administered by the Bureau of Internal Revenue.
b. Suspension of business operations (Discussed under Tax
SOURCES OF REVENUE: Administration and Enforcement)
1. Income tax; B. Judicial Remedies
2. Estate and donor's taxes; 1. Civil

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 2. Criminal Principle Governing Tax Assessments
1. General Rule: All presumptions are in the favour of tax assessments. When an
REMEDIES OF THE TAXPAYER assessment is made, the same is presumed correct and made in good faith. The
I. Before payment taxpayer has the duty to prove otherwise, and in the absence of proof of any
A. Administrative Remedies irregularities in the performance of duties, an assessment duly made by a BIR
1. Protest examiner and approved by his superior officers will not be disturbed ( CIR v. Wyeth
2. Compromise Suaco Laboratories, Inc., G.R. No. 76281, September 30, 2005).
3. Abatement
II. After payment Exception: The prima facie correctness of a tax assessment does not apply when
A. Administrative Remedy the CIR comes out with a naked assessment (an assessment that is without
1. Tax refund foundation and hence, arbitrary and capricious) (CIR v. Hantex Trading, G.R. No.
2. Tax credit L-13975, March 31, 2005).
B. Judicial Remedies
2. Assessments should not be based on presumptions no matter how logical the
REMEDIES OF THE GOVERNMENT presumption might be. In order to stand the test of judicial scrutiny, the assessment
Assessment must be based on actual facts (Collector v. Benippayo, G.R. No. L-13656, January
It is an official action of an administrative officer in: 31, 1962).
1. Determining the computation of the sum due. 3. General Rule: Assessment is discretionary on the part of the CIR. Mandamus will
2. Giving notice to that effect to the taxpayer. not lie for it will constitute judicial encroachment on executive functions.
3. Making, simultaneously with or sometimes after the giving of notice, of demand
upon him for the payment of the tax deficiency stated within a specified period (CIR Exception: If in the exercise of his discretion, there is evidence of arbitrariness
v. PASCOR Realty Development Corp., G.R. No. 128315, June 29, 1999). and grave abuse of discretion as to go beyond statutory authority (Maceda v.
Macaraig, Jr., G.R. No. 88291, June 8, 1993).
* A notice of assessment without a due date cannot be considered as a demand but
mere requests for payment (First Gas Power Corp. v. CIR, CTA Case No. 7281,
4. The authority to assess taxes may be delegated to subordinate officers. Said
September 24, 2012).
assessments have the same force and effect as that issued by the CIR (Oceanic
Reason for Assessment: There is a tax due to the government which has not been paid by
Wireless Network v. CIR, G.R. No. 148380, December 9, 2005).
the taxpayer either as a delinquency or a deficiency tax. If the tax was properly paid,
5. Assessments must be directed to the right party (Republic v. De la Rama, G.R. No.
assessment is not necessary.
L-21108, November 29, 1966).
General Rule: Taxes are self-assessing and thus do not require the issuance of an
assessment notice in order to establish the tax liability of the taxpayer. Kinds of Assessment:
Exceptions 1. Self-assessment – the tax is assessed by the taxpayer himself (TAX CODE, Sec.
Instances where taxes require assessment to establish additional tax liability: 56[A])
1. Tax period of a taxpayer is terminated ( TAX CODE, Sec. 6[D]) Examples:
2. Deficiency tax liability arising from a tax audit by the BIR (TAX CODE, Sec. 56 [B]) a. Income tax
3. Tax lien (TAX CODE, Sec. 219) b. Estate tax
4. Dissolving corporation (TAX CODE, Sec. 52[C]) c. Donor’s tax
d. VAT
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 2. Deficiency assessment – made by the tax assessor himself where the correct 6. Third Party Information or Access to Records Method – third party contacts are
amount of tax is determined after an examination or investigation is conducted the sources of information.
(TAX CODE, Sec. 56[B]). 7. Surveillance and Assessment Method (RAMO No. 01-2000, XIII)
3. Disputed assessment – takes place when a taxpayer questions an assessment
and asks the collector to reconsider or cancel the same because he believes he is Assessment Process
not liable therefore (St. Stephen’s Association v. CIR, G.R. No. L-11238, August Summary:
21, 1958). 1. Issuance of Letter of Authority
4. Jeopardy assessment – a tax assessment made by an authorized Revenue 2. Audit or Tax investigation
Officer, without the benefit of a complete or partial audit, in light of the officer’s 3. Issuance of Preliminary Notice of Assessment (PAN)
belief that the assessment and collection of a deficiency tax will be jeopardized by 4. Reply to PAN
delay caused by the taxpayers failure to: 5. Issuance of Formal Letter of Demand and Final Assessment Notice (FAN)
a. Comply with audit and investigation requirements to present his books of
accounts and/or pertinent records. 1. Issuance of Letter of Authority (LA)
b. Substantiate all or any kind of the deductions, exemptions, or credits claimed An LA is a request to the taxpayer to permit the bearer thereof, a particular enforcement
in his return (RR No. 30-2002, Sec 3[1][a]). officer, to conduct the necessary tax examination and verification of books and records (DE
LEON, NIRC, p. 584).
Means Employed by the Commissioner in the Assessment of Taxes 2. Audit and Tax Investigation
The following are the general (constructive) methods developed by the BIR for The Revenue Officer shall, within 120 days from the date of issuance and service of the LA,
reconstructing a taxpayer’s income where the taxpayer keeps no or inadequate records or conduct his audit and submit his report of investigation (ABAN, p. 196; RMO No. 38-88).
where there is a strong suspicion that it has received income from undisclosed sources: Effect of Failure to Complete the 120-day Period
1. Percentage Method - equivalent of a ratio analysis of percentages considered Audit will continue without the need to revalidate the LA, but the officer concerned shall be
typical of the business under investigation to indicate potential areas of revenue subjected to administrative sanctions (RMO No, 23, 2009; RMO No. 44-2010).
adjustment in examination where revenue records do not exist. 3. Issuance of Preliminary Assessment Notice (PAN)
2. Net Worth Method – method of reconstructing income based on the theory that if
the taxpayer’s net worth has increased in a given year in an amount larger than his PAN is issued to the taxpayer informing him of the findings of the Revenue Officer if after
reported income, he had understated his income for that year. review and evaluation of the taxpayer’s records, there is sufficient basis to assess the
3. Bank Deposit Method – the bank records of the taxpayer are analyzed and the taxpayer for any deficiency taxes (RR No. 18-2013, Sec 3.1.1).
Revenue Officer estimates income on the basis of the total bank deposits after
eliminating non-income items. * Prior to the issuance of PAN, the taxpayer may be allowed to make voluntary
payments of probable deficiency taxes and penalties (RMC No. 11-2014).
* This does not alter the confidentiality rule of bank deposits.
Requisites of a Valid PAN
4. Cash Expenditure Method – assumes that the excess of a taxpayer’s 1. Must be served to the taxpayer personally, and if not practicable, by substituted
expenditures during a tax period over his reported income for that period is taxable service or by mail (RR No. 18-2013, Sec. 3.1.6).
to the extent not approved otherwise. 2. The assessment was conducted within the scope of authority given by a valid LA
5. Unit and Value Method – the determination or verification of gross receipts may (CIR v. Sony Phils., Inc., G.R. No. 178697, November17, 2015).
be computed by applying price and profit figures to the known ascertainable 3. Must be in writing and contain the facts and the law on which the proposed
quantity of business done by the taxpayer. assessment is based (TAX CODE, Sec. 228, par. 2; RR. No. 18-2013, Sec. 3.1.1).

