PART TWO: TAXATION LAW

I. General Principles
 Taxation is the inherent power of the sovereign exercised through its legislature, to
impose burdens upon subjects and objects, within its jurisdiction, for the purpose of
raising revenue, to carry out the legitimate objects of the government.
 Obligations to pay taxes is not based on contracts.
 Non-payment of tax may be the subject of criminal prosecution and punishment, except,
poll taxes.
 Lifeblood Doctrine - taxes are the lifeblood of the government for which the state could
not operate and endure.
 Taxes are levied to raise revenue; license is imposed for regulatory purposes.

Purpose.
1. Primary or revenue - to raise funds or property to enable the State to promote general
welfare and protection of the people.
2. Secondary or non-revenue -
a. Promotion of general welfare - taxation may be used as an implement of
police power to promote the general welfare of the people.
The Supreme Court upheld the validity of the Sugar Adjustment Act, which
imposed a tax on milled sugar since the purpose of the law was to strengthen an
industry that is so undeniably vital to the economy - the sugar industry.
b. Regulation of activities/industries - taxes may also be imposed for a regulatory
purpose as, for instance, in the rehabilitation and stabilization of a threatened
industry which is affected with public interest, like the oil industry.
Taxation also has a regulatory purpose as in the case of taxes levied on the
excises or privileges like those imposed on tobacco and alcoholic products, or
amusement places like cabarets, night clubs, cockpits, etc.
c. Reduction of social inequality - a progressive system of taxation prevents undue
concentration of wealth in the hands of few individuals.
c. Encourage economic growth - the grant of incentives or exemption encourages
investment thereby stimulating economic activity.
c. Protectionism - protective tariffs and customs duties are imposed as taxes in
order to protect important sectors of the economy or local industries, as in the
case of foreign importations.

Characteristics
1. Inherent - the power to tax is an inherent prerogative, to assure the performance of vital
state functions.
2. Legislative - taxing power is peculiarly and exclusively legislative in character and
remains undiminished in the legislative character.

Constitutionally limited - the power to tax is an attribute of sovereignty. It is the strongest power
of the government. The constitution sets forth such limits.
 A. Power of Taxation as Distinguished from Police Power and Eminent Domain

TAX Police Power Eminent Domain

Who Government or Government or Gov’t or public

political subdivision political service companies
subdivision and public utilities

Purpose To raise Revenue. Promotion of Facilitate taking of

Regulation general Welfare private property
incidental. through regulations

Affects Community or class Community or Individual owner of

of individuals class of individuals particular property

Amount No ceiling except Limited To cost of No imposition,

inherent limitations regulation, owner is paid by
issuance of license, FMV of his property
or surveillance

Benefits Protection of a Maintenance of Just compensation.

secured society. No general welfare. Direct benefits.
direct benefit from No direct benefit
gov’t. from gov’t.

Non- Do not impair unless May be impaired may be impaired

impairment of gov’t is party
contract granting exemption
for a consideration

Taxation is distinguishable from police power as to the means employed to implement these
public goals. Those doctrines that are unique to taxation arose from peculiar consideration as
those especially punitive effects of taxation, and the belief that taxes are the lifeblood of the State
yet at the same time, it has been recognized that taxation may be made the implement of the
States police power.

B. Inherent and Constitutional Limitations of Taxation

Inherent Limitations:
1. Public Purpose - has now evolved to include social justice.
· Proceeds must be used for
  Support of the state;
 For some recognized objective of the government or directly promote the
welfare of the community.
 For the welfare of the nation or for the greater portion
 Affects the community
 Support the services of government and some of its recognized
objectives
 Determination lies in the enactment of the law and not at the time of
implementation . Court may question into its proprietary

TEST:
 Dusty Test – W/N appropriation of public revenue is something which is
the duty of the state to provide.

 Promotion of General welfare test – W/N proceeds will directly promote

general welfare of the community in equal measures.

 Principles relative to public purpose

o Must not be used for purely private purposes or exclusion of private
persons
o No infringement of singling out one particular class
o Taxpayer need not derive direct benefits
o Purpose is continuously expanding
o Purpose must exist at the time of its enactment

 Public purpose is the heart of a tax law. When a tax law is only a mask to exact
funds from the public when its true intent is to give undue benefit and advantage
to a private enterprise, that law will not satisfy the requirement of “public
purpose”.