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 4. Must be issued by the CIR or his duly authorized representative. They are: Requisites of a Valid FAN:
a. Revenue Regional Directors 1. Must be issued after issuance of a valid Pan, except for those instances where a
b. ACIR-LTS Pan is not required (TAX CODE, Sec. 228, par. 1 & 2; RR No. 18-2013, Sec.
c. ACIR-Enforcement and Advocacy Service (RR. No, 18-2013, Sec. 3.1.1; RMC 3.1.2).
No. 11-2014) 2. Must be issued by the CIR or his duly Authorized representative (RR No. 18-2013,
Sec. 3.1.3; RMC No. 11-2014).
Reason: To give the taxpayer the opportunity to refute the findings of the examiner and give 3. Must be served to the taxpayer personally, and if not practicable, by substituted
a more accurate and detailed explanation regarding the assessment (Sony Philippines v. service or by mail (RR No. 18-2013, Sec. 3.1.6).
CIR, CTA Case No. 6185, October 26, 2004). 4. Must be served to the taxpayer before the lapse of the prescriptive period for
making assessment (TAX CODE, Sec. 203).
* The issuance of a Notice of Informal Conference under RR No. 12-99 before issuing 5. Must be in writing and contain the facts and the law on which the assessment is
a PAN is already dispensed with pursuant to RR No, 18-2013 issued on November 28, based (RR No. 18-2013, Sec. 3.1.1).
2013. 6. The assessment was conducted within the scope of authority given by a valid LA
(CIR v. Sony Phils., Inc., G.R. No. 178697, November 17, 2010).
4. Reply to PAN
The taxpayer has fifteen (15) days from the date of receipt of PAN to reply (RR No. 18- Period to issue FLD/FAN
2013, Sec. 3.1.1). General Rule: Fan can be issued only after a PAN was issued. This is part of the
Requisites of a Valid Reply requirements of due process and failure to comply therewith would render the assessment
1. Must be made within the 15-day period (RR No. 18-2013, Sec. 3.1.1). void (CIR v. Metro Superama, Inc., G.R. No. 185371, December 8, 2010; SVI Information v.
2. Must be filed by the taxpayer or his duly authorized representative, in person or CIR, CTA Case no. 8496, February 10, 2014).
through registered mail with return card, with the office of the duly authorized After the issuance of the PAN, the FAN may be issued in any of the following
representatives of the CIR who signed the PAN (RMC No, 11-2014; RMC No. 39- circumstances:
2013). 1. After the lapse of the 15-day period to respond to the PAN without the taxpayer
submitting a reply (RR No. 18-2013, Sec. 3.1.1).
Effects of Failure to Submit a Valid Reply to PAN 2. Before the lapse of the 15-day period to respond to the PAN and the taxpayer has
1. The taxpayer shall be considered in default and a FLD/FAN will be issued (TAX not yet submitted a reply to PAN (Oakwood Management Services v. CIR, CTA
CODE, Sec. 228. par. 3). Case No. 7989, August 8, 2013).
2. Taxpayer can still file a protest to the FLD/FAN (TAX CODE, Sec. 228, par. 4).

5. Issuance of Formal Letter of Demand and Final Assessment Notice * The issuance of the FAN before the lapse of the 15-day period for the taxpayer to
FLD/FAN file a reply to the PAN inflicts no prejudice on the taxpayer as long as the taxpayer is
A notice of assessment constituting a computation of deficiency taxes and a demand issued properly served the FAN and is able to intelligently contest the FAN by filing a protest
to the taxpayer. This is the notice of assessment and not the PAN: within the period allowed by law.
1. That must be issued within the prescriptive period to make the assessment.
2. That must be protested by the taxpayer otherwise the assessment shall become Reason: A PAN preparatory to the issuance of the FAN is not legally speaking an
final, executory, and demandable. assessment even if it contains the computation of the taxpayer’s liabilities (Oakwood
3. From which the prescriptive period to collect commences to run. Management Services v. CIR, CTA Case No. 7989, August 8, 2013).

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 3. Within the 15 days after the filing of the response to the PAN (RR No. 18-2013, a. Notice may be left at the party’s registered address with his clerk or
Sec. 3.1.1). with a person having charge thereof.
4. After/Beyond the 15-day period after the filing of the response to PAN (RMC No. b. If the known address is a place where business activities of the party
11-2014). are conducted, the notice may be left with his clerk or with a person
having charge thereof.
c. If the known address is the place of residence, substituted service
* Issuance of the FLD/FAN beyond 15 days from the filing of the response to the PAN can be made by leaving a copy with a person of legal age residing
shall not render it invalid. The non-observance of the 15-day period, however, shall therein
constitute an administrative infraction and the revenue officers who caused the delay d. If no person is found at the registered/known address, the revenue
shall be subjected to administrative sanctions (RMC No. 11-2014). officer shall bring a barangay official and two disinterested witnesses
to the address so that they may personally observe and attest to
Exceptions: In the following instances where PAN is not required, A FLD/FAN shall be such absence. The notice shall be given to the barangay official.
issued outright: Such facts shall be contained in the bottom portion of the notice, as
1. When the finding for any deficiency tax is the result of mathematical error in the well as the names, official position and signature of the witnesses.
computation of tax as appearing on the face of the return. e. Should the party be found at his registered or known address or any
2. When the excise tax due on excisable items has not been paid. other place but refuses to receive the notice, the revenue officer shall
3. When a discrepancy has been determined between the tax withheld and the bring a barangay official and 2 disinterested witnesses so that they
amount actually remitted by the withholding agent. may personally observe and attest to such fact of refusal. The notice
4. When an article locally purchased or imported by an exempt person, such as, but shall be left to the barangay official. Such facts shall be contained in
not limited to, vehicles, capital equipment, machineries and spare parts, has been the bottom portion of the notice, as well as the names, official
sold, traded or transferred to a non-exempt person. position and signature of the witnesses.
5. When the taxpayer has opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and “Disinterested witness” – persons of legal age other than employees of the BIR.
automatically applied the same amount claimed against the estimated tax liabilities 3. Service by Mail – done by sending a copy of the notice to the registered
for the taxable quarter or quarters of the succeeding taxable year (RR No. 18- or known address of the party by:
2013, Sec. 3.1.2). a. Registered mail with instruction to the postmaster to return the mail to
the sender after ten days if undelivered, or by reputable professional
Service of FLD/FAN courier service.
A. Modes of Service (RR. No. 18-2013, Sec. 3.1.6; RMC No. 11-2014) b. Ordinary mail if no registry or reputable professional courier service is
1. Personal Service - the notice shall be served by delivering personally a available in the locality of the addressee.
copy thereof to the party at his registered or known address or wherever
he may be found. The server shall accomplish the bottom portion of the notice and make a written report
“Known address” – a place other than the registered address where under oath setting forth the manner, place, and date of service, the name of the
business activities of the party are conducted or his place of residence. person/barangay official/professional courier service who received the same and other
In case personal service is not practicable, the notice shall be served by relevant information.
substituted service or by mail.
2. Substituted Service – resorted to when the party is not present at the
registered address or known address under the following circumstances:

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* Service to the tax agent/practitioner, who is appointed by the taxpayer under the The defence may be raised even for the first time on appeal when it is apparent on
circumstances prescribed in the pertinent regulations on accreditation of tax agents, the record that the assessment has already prescribed (CIR v. First Sumiden
shall be deemed service to the taxpayer. Realty, Inc., CTA EB No. 975 re: CTA Case No. 8151, January 7, 2014).
2. Establishing Legal and Factual Bases of Tax Assessment
The aforementioned modes of service are also applicable to the service of the PAN and The details in the assessment notices issue to the taxpayer must be sufficient to
the FDDA. allow the taxpayer to intelligently answer the assessment as well as prepare the
The notice shall first be served to the taxpayer’s registered address before the same documentary evidence for protest. If the BIR merely stated that per computerized
may be served to the taxpayer’s known address or in the alternative, may be served to matching, the taxpayer has undeclared importations, the assessment is invalid
the taxpayer’s registered and know address simultaneously (RMC No. 11-2014). (CIR v. BASF Philippines, Inc., CTA EB Case No, 872 re CTA Case No. 7415,
B. When FAN deemed made September 12, 2013).
An assessment based on a Summary List of Purchases (SLP) cannot be used as
The assessment is deemed to have been made on the date when the demand letter or the sole basis. The SLP is doubtful, inconclusive and unreliable. The CIR must
notice of assessment is released, mailed, or sent, even though the same is actually prove the source of the information, otherwise the assessment is invalid (CIR v.
received by the taxpayer after the expiration of the prescriptive period. (Basilan Estates Fax N Parcel, Inc., CTA EB Case No. 883 re CTA Case No, 7415, February 14,
v. CIR, G.R. No. L-22492, September 5, 1967). 2013).
General Rule: When a mail matter is sent by registered mail, there exists a
presumption that it was received in the regular course of mail (Republic v. CA, G.R. No. Authority of the CIR to make subsequent assessment or modify or revise assessment
L-38540, April 30, 1987). The CIR has the authority to make subsequent assessments or modify or revise the original
For the presumption to apply, the following facts must be proven: assessment to collect additional sums covered by the original assessment as long as the
1. Letter was properly addressed with postage prepaid. modification or revision is done within the prescriptive period for making assessments, and
2. Letter was mailed (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064, even while the appeal of the taxpayer from the original assessment is still pending in the
August 7, 2006). CTA, so as to avoid multiplicity of suits (CIR v. Batangas Transportation Co., G.R. No. L-
9692, January 6, 1958).
Proof of Mailing Collection
The registry receipt issued by the post office or the official receipt issued by the It is the actual effort exerted by the government to effect the exaction of what is due from
professional courier service containing sufficiently identifiable details of the transaction the taxpayer. It is the final stage and goal of tax administration.
shall constitute sufficient proof of mailing and shall be attached to the case docket Is assessment necessary before collection?
(RMC No. 18-2013, Sec. 3.1.6). General Rule: Yes, No proceeding in court without assessment for the collection of such
BIR record book is not sufficient (Barcelon Roxas Securities, Inc. V. CIR, G.R. No. taxes shall be commenced (TAX CODE, Sec. 203).
157064, August 7, 2006). A warrant of distraint and/or levy without issuance of a FAN is void (Gold Harvest Global
Exception: When there is a direct denial of the receipt. The burden is shifted to the BIR Corp. v. CIR, CTA Case No. 7503, September 18, 2009).
to prove the letter mailed was received by the addressee. (Republic v. CA, G.R. No. L- Exception: A proceeding in court for the collection of tax may be filed without prior
38540, April 30, 1987; Barcelon Roxas Securities, Inc. V. CIR, G.R. No. 157064, assessment in the following cases:
August 7, 2006). 1. False or fraudulent return with intent to evade tax.
C. Questioning the Validity of FLD/FAN 2. Failure to file a return (TAX CODE, Sec. 222[1]).
1. Prescription as a Defence
An FLD/FAN must be served to the taxpayer within the prescriptive period to make When does tax become collectible:
a valid assessment (TAX CODE, Sec. 203). The government can collect when the assessment becomes final and executor for:
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 1. Failure to protest an FLD/FAN within the prescribed period. Resorted to when at the time required for payment, a person fails to pay his
2. Failure to appeal an FDDA within the prescribed period. delinquent tax obligation (NIRC, Sec. 207[A]).
3. Failure to appeal an adverse decision of the court within the prescribed period. It is the actual seizure and taking possession of personal property of the taxpayer.
Delinquent Taxpayer
ADMINISTRATIVE REMEDIES A taxpayer is considered delinquent in the payment of his tax when the:
Enforcement of Tax Lien a. Self-assessed tax per return filed on the prescribed date was not paid at all or
Tax Lien partially paid.
A legal claim or charge on property, real or personal, established by law as b. Deficiency tax assessed by the BIR became final and executor.
security in default of the payment of taxes (HSBC v. Rafferty, G.R. No. L-13188,
November 15, 1918). Procedure for Actual Distraint
a. Commencement of distraint proceedings by:
1. CIR or his duly authorized representative – where amount involved is
greater than 1M.
Nature of Tax Lien 2. Revenue District Officer – where amount involved is 1M or less (TAX
When a taxpayer neglects or refuses to pay his internal revenue tax liability after CODE, Sec. 207[A]).
demand, the amount so demanded shall be a lien in favour of the government from b. Service of warrant of distraint
the time the assessment was made by the Commissioner until paid with interest, The personal property of the taxpayer is physically taken by the distraining
penalties, and costs that may accrue in addition thereto upon all property and officer (TAX CODE, Sec. 208).
rights to property belonging to the taxpayer (TAX CODE, Sec. 219). c. Report on the distraint
When does the lien in favour of the Government arise: 1. It shall be submitted by the distraining officer to the Revenue District
1. With respect to personal property – from the time the tax became due and Officer and to the Revenue Regional Director within 10 days from receipt
payable. of warrant.
2. With respect to real property – from the time of registration with the Registry of 2. The CIR or his duly authorized representative has the power to lift the
Deeds. order of distraint (TAX CODE, Sec. 207[A]).
d. Notice of sale of distrained properties
1. Notice shall specify the time and place of sale and the articles distrained.
* It is settled that the claim of the government predicated on a tax lien is superior to 2. The time of sale shall not be less than 20 days after the notice to the
the claim of a private litigant predicated on a judgement. The tax lien attaches not owner or possessor of the property and posting of such notice.
only from the service of the warrant of distraint but from the time the tax became due 3. The posting shall be made in not less than two public places in the city or
and payable (CIR v. NLRC, G.R. No. 74965, November 9, 1994). municipality where the distraint is made. One place for the posting of such
notice is at the Office of the Mayor of such city or municipality in which the
Validity of Tax Lien property is distrained (TAX CODE, Sec. 209).
The lien shall be valid against any mortgagee purchaser or judgement creditor only when e. Sale at public auction
notice of such lien shall be filed by the CIR in the office of the Register of Deeds of the 1. Sale must be held at the time and place stated at the notice.
province or city where the property of the taxpayer is situated (TAX CODE, Sec. 219). 2. It may be conducted by the Revenue Officer or through a licensed
Distraint of Personal Property commodity or stock exchange.
Kinds of Distraint:
1. Actual Distraint
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 3. If the sale is conducted by the officer, rather than the officer serving the b. Debts and credits – by leaving with the person owning the debts or having in
warrant, it must be held at a public auction and the property shall be sold his possession or under his control such credits, or his agent, a copy of the
to the highest bidder for cash. warrant of distraint.
4. If the sale is through a licensed commodity or stock exchange, it must be c. Bank accounts – by serving a warrant of garnishment upon the taxpayer and
with the approval of the CIR. upon the president, manager, treasurer, or other responsible officer of the
5. In the case of stocks and other securities, the officer making the sale shall bank ((TAX CODE, Sec. 208)
execute a bill of sale, which shall be delivered to the buyer and to the
corporation, company or association (CCA) which issued the stocks or Garnishment
other securities. Upon receipt of the copy of the bill of sale, an entry of The taking of personal properties, usually cash or sums of money, owned by the
transfer should be made in the CCA’s book and a corresponding delinquent taxpayer which is in the possession of a third party.
certificate of stock shall be issued if required (TAX CODE, Sec. 209). Bank accounts may be distrained notwithstanding the Bank Secrecy Act (R.A.
6. Any residue over and above what is required to pay the entire claim 1405) which prohibits inquiry into bank accounts, since in the case of distraints, no
including expenses shall be returned to the owner of the property sold. inquiry is made. The BIR merely seizes so much of the deposits as is sufficient to
Expenses chargeable upon seizure shall include only those actual discharge the obligation without having to know how much the deposits are, or
expenses of seizure and preservation of the property pending the sale where the money or part of it came from (Opinion of the Secretary of Justice, No.
and does not include services of the Revenue Officer (TAX CODE, Sec. 54 s. 1956)
210)
Right of Pre-emption: If at any time prior to the consummation of the sale all
proper charges are paid to the officer conducting the sale, all the distrained 2. Constructive Distraint
properties shall be restored to the owner (TAX CODE, Sec. 211). Issued where no actual tax delinquency of the taxpayer is necessary before the same is
There is no right of Redemption resorted to by the government (ABAN, p. 238)
Purchase by the Government at Sale upon Distraint (TAX CODE, Sec. 212) It is a preventive remedy to forestall possible dissipation of the taxpayer’s assets when
When the amount bid for the distrained property is: delinquency takes place.
a. Not equal to the amount of tax. It is issued in the following cases when the taxpayer is:
b. Very much less than the actual market value of the property offered for sale. a. Retiring from any business subject to tax.
b. Intending to leave the Philippines.
The CIR or his deputies may purchase on behalf of the National Government for c. Intending to remove his properties therefrom or to hide or conceal his property.
the amount of the taxes, penalties, and cost due thereon. d. Intending to perform any act tending to obstruct the proceedings for collecting the
Property so purchased may be resold by the CIR or his deputy; the net proceeds tax due or which may be due from him (TAX CODE, Sec. 206)
shall be remitted to the National Treasury and accounted as internal revenue.
Distraint of Intangible Properties Constructive distraint is effected:
Intangible properties which can be the subject of distraint are: a. By requiring the taxpayer or any person having possession or control of such
a. Stocks and other securities – by serving a copy of the warrant of distraint property to sign a receipt covering the property distrained and obligate himself to
upon the taxpayer and upon the president, manager, treasurer, or other preserve the same intact and unaltered and not to dispose of the same in any
responsible officer of the corporation, company, or association, which issued manner whatever without the express authority of the CIR.
the same.
Punishment in case of violation: Upon the conviction, a fine of not less than twice the
value of the property so sold, encumbered, or disposed of but not less than P 5,000, or

102
suffer imprisonment of not less than two years and one day but not more than four b. Upon the delinquent taxpayer, or if he is absent from the Philippines, to
years, or both (TAX CODE, Sec. 276) his agent or the manager of the business in respect to which the liability
b. In case the person refuse or fails to sign the receipt, the Revenue Officer effecting arose, or if there be none, the occupant of the property in question (TAX
the constructive distraint shall prepare a list of the property and in the presence of CODE, Sec. 207[B])
two witnesses, leave a copy thereof in the premises of the property where the 3. Advertisement of Sale
property distrained is located (TAX CODE, Sec. 206).
The Advertisement shall contain:
a. Amount of tax and penalties due.
b. Name of the taxpayer against whom the taxes are levied.
Levy of Real Property c. Time and place of sale.
Levy d. Short description of the property to be sold.
Refers to the seizure of real properties and interest in or rights to such properties
for the satisfaction of taxes due from the delinquent taxpayer (DIMAAMPAO, p. The advertisement shall be made within 20 days after the levy, and the same
158). shall be for a period of at least 30 days (TAX CODE, Sec. 213).
When may levy be effected Advertisement shall be effectuated by:
Real property may be levied upon before, simultaneously, or after the distraint of a. Posting a notice at the main entrance of the municipal building or city hall
personal property belonging to the delinquent taxpayer (TAX CODE, Sec. 207[B]); and in a public and conspicuous place in the barrio or district in which
and the remedy of distraint and levy may be repeated if necessary if the full the real property lies.
amount, including expenses, is collected (TAX CODE, Sec. 217). b. Publication once a week for three weeks in a newspaper of general
In case the warrant of levy is not issued before, or simultaneously with the warrant circulation in the municipality or city where the property is located.
of distraint and the personal property of the taxpayer is not sufficient to satisfy his 4. Public Sale of Property under Levy
delinquency, the CIR or his authorized representative shall, within 30 days after the Taxpayer is given the right of pre-emption before the sale.
execution of the distraint, proceed with the levy on the taxpayer’s real property If he does not exercise it, the sale shall proceed and shall be held either at the
(TAX CODE, Sec. 207[B]). main entrance of the municipal building or city hall, or on the premises to be
Procedure for levy sold, as the officer conducting the proceedings shall determine and as the
1. Issuance of Warrant of Levy notice of the sale shall specify (TAX CODE, Sec. 213).
Preparation of a duly authenticated certificate containing: Right of Pre-emption: The taxpayer may discontinue all proceedings by
a. Description of property levied paying the taxes, penalties, and interest at any time before the day fixed for
b. Name of the taxpayer the sale.
c. Amount of tax and penalty due from him A Certificate of Sale shall be delivered to the purchaser.
If the proceeds of the sale exceed the claim and cost of sale, the excess shall
This certificate shall operate with the force and effect of a legal execution be turned over to the owner of the property.
throughout the Philippines (TAX CODE, Sec. 207[B]).
2. Service of the Warrant 5. Redemption of Property (TAX CODE, Sec. 214)
How is levy effected Period: Within one year from the date of the sale.
Written notice of the levy shall be mailed or served upon: The one year period for redemption begins from the registration of the deed of
a. The Register of Deeds of the city or province where the property is sale (Santos v. RFC, G.R. No. L-9796, July 31, 1967).
located. Who may redeem: The delinquent taxpayer or anyone for him.