 Requisites of a valid Taxpayer’s Suit

o tax money is being extracted and spent in violation of the constitutional
protection against abuses of legislative power;
o public money is being deflected to any improper purpose;
o petitioner ask to restrain wastage of public funds through enforcement of
an invalid law

 Important concept regarding Taxpayer’s Suit:

o public funds must be derived from taxation;
o does not apply to donations and contributions made by public individuals
or private entities;
o taxpayer is not relieved from the obligation to pay taxes just because of
his belief that it is being misappropriated;
 o the taxpayer has no legal standing to question acts which do not involve
the use of public funds.

Q: Are subsequent laws, which convert a public fund to private properties, valid?

A: No. Taxes could only be enacted only for a public purpose; they could not be declared private
properties of individuals although such individuals fall within a distinct group of persons.

Q: Lutz assailed the constitutionality of a law, which provided for an increase of the existing tax
on the manufacture of sugar. Alleges such as void for not being levied for public purpose but for
the aid of the sugar industry exclusively. Is the law valid?

A: Yes. The protection and promotion of the sugar industry is a matter of public concern. The
legislature may determine within reasonable bounds what is necessary for its protection and
promotion. Legislative discretion must be allowed, full play, subject only to the test of
reasonableness. Taxation may be made to implement the States police power.

Q: Is the tax imposed on the sale, lease or disposition of videograms for a public purpose?

A. Yes. Such tax is imposed primarily for answering the need for regulating the video industry,
particularly because of the rampant film piracy, violation of IPR, and proliferation of
pornography. While the direct beneficiary of said imposition is the movie industry, the citizens
are held to be its indirect beneficiaries.

2. Inherently Legislative• Only the legislature has the full discretion as to the
persons, property, occupation or business to be taxed provided these are all within the
State’s territorial jurisdiction. It can also fully determine the amount or rate of tax, the
kind of tax to be imposed and method of collection.

General Rule:: May not be delegated.

 Non-delegable legislative powers
o Nature of taxation
o Object and purpose
o Amount or rate of tax
o Manner, means and agencies of collection
o Situs
Exception:: P-A-L
 Delegation to local governments to create their own sources of revenue and to
levy taxes, fees and charges.
o The power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and
other charges pursuant to Art X Sec 5 of the 1987 Constitution.
 Delegation to the President
o Tariff rates
o Import and export quotas
o Tonnage and wharfage dues
o Other duties and imposts.

Powers of the President may be exercised by the alter ego of the President, such
as department secretaries.
 There is only one ground to challenge the legality of the limitations and
restrictions imposed by the Congress and that is such limitations and restrictions
are themselves violative of the Constitution. Thus, no matter how distasteful or
noxious these limitations and restrictions may seem, the Court has no choice but
to uphold their validity.
 Delegation to administrative bodies in relation to enforcement and administration
of the tax system under sufficient standards expressed by law or implied from the
policy and purpose of the act.
o Power to value property for purpose of taxation
o Power to assess and collect taxes
o Power to perform innumerable details of computation, appraisal and
adjustment.

Q: In order to raise revenue for the repair and maintenance of the newly constructed City Hall of
Makati, the City Mayor ordered the collection of P1, called “elevator tax”, every time a person
rides any of the high-tech elevators in the City Hall during the working hours. Is the imposition of
the tax valid?

A: No. The imposition of the tax is not valid. Imposition of a tax, fee, or charge or the generation
of the revenue of the LGC, shall be exercised by the SP of the LGU concerned through an
appropriate ordinance. The City Mayor alone could not order the collection of the tax.

Q: Municipality of Malolos passed an ordinance imposing a tax on any sale or transfer of real
property located within the municipality at a rate of the total consideration of the transaction. X
sold a parcel of land in Malolos which he inherited and refused to pay the aforesaid tax. He
instead filed a case asking that the ordinance be declared null and void since such tax can only be
collected by the national government, as in fact he has paid the BIR the tax.

Malolos countered that they are vested with the power to create its own sources of revenue and to
levy taxes, and it imposed the subject tax in the exercise of Constitutional authority.

A: The ordinance is void. The LGC only allows provinces and cities to impose a tax on the
transfer of ownership of real property. Municipalities are prohibited from imposing said tax that
provinces are specifically authorized to levy.

Q: R.A 9338 (VAT) provides that the President, upon recommendation of the Secretary of
Finance, shall, effective Jan 1, 2006, raise the rate of VAT to 12% after any of the following
conditions have been satisfied: VAT collection exceed GDP 2 4/5%; or deficit exceeds 1 ½%.
Was there an invalid delegation of legislative power?