103
 To whom made: To the Revenue District Officer. * The remedies of distraint and levy as well as collection by civil and criminal action
How made: Upon payment of the taxes, penalties, and interest thereon from may, in the discretion of the CIR, be pursued singly or independently of each other,
the date of the delinquency to the date of sale, together with interest on or all of them simultaneously.
purchase price at 15% per annum from the date of sale to the date of
redemption. Both distraint and levy are summary remedies and cannot be availed of
The owner shall not be deprived of the possession of the property and shall be where the amount of tax involved is than P 100.
entitled to the rents and other income thereof until the expiration of the time Real property placed under levy may be sold at public auction for less than
allowed for redemption. its market value (NIRC, Sec. 215) since the taxpayer is given the right to
Effects of Redemption of Property Sold: redeem (NIRC, Sec. 214). With respect to distrained personal property the
a. Such payment shall entitle the taxpayer to the delivery of the certificate rule is different (NIRC, Sec. 212).
issued to the purchaser and a certificate from the RDO that he has Penalties and Fines
redeemed the property. Increments to the basic tax incident to the taxpayer’s non-compliance with certain legal
b. The RDO shall pay the purchaser the amount by which such property has requirements.
been redeemed and said property shall be free from lien of such taxes
and penalties.
6. Further Distraint and Levy No Injunction to Restrain Collection of Tax
The remedy of distraint and levy may be repeated if necessary until the full No court shall have the authority to grant an injunction to restrain the collection of any
amount of the tax delinquency including all expenses is collected from the national internal revenue tax, fee or charge imposed (TAX CODE, Sec. 218), except when
taxpayer (TAX CODE, Sec. 217) in the opinion of the CTA:
Grounds for Forfeiture to the Government: 1. Collection of the tax would jeopardize the government and/or taxpayer.
a. No bidder for the real property. 2. Shall thereafter require the taxpayer to deposit the amount claimed or to file a
b. The highest bid is for an amount insufficient to pay the taxes, penalties, surety bond for not more than double the amount with the court (R.A. 922, Sec. 9).
and costs (TAX CODE, Sec. 215)
The Register of Deeds shall transfer title to the Government upon registration Forfeiture (of Confiscated Articles)
with his office of the declaration of forfeiture. Forfeiture
Within one year from forfeiture, the taxpayer may redeem his property. The divestiture of property without compensation, in consequence of a default or offense
Resale of Real Estate Taken for Taxes (Balllantine’s Law Dictionary, p. 519).
The CIR shall have charge of any real estate obtained by the Government in Seizure v. Forfeiture
payment of taxes, penalties or costs arising under the Tax Code or in In seizure for the enforcement of tax lien, the residue, after deducting the tax liability and
compromise or adjustment of any claim. expenses, are returned to the taxpayer. (BPI v. Trinidad, G.R. No. 16014, October 4, 1941)
The CIR may: In forfeiture, all the proceeds of the sale will go to the coffers of the government (U.S. v.
a. Sell and dispose of the same at a public auction upon giving of not less Surla, G.R. No. 6536, September 2, 1911).
than 20 days notice. A taxpayer in forfeiture or seizure cases to enforce tax lien may still be subject to criminal
b. Dispose of the same at a private sale with the approval of the Secretary action even if his property has been forfeited (Garcia v. Collector, G.R. No. 44372,
of Finance (TAX CODE, Sec. 216) November 3, 1938).
c. Enforcement of the Remedy of Forfeiture
1. In case of personal property – by seizure and sale or destruction of specific
forfeited property.
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 2. In case of real property – by judgement of condemnation and sale in a legal action 1. By filing a civil case for collection of a sum of money with the proper regular court
or proceeding, civil or criminal, as the case may require (TAX CODE, Sec. 224) (TAX CODE, Sec. 203 and 222).
2. By filing an answer to the petition for review filed by the taxpayer with the CTA (
This remedy is different from the provision directing forfeiture of real property in certain Fernandez Hermanos, Inc. v. CIR, G.R. No. L-21551, September 30, 1969).
cases in the remedy of levy under Sec. 215. Judicial intervention, which is required for
forfeiture of real property under Sec. 224, is not required under Sec. 215 since the Can the BIR file a civil action for the collection pending the decision of the
taxpayer has the right of redemption (DE LEON, NIRC 2, pp. 515-516). administrative protest?
Forfeited Goods or Articles (TAX CODE, Sec. 225) Yes. The request for reinvestigation and reconsideration was in effect considered denied by
1. Sold – in case of forfeited chattels and removable fixtures, so far as practicable, the CIR when the latter filed a civil suit for collection of deficiency income (CIR v. Union
under the same conditions as the public notice and the time and manner of sale as Shipping, G.R. No. L-66160, May 21, 1990).
are prescribed for sales of personal property distrained for non-payment of taxes. Forms and Mode of Proceeding:
2. Destroyed – in case of distilled spirits, liquors, cigarettes, other manufactured 1. Civil actions shall be brought in the name of the Government of the Philippines.
products of tobacco and all apparatuses used in or about the illicit production of 2. It shall be conducted by legal officers of the BIR.
such articles, by the CIR when the sale of the same for consumption or use would 3. No civil or criminal action for the recovery of taxes shall be filed in court without the
be injurious to public health or prejudicial to the enforcement of law. approval of the CIR (TAX CODE, Sec. 220).
3. Sold or destroyed – in cases of all other articles subject to excise tax, which have
been manufactured or removed in violation of NIRC, dies for printing or making of
internal revenue stamps and labels which are in imitation of or purport to be lawful * The CIR may delegate such power (NIRC, Sec. 7)
stamps, or labels, in the discretion of the Commissioner.
Participation of the Solicitor General
In view of the amendment of Sec. 220 of the NIRC, the written conformity of the CIR and no
* Forfeited property shall not be destroyed until at least 20 days after seizure. longer of the Solicitor General or the Government Corporate Counsel, should be secured
(DE LEON, NIRC 2, p. 497).
Instances when Forfeiture is Appropriate Criminal Action
1. All chattels and removable fixtures of any sort, used in the unlicensed production of A criminal complaint is instituted to penalize the taxpayer for the violation of the TAX Code.
articles (TAX CODE, Sec. 268 [B]) Two Common Crimes Punishable:
2. Dies used for printing or making of any imitation revenue stamp, label or tag which 1. Attempt to evade or defeat tax (TAX CODE, SEC. 254).
is an imitation of or purports to be a lawful stamp, label or tag (TAX CODE, Sec. 2. Failure to file a return, supply correct and accurate information, pay tax, withhold
268[B]) and remit tax and refund excess taxes withheld on compensation (TAX CODE,
3. Liquor or tobacco shipped under a false name or brand (TAX CODE, Sec. 262) Sec. 255).

JUDICIAL REMEDIES Criminal action in violation of the NIRC also constitutes a collection method because the
Civil Action judgement in the criminal case not only imposes the penalty but shall also order the
For tax remedy purposes, these are actions instituted by the government to collect internal payment of the taxes subject of the criminal case as finally decide by the CIR (TAX CODE,
revenue taxes including the filing by the government of claims against the deceased Sec. 205).
taxpayer with the probate court. The government can collect when the assessment has Any person convicted of a crime penalized by the NIRC shall, in addition to being liable for
become final and executor. the payment of the tax, be subject to the penalties imposed herein (TAX CODE, Sec.
Two Ways to Enforce Civil Liability through Civil Action 253[a]).