A: No. There was no undue delegation of legislative power but only of the discretion as to the
execution of the law. This is constitutionally permissible. Congress did not abdicate its functions
or unduly delegate power when it describes what job must be done, who must do it, and what is
the scope of his authority. The SoF, in this case, becomes merely the agent of the legislative
department, to determine and declare the event upon which its expressed will is to take effect.
The President cannot set aside the findings of the SoF, who is not under the conditions acting as
her alter ego or subordinate.

Q: The Court promulgated a decision declaring the phrase "internal revenue” appearing in Sec.
284 of R.A 7160 (LGC) unconstitutional and deleted the same. The OSG, however, contends that
the provisions of LGC are not contrary to Sec. 6, Art. X of the Constitution. Is the OSGs’
contention correct?

A: No. Sec. 6, Art. X of the 1987 Constitution textually commands the allocation to the LGUs of
the just share in the national taxes. (1) the LGUs shall have a just share in the national taxes; (2)
the just share shall be determined by law; and (3) the just share shall be automatically released to
the LGUs.

Congress has exceeded its constitutional boundary by limiting the NIRTs the base from which to
compute the just share of the LGUs. Although the power of Congress to make laws is plenary in
nature, congressional lawmaking remains subject to limitations stated in the 1987 Constitution.
Thus, the phrase “national internal revenue taxes” is undoubtedly more restrictive than the term
national taxes.

3. Territorial

Taxation may be exercised only within the territorial jurisdiction; the taxing authority
may determine the “place of taxation” or “tax situs”.

General Rule: : Taxing power of a country is limited to persons and property within and
subject to its jurisdiction.

Reasons:

It is an act of sovereignty which could only be exercised within its territory.

Based on the theory that taxes are paid for the protection and services provided
by the taxing authority which could not be provided outside the territory of the
taxing state.

Exceptions::

Privity of relationship exists

Where tax laws operate outside territorial jurisdiction – e.g., taxation of resident citizens
on their incomes derived abroad.

Where tax laws do not operate within the territorial jurisdiction of the State.
a. Exempted by treaty obligations;
b. Exempted by International Comity

4. International Comity

Refers to the respect accorded by nations to each other because they are sovereign equals.
Thus, the property or income of a foreign state may not be subject to taxation by another
state.

The Constitution expressly adopted the generally accepted principles of international law
as part of the law of the land.

Principle of Pacta Sunt Servanda in Taxation – observance of any treaty obligation

binding upon the government of the PH is anchored on the constitutional provision that
 the PH adopts the generally accepted principles of international law as part of the law of
the land. It requires agreeing parties to comply with their treaty obligations in good faith.

Reason:

Doctrine of Sovereign Equality. As between equals, there is no sovereign. One state

cannot exercise its sovereign powers over another.

Usage among states. Concept that when foreign sovereign enters the territorial
jurisdiction of another, it does not subject itself to the jurisdiction of the other.

Non-suability. The Rule of international law that a foreign government may not be sued
without its consent.

Q: ABCD a domestic corporation with individual and corporate shareholders who are residents of
the US. ABCD received cash dividends from the corporation. The WHT on dividend income –
30% for individuals and 35% for corporate non-resident stockholders – was deducted at source
and remitted to the BIR.

ABCD filed with the CIR a formal claim for refund, alleging that under US-RP Treaty, the
deduction withheld at source as tax on dividends earned was fixed at 25% of said income. Thus,
ABCD asserted it overpaid the WHT due on the cash dividends given to its non-resident
stockholders in the US. The CIR denied the claim. Is ABCD correct?

A: Yes. The provision of a treaty must take precedence over and above the provisions of the local
taxing statute consonant with the principle of international comity. Tax treaties are accepted
limitations to the power of taxation. The refund claim under the treaty should be granted.

5. Exemption of government entities, agencies and instrumentalities

Refers only to real property tax.

General Rule: The agencies and instrumentalities of the government performing

governmental functions are exempt. Taxable if performing proprietary functions.

RATIONALE: It would be taking money from one pocket and putting it in another.

Exception:

When it chooses to tax itself. Nothing prevents Congress from decreeing that
even instrumentalities or agencies of the government performing government
functions may be subject to tax. Where it is done precisely to fulfill a
constitutional mandate and national policy, no one can doubt its wisdom.

Even if performing proprietary functions, if the franchise or law creating them

exempts them - they are tax exempt.

National Government is exempt from taxation – LGU cannot levy taxes from the national
government, its agencies and instrumentalities and other LGUs

Agency – refers to any of the various units of the government, including department,
bureau, office, instrumentality, or GOCC or a LGU or a distinct unit therein.
 Taxability:
Government function – exempt unless expressly taxed
Proprietary function – taxable unless expressly exempted

Instrumentality – refers to any agency of the national government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds, and enjoying
operational industry, usually through a charter.