105
Form and Mode of Proceeding 5. Criminal action may be filed despite the lapse of the period to file a civil
Same with civil actions (TAX CODE, Sec. 220). action for collection of taxes
Letters of referral/complaints filed by the CIR that states, “I hereby recommend the When the civil action arising from tax delinquency has prescribed, the BIR has only
prosecution of the following for violation of the National Internal Revenue Code, as five years from assessment within which to collect the tax through criminal action in
amended” constitute approval of filing of cases in court (People v. Tan, G.R. No. 144707, which case it would prescribe after the lapse of five years from discovery of crime
July 13, 2004). and institution of proceedings (TAX CODE, Sec. 281).
Importance Principles on Criminal Actions 6. Filing of a criminal action is not an implied assessment by the CIR
1. Assessment is not necessary before filing a criminal action and criminal An affidavit, which was executed by revenue officers stating the tax liabilities of a
action may be filed during the pendency of an administrative protest in the taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed
BIR. It is not a requirement for the filing thereof that there be a precise computation as assessment (CIR v. Pascor Realty. G.R. No. 1218315, June 29, 1999).
and assessment of the tax, since what is involved in the criminal action is not the The recommendation by the CIR to the DOJ for the filing of a criminal complaint
collection of the tax but a criminal prosecution for the violation of the NIRC, against the taxpayer cannot be considered a formal assessment. Even a cursory
provided however, that there is prima facie showing of a wilful attempt to evade perusal of the letter would reveal three key points:
taxes or failure to file the required return (Ungab v. Cusi. G.R. Nos. L-41919, May a. It was not addressed to the taxpayer.
30, 1980 in relation to CIR v. CA, G.R. No. 119322, June 4, 1996; CIR v. Pascor b. There was no demand made to the taxpayer to pay the tax liability, nor a
Realty Development Corp., G.R. No. 128315, June 29, 1999). period for payment set therein.
Exception: Before the tax liabilities of Fortune are first finally determined, it c. The letter was never mailed or sent to the taxpayer by the CIR.
cannot be correctly asserted that private respondents have wilfully attempted to
evade or defeat taxes sought to be collected from Fortune. In plain words, before In fine, the said recommendation letter served merely as the prima facie basis for
one is prosecuted for wilful attempt to evade or defeat any tax under Sec's. 253 the filing of the criminal information that the taxpayer had violated the penal
and 255 of the NIRC, the fact that a tax is due must first be proved (CIR v. CA and provisions of the tax code (Adamson v. CA, G.R. No. 1290935, May 21, 2009).
Fortune Tobacco, G.R. No. 119322, June 4, 1996). 7. No reservation to file civil action
2. Effect of acquittal of the taxpayer in the criminal action Under R.A. 9282, the filing of the criminal case implies also the filing of the civil
It does not necessarily result in the exoneration of said taxpayer from his civil case. In fact, no reservation for the filing of the civil case may be made under this
liability to pay taxes. law, unlike that of a felony under the RPC (MAMALATEO, pp. 445-446).
Reason: The duty to pay is imposed by statute prior to and independent of any
attempt on the part of the taxpayer to evade payment. It is neither a mere STATUTE OF LIMITATIONS
consequence of the felonious acts charged nor is it a mere civil liability derived Assessment
from a crime (Republic v. Patanao, G.R. No. L-14142, May 30, 1961). General Rule: Within three years after the last day prescribed by the law for the filing of the
3. Effect of subsequent satisfaction of civil liability return or from the date of actual filing the return, whichever comes later (ordinary or
It does not extinguish the taxpayer’s criminal liability (People v. Tierra, G.R. Nos. L- normal assessment) (TAX CODE, Sec. 203).
17177-80, December 28, 1964).
4. No subsidiary imprisonment Exceptions:
In case of insolvency on the part of the taxpayer, subsidiary imprisonment cannot 1. In case of false or fraudulent return with intent to evade tax or failure to file a
be imposed as regards the tax which he is sentenced to pay. return – within 10 years after the discovery of falsity, fraud or omission
However, it may be imposed in cases of failure to pay the fines imposed (TAX (extraordinary or abnormal assessment) (TAX CODE, Sec.222[a]).
CODE, Sec. 280). 2. In case there is valid waiver of the statute of limitations – up to the extended
period agreed upon (TAX CODE, Sec. 222[b]).
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* The prescriptive period for making assessment shall also apply when the 1. If the amendment is substantial, the counting of the prescriptive period shall be
Government makes an erroneous refund of internal revenue taxes. The prescriptive reckoned on the date the substantial amendment was made.
period is not the six-year period of limitation under Art. 1145 of the Civil Code on 2. If the amendment was superficial, the counting of the prescriptive period is still the
quasi-contracts (ABAN, p. 296) because the demand of the Government on the taxpayer original period (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
to pay the erroneously refunded tax is in effect an assessment of deficiency tax (Guaga
Electric v. CIR, G.R. No. L-23611, April 24, 1967). Example of Substantial amendment: An amendment of an original income tax return
Construction of Statutory Provision on Prescription showing a net loss to show more losses (CIR v. Phoenix Assurance, G.R. No. L-19727,
For the purpose of safeguarding taxpayers from any unreasonable examination, May 20, 1965).
investigation or assessment, our tax law provides a statute of limitations in the collection of Reason: To prevent taxpayers from evading the payment of taxes by simply reporting
taxes. Thus, the law on prescription, being a remedial measure, should be liberally in their original return heavy losses and amending the same more years later when the
construed in order to afford such protection. As a corollary, the exceptions to the law on CIR has lost his authority to assess the proper tax thereunder. The object of the NIRC
prescription should perforce be strictly construed (CIR v. B.F. Goodrich Phils., Inc. G.R. No. is to impose taxes for the needs of the Government and not to enhance tax avoidance
104171, February 24, 1999). to its prejudice (CIR v. Phoenix Assurance, G.R. No. L-19727, May 20, 1965).
The law of prescription should be interpreted in a way conducive to bringing about the Exception: If the return is sufficiently complete to enable the CIR to intelligently
beneficent purpose of affording protection to the taxpayer within the contemplation of the determine the proper amount of tax to be assessed, then the prescriptive period for the
Commission which recommended the approval of the law (Republic v. Ablaza, G.R. No. L- assessment starts from the filing of the original return (A.L. Ammen Transportation v.
14519, July 26, 1990). Collector, CTA Case No. 540, November 10, 1965).
Computing for the Prescriptive Period False Return
Both Art. 13 of the Civil Code and the Administrative Code deal the computation of legal That which contains wrong information due to mistake, carelessness or ignorance
periods. The Administrative Code being the more recent law, it shall govern the computation (Aznar v. CIR, G.R. No. L-20569, August 23, 1974).
of legal periods under the principle Lex posterior derogate priori (CIR v. Primetown Property A substantial under-remittance of withholding tax on compensation constitutes falsity to
Group, Inc, G.R. No. 162155, August 28, 2007). warrant the 10-year prescriptive period (Samar-I Electric Cooperative, Inc. v CIR, CTA
Burden of proof that a return was filed to apply the three year prescriptive period EB Case No. 462, March 11 2010).
It is incumbent on the taxpayer to prove that a return had been filed by him in order that the Fraudulent Return
three-year prescriptive period may apply (Republic v. Marsman Dev't., G.R. No. L-18956, For the 10-year prescriptive period to apply based on fraud, such fact must first be
April 27, 1972) because the prescription of the Government’s right to assess taxes is an proved as a fact by the BIR.
affirmative defence (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962). Such fact in a fraud assessment which has already become final and executor shall be
Requisites in order that a return may be considered filed for purposes of starting the judicially taken cognizance of in a civil or criminal action for the collection thereof (TAX
running of the prescriptive period: CODE, Sec. 222[a]).
1. The return must be valid – it must comply substantially with the requirements of the
law. The following instances negate the existence of fraud and preclude the application of
2. The return must be appropriate – it is a return for the particular tax required by law. the 10-year prescriptive period:
Thus, an income tax return cannot be considered as the equivalent of the Vat or 1. The CIR failed to impute fraud in the assessment notice or demand for payment.
percentage return (Butuan Sawmill, Inc. v. CTA, G.R. No. L-20601, February 28, 2. The CIR failed to allege fraud in his answer to the taxpayer’s petition for review
1966). when the case is appealed to CTA (ABAN, pp. 274-275).
3. The fact that the CTA raised the question of fraud only for the first time in his
Amendment of Tax Return memorandum which was filed with the CTA after he had rested his case
General Rule: The following shall govern in case there is an amendment of the return: (Taligaman Lumber v. CIR, G.R. No. L-15716, March 31, 1962).
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 4. The fact that the CIR did not include fraud penalty in his deficiency assessment 5. Both the date of execution by the taxpayer and the date of acceptance by the BIR
which was issued after the filing of the return as an indication that he himself did should be made before the expiration of the period of prescription or before the
not believe that there was fraud (Gomez v. Domingo, CTA Case no, 1168, lapse of the period agreed upon in case a subsequent agreement is executed.
February 15, 1964). 6. The waiver must be executed in three copies.
5. In an assessment, where the BIR appeared “not so sure” as to the real amount of a. Original copy - attached to the docket of the case.
the taxpayer’s net income, as where the BIR arrived at three highly different b. Second Copy – taxpayer’s copy.
computations (Republic v. Lim de Yu, G.R. No. L-17438, April 30, 1964). c. Third Copy – copy of the Office accepting the waiver.
6. The CIR merely relied upon an alleged substantial under declaration of income tax 7. The fact of receipt by the taxpayer of his/her copy must be indicated in the original
resulting from his own computation. copy to show that the taxpayer was notified of the acceptance of the BIR and the
7. Mere understatement of gross earnings does not by itself prove fraud (Yutivo Sons perfection of the agreement.
v. CTA, G.R. No. L-13203, January 28, 1961). 8. It must be duly notarized.
9. It must not reduce but extend the period allowed for the government to assess and
Failure to File a Return collect taxes (RMO No, 20-90; RDAO No. 05-01; RMC No. 06-05; Republic v.
The following constitutes failure to file to warrant the 10-year prescriptive period: Lopez, G.R. No. :-18007, March 30, 1963).
1. A deficient return prevented the CIR from computing taxes due. Such defective
return is the same as if no return was filed (CIR v. Gonzales, G.R. No, L-19495,
November 24, 1964). * The waiver of the statute of limitations does not mean that the taxpayer relinquishes
2. Failure to report income in returns which were clearly not exempted from tax. The its right to invoked prescription (Philippine Journalists, Inc. v. CIR, G.R. No. 162852,
court did not treat this as a simple omission as the same involved substantial sums December 16, 2004).
(Standard Chartered Bank v. CIR, CTA EB Case No. 731, September 13, 2012). Failure to comply with all the requirements stated above renders the waiver invalid.
As such, the prescriptive period shall not be extended.
The taxpayer may, however, be stopped to question the validity of the waiver as when
Waiver of Statute of Limitations he made partial payment of the revised assessments issued within the extended
Requisites: period as provided in the questioned waivers. The Court held that had he believed the
1. In must be in the proper form prescribe under RDAO No. 05-01. waivers were invalid and the assessments were issued beyond the prescriptive
2. It must specify a definite agreed date between the BIR and the taxpayer within period, then it should not have paid the reduced amount of taxes in the revised
which the former may assess and collect taxes. assessments (RCBC v. CIR, G.R. No. 1702567, September 7, 2011).
3. It must be signed by the taxpayer himself or his duly authorized representative. Collection
a. In case of a corporation, the waiver must be signed by any of its responsible The following rules shall govern the prescriptive period of collection of taxes:
officials. 1. For both normal or ordinary assessment (one with the three-year period to
b. In case the authority is delegated by the taxpayer to a representative, such assess) and Abnormal or extraordinary assessment (one with the 10-year
authority must be in writing and notarized. period to assess) – Five years from the time the assessment was made.
4. The CIR or the revenue official authorized by him must sign the waiver indicating 2. Collection without assessment through judicial action – 10 years after the
that the BIR has accepted and agreed to the waiver. discovery of the falsity, fraud or omission to file a return.
a. The date of such acceptance by the BIR must be indicated. The Government may collect without prior assessment in the same instances
b. Before signing the waiver, the CIR or the revenue official authorized must under abnormal or extraordinary assessment.
make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.

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Grounds for Suspension of the Running of the Statute of Limitations to Assess and Necessity of Judicial Proceeding
Collect: (TAX CODE, Sec. 223) The Supreme Court held that in case of falsity or fraud with intent to evade the tax, the right
1. When the CIR is prohibited from making the assessment or beginning the distraint of the government to collect through criminal action is imprescriptible because the remedy
or levy or a proceeding in court, and for sixty days thereafter. of collection through criminal action is only deemed instituted from its discovery and the
2. When the taxpayer requests for reinvestigation and is granted by the CIR. institution of the judicial proceedings for its investigation and punishment (Lim, Sr. V. CA,
Requisites: G.R. Nos. 48134-37, October 18, 1990).
a. There must be a request for reinvestigation and not a request for Interruption of the Prescriptive Period
reconsideration (CIR v. Philippine Global Communications, G.R. No. 167146, The period shall be interrupted:
October 31, 2006). 1. When the proceedings are instituted against the guilty persons.
b. The request for reinvestigation must be granted or acted upon by the CIR (BPI 2. When the offender is absent from the Philippines (TAX CODE, Sec. 281).
v. CIR, G.R. No. 174942, March 7, 2008).

* In No. 1, the period shall run again if the proceedings are dismissed for reasons not
* The burden of proof that the request for reinvestigation had been actually granted constituting jeopardy (TAX CODE, Sec. 281).
shall be on the CIR. Such grant may be expressed in its communication with the
taxpayer or implied from the action of the CIR or his authorized representative in REMEDIES OF THE TAXPAYER UNDER NIRC
response to the request for reinvestigation (BPI v. CIR, G.R. No. 174942, March 7,
2008).
QUESTION: Can the taxpayer institute a direct action before a court of justice to protest the
3. When the taxpayer cannot be located in the address given by him in the return, assessment?
unless he informs the CIR of any change in his address. ANSWER: No. The assessment may be protested administratively by filing a request for
4. When the warrant of distraint or levy is duly served, and no property is located. reconsideration or reinvestigation within 30 days from receipt of assessment (Sec. 228 (4)
5. When the taxpayer is out of the Philippines. NIRC).

Criminal Cases QUESTION: What about the claim for refund?

All violations of any provision of this Code shall prescribe after five years (NIRC, Sec. 281). ANSWER: No. No suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax UNTIL a claim for refund or credit has been filed with the
Commissioner(Sec. 229 NIRC).
When does the prescriptive period of prescription begin to run:
1. From the day of the commission of the violation of the law (TAX CODE, Sec. 281). I. Before Payment
The five-year prescriptive period for the violation of any provision of the Tax Code
should be reckoned from the date of the final notice and demand for payment of A. Administrative Remedies
the deficiency taxes that the cause of action on the part of the BIR accrued. This is
because prior to the receipt of the letter-assessment, no violation has yet been 1. Protest against Assessment
committed (DIZON, citing Lim, Sr. V. CA, G.R. Nos. 48134-37. October 18, 1990).
2. If the same be not known at the time, from the discovery thereof and the institution Protest, as used in internal revenue taxation, it is an act by the
of judicial proceedings for its investigation and punishment (TAX CODE, Sec. 281). taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as
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shown in the notice of assessment and letter of demand. The protest to the CTA. The taxpayer must pay the deficiency tax if the taxpayer
may be a Request for reconsideration which involves re-evaluation of protests only to some of the issues raised. (2) The taxpayer shall
assessment based on existing records and does not toll the Statute submit all relevant supporting documents within 60 days from the
of Limitations or Request for reinvestigation which involves filing of the protest. Non-submission renders the assessment final,
presentation of newly-discovered or additional evidence and tolls the executory and demandable. (3) If the protest is denied by the
Statute of Limitations. Commissioner’s authorized representative, the taxpayer may elevate
the protest to the Commissioner within 30 days from receipt of the
A valid protest must have the following requisites: (a) in writing; decision for a request for reconsideration and to be referred to the
(b) addressed to the CIR; (c) it must be accompanied by a waiver of Bureau’s Appellate Division. (4) If the protest is denied in whole or in
the Statute of Limitations in favour of the government. Such waiver is part by the Commissioner, the taxpayer may appeal to the CTA
a bilateral agreement between taxpayer and BIR. It is not a unilateral within 30 days from receipt of decision, otherwise, the assessment
act by the taxpayer or the BIR. The waiver of Statute of Limitations shall become final, executory and demandable except when it is
does not mean that taxpayer relinquishes its right to invoke appealed to the CIR. Instead of appealing to the CTA at once, the
prescription; (d) it must state the facts, applicable law, rules and taxpayer may first opt to file a Motion for Reconsideration of the
regulations or jurisprudence on which his protest is based, otherwise, denial of the administrative protest with the Commissioner. The MR
his protest shall be considered void and without force and effect on does not toll the 30-day period to appeal to the CTA. If the MR is
the event the letter of protest submitted by the taxpayer is accepted; denied, the taxpayer may then appeal to the CTA, but only within the
and (e) it must contain: (1) name of the taxpayer and address; (2) remaining period of the original 30-day period to appeal, if any. The
nature of the request; (3) taxable periods covered by the forms of denial may be direct or indirect denial of protest.(5) lastly,
assessment; (4) amount and kind of tax involved; (5) date of receipt the taxpayer may appeal to the Supreme Court from the adverse
of assessment notice or letter of demand; (6) itemized statement of decision of the CTA within 15 days.
the finding to which the taxpayer agrees as basis for the computation
of the tax due; (7) itemized schedule of the adjustments to which the 2. Entering into a Compromise
taxpayer does not agree; (8) supporting facts or law; (9) documentary
evidence. SECTION 204. Authority of the Commissioner to Compromise,
Abate and Refund or Credit Taxes. - The Commissioner may -
As a general rule, no prior payment of assessed internal revenue Compromise the payment of any internal revenue tax, when: (a) A
tax is required when protested or disputed. Exception: if there are reasonable doubt as to the validity of the claim against the taxpayer
several issues involved in the Final Assessment Notice (FAN) but the exists; or (b) The financial position of the taxpayer demonstrates a
taxpayer only disputes or protests against the validity of some of the clear inability to pay the assessed tax.
issues raised, the taxpayer shall be required to pay the deficiency tax
or taxes attributable to the undisputed issues. If the taxpayer does The compromise settlement of any tax liability shall be subject to
not pay, the disputed issues shall be considered as undisputed. the following minimum amounts: (a) For cases of financial incapacity,
(Payment in Protest) a minimum compromise rate equivalent to ten percent (10%) of the
basic assessed tax; and (b) For other cases, a minimum compromise
Procedure in Protesting an Assessment: (1) the taxpayer shall rate equivalent to forty percent (40%) of the basic assessed tax.
file his Protest within 30 days from receipt of the Final Assessment
(FAN). After receipt of FAN, the taxpayer cannot immediately appeal
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 Where the basic tax involved exceeds One million pesos bond, enjoin the sale; or after the sale and within 6 months, an action
(P1,000,000) or where the settlement offered is less than the to recover the net proceeds realized at the sale (Sec. 231 NIRC);
prescribed minimum rates, the compromise shall be subject to the (6) Action for damages against a revenue officer by reason of any act
approval of the Evaluation Board which shall be composed of the done in the performance of official duty (Sec. 227 NIRC);
Commissioner and the four (4) Deputy Commissioners. (7) Injunction, to be issued by the CTA if collection may jeopardize the
interest of the government and/or the taxpayer (R.A. 1125 as
Instances of Compromise: amended by R.A. 9282).
Revenue Regulations No. 30-2002, as amended, provided for
specific instances where tax liability in the Philippines could be II. After Payment
compromised based on certain conditions and requirements, to wit:
(1) Delinquent accounts; A. Claim for Tax Refund or Tax Credit
(2) Cases under administrative protest after issuance of the FAN to
the taxpayer which are still pending in the Regional Offices, A Tax Refund is a written claim for the payment of cash for taxes
Revenue District Offices, Legal Service, Large Taxpayer Service erroneously or illegally paid by the taxpayer to the government. The
(LTS), Collection Service, Enforcement Service and other offices taxpayer asks for restitution of the money paid as tax. The prescriptive
in the National Office; period is 2 years after the payment of the tax or penalty. A Tax Credit is a
(3) Civil tax cases being disputed before the courts; remedy in which the government issues a tax credit certificate or tax
(4) Collection cases filed in courts; credit memo covering the amount determined to be reimbursable can be
(5) Criminal violations, other than those already filed in court or applied after proper verification against any sum that may be due and
those involving criminal tax fraud. collectible from the taxpayer. The taxpayer asks that the money so paid
be applied to his existing tax liability. The prescriptive period is 2 years
B. Judicial Remedies from the date such credit was allowed (in case credit is wrongfully made).

(1) Appeal to the Court of Tax Appeals (Division), within 30 days from Grounds for filing a claim for tax refund or tax credit are the
receipt of decision on the protest or from the lapse of 180 days due to following: (1) tax is collected ERRONEOUSLY or ILLEGALLY; (2) penalty
inaction of the Commissioner otherwise it will be final and executory; is collected WITHOUT AUTHORITY; (3) sum collected is EXCESSIVE or
(2) Appeal the CTA en banc, the party adversely affected by the CTA in any manner WRONGFULLY COLLECTED.
Division’s decision may file one (1) motion for reconsideration/new
trial within 15 days from receipt of the decision with the CTA division. Requisites of tax refund or tax credit are the following: (1) the
If the MR is denied, file a petition for review with the CTA en banc; claim must be in WRITING (mandatory); (2) it must be filed with the
(3) Appeal to the Supreme Court, within 16 days from the receipt of the Commissioner within 2 years after the payment of tax or penalty; (3) the
decision of the CTA; taxpayer must show PROOF OF PAYMENT.
(4) By way of special civil action, petition for certiorari, prohibition
and mandamus to the Supreme Court in case of grave abuse of Recovery of tax erroneously or illegally collected (Sec. 229
discretion, lack of jurisdiction or excess of jurisdiction; NIRC): No suit or proceeding shall be maintained in any court for the
(5) Action to contest forfeiture of chattel, at any time before the sale recovery of any national internal revenue tax UNTIL a claim for refund or
or destruction thereof, to recover the same, and upon giving proper credit has been filed with the Commissioner; but the suit or proceeding
may be maintained whether or not such tax, penalty or sum has been
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paid under protest or duress. Even without a written claim, the CIR may is legally collected, the prescriptive period commences
refund or credit tax where on the face of the return upon which payment to run from the date of occurrence of the supervening
was made, such payment appears to have been erroneously paid. cause which gave rise to the right of refund. The ruling
in Muller & Phipps is accordingly modified.
Rule on Commencement of Two (2) Year Period: It is not disputed that the oils and fuels involved in this
case were used during the period from June 1952 to
(1) Commissioner vs. Victorias Milling, G.R. No. L-24108, January December1955; that the claim for refund was filed on
31, 1968;tax sought to be refunded is illegally or erroneously December 1957; and that the appeal to the Court CTA
collected – from the date the tax was paid. was instituted only on February 1962. The taxpayer's
claim for refund with the BIR of December 1957 is
Sec. 306 and 309 of NIRC were intended to govern all within 2 years from December1955 — the last month
kinds of refunds of internal revenue taxes — those of the period during which the fuels and oils were
taxes imposed and collected pursuant to the NIRC. used. The appeal to the CTA however, was instituted
Thus, this Court stated that "this provision" referring to more than 6 years. The SC has repeatedly held that
Sec. 306, "which is mandatory, is not subject to the claim for refund with the BIR and the subsequent
qualification, and hence, it applies regardless of the appeal to the CTA must be filed within the 2-year
conditions under which payment has been made." And period. "If, however, the Collector takes time in
to hold that the instant claim for refund of a specific deciding the claim, and the period of 2 years is about
tax, an internal revenue tax imposed in Sec. 142 of to end, the suit or proceeding must be started in the
NIRC, is beyond the scope of Sec. 306 and309 as to CTA before the end of the 2-year period without
thwart the aforesaid intention and spirit underlying said awaiting the decision of the Collector." In the light of
provisions. the above quoted ruling, the SC finds that the right of
x x xx x xx x x Victorias Milling to claim refund of P2,817.08 has
. . . The intention is clear that refunds of internal prescribed.CIR v. VICTORIAS MILLING CO., & CTA
revenue taxes are generally governed by Sec.306 and JAN. 03, 1968 – GR. L-24108
309 of the Tax Code. Since in those cases the tax
sought to be refunded was collected legally, the
running of the 2-year prescriptive period provided for (2) Collector vs. Prieto, G.R. No. L-11976, August 29, 1961;tax is paid
in Sec. 306 should commence, not from the date the only in installments or only in part – from the date the last or final
tax was paid, but from the happening of the installment or payment.
supervening cause which entitled the taxpayer to a tax
refund. And the claim for refund should be filed with (3) Union Garment vs. Collector, CTA Case No. 416, November 17,
the CIR, and the subsequent appeal to the CTA must 1958; taxpayer merely made a deposit – counted from the
be instituted, within the said 2-year period. conversion of the deposit to payment.
x x xx x xx x x
In fine, when the tax sought to be refunded is illegally (4) Gibbs vs. Commissioner, G.R. No. L-17406, November 29, 1965;
or erroneously collected, the period of prescription tax has been withheld from source – counted from the date it falls
starts from the date the tax was paid; but when the tax due at the end of the taxable year.
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(5) ACCRA Investments vs. CA, G.R. No. 96322, December 20, 1991;
end of taxably year vs. date of the filing of the final adjusted return –
from the date when the final adjusted return was filed.

(6) Commissioner vs. TMX Sales, G.R. No. 83736, January 15, 1992;
date when quarterly income tax was paid vs. date when final adjusted
return was filed – from the date when final adjusted return was filed.

(7) Commissioner vs. CA, G.R. No. 117254, January 21, 1999; date
when the final adjustment return was actually filed vs. last day when
the adjustment return could still be filed – from the date the final
adjustment return was actually filed.

(8) Commissioner vs. Don Pedro Central Azucarera, G.R. No. L-

28467, February 28, 1973;tax was not erroneously or illegally paid
but the taxpayer became entitled to refund because of supervening
circumstances – from the date the taxpayer becomes entitled to
refund and not from the date of payment.

QUESTION: Does the filing of the claim for refund or credit suspend the
running of the 2-year prescriptive period?
ANSWER: No, hence, the taxpayer should not wait for the decision of the
CIR. Both the claim for refund and subsequent appeal must be filed within
the 2-year period.

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

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

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