Taxability: Shall not extend to levy the following: Taxes, fees, or charges of any
kind on the National Government, its agencies and instrumentalities and LGUs.

GOCCs – refers to any agency organized as a stock or non-stock corporation, vested with
functions related to public needs w/n governmental or proprietary in nature, and owned
by the government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least 51% of its capital
stock.

If Local Government Unit is the taxing authority:

TAX EXEMPT - GOCCs with original charters attached to the government;

unincorporated

Exempt from income tax:

1. GSIS;
2. SSS;
3. PHIC;
4. PCSO;
5. PAGCOR (not exempted from business tax)

TAXABLE - GOCCs with special charter; personality distinct from the

government; incorporated.

Q: LLL is a government instrumentality created by EO to be primarily responsible for integrating

and directing all reclamation projects for the National Government. It was not organized as a
stock or non-stock corporation, nor was it intended to operate commercially and compete in the
private market.

Reclaimed several portions of the foreshore and offshore areas of the Manila Bay, some within
the jurisdiction of Q City. Certificates of the titles reclaimed in Q City was issued in the name of
LLL. Q city issued Warrants of levy on said properties of LLL based on the assessment for
delinquent property taxes.

a. Are the reclaimed properties registered to LLL subject to real property tax?

b. Will the answer be the same if LLL is leasing portions of the reclaimed
properties commercially?
A: a. The reclaimed properties are not subject to real property tax because LLL is a government
instrumentality. The law exempts properties owned by the RP unless the beneficial use thereof
has been granted to a taxable person.

b. No, as a rule, properties owned by the RP are exempt from real property tax except when
beneficial use thereof has been granted, for a consideration, or otherwise to a taxable person.
Leased portions are subject to tax.

Q: Is PEZA a government instrumentality or a GOCC? Is it exempt from real property tax?

A: PEZA is an instrumentality of the government. It is not integrated within the department

framework but is an agency attached to the DTI. PEZA is also vested with special functions or
jurisdiction by law. Congress created PEZA to operate, manage, administer, and develop special
economic zones in the PH. Although a body corporate vested with some corporate powers, the
PEZA is not a GOCC that is taxable for real property because it was not organized as a stock or
non-stock corporation. It is not taxable by the LGU.

Q: The PFDA took over the management and operation of the LFPC which is one of the fishery
infrastructure projects undertaken by the National Government under the Nationwide Fish Port-
Package built on reclaimed land. The City of Lucena then demanded payment of realty taxes for
the real property. Is PFDA liable for the real property tax assessed on the LFPC?

A: No. The exercise of the taxing power of LGUs is subject to the limitations under the LGC.
LGUs have no power to tax instrumentalities of the national government like the PFDA. Thus,
PDFA is not liable to pay real property tax except those portions which are leased to private
persons or entities.

Constitutional limitations
Taxation being inherent in sovereignty, need not be clothed with any constitutional
authority for it to be exercised by the sovereign state. Instead, constitutional provisions
are meant and intended more to regulate and define, rather than to grant the power
emanating therefrom.

Direct Limitations
1. Prohibition against imprisonment for non-payment of poll tax
Basis. No person shall be imprisoned for debt or non-payment of a poll tax.

A poll tax is one levied on persons who are residents within the territory of the
tax authority without regard to their property, business or occupation. Thus, only
the basic community tax under the LGC could qualify as a poll tax, and the non-
payment of other taxes imposed, not being in the nature of poll taxes, may validly
be subjected by law to imprisonment.

2. Uniformity and equality of taxation

Basis. The rule of taxation shall be uniform and equitable. The congress shall
evolve a progressive system of taxation.
 Uniformity - means that all taxable articles or kinds of property of the same class
shall be taxed at the same rate.

A tax is considered uniform when it operates with the same force and effect in
every place where the subject is found. DIfferent articles may be taxed at
different amounts provided that the rate is uniform on the same class everywhere,
with all people at all times.
Uniformity in taxation, like the kindred concept of equal protection, merely
requires that all subjects or objects of taxation, similarly situated, are to be
treated alike both in privileges and liabilities. Uniformity does not forfend
classification as long as: (1) standard used is based on a substantial and not
arbitrary; (2) germane to the purpose of the law; (3) law applies to all things
being equal, to both present and future conditions; and (4) classification applies
equally well to all those belonging to the same class.

Equitability - taxation is said to be equitable when its burden falls on those better
able to pay.

Equality - it is accomplished when the burden of the tax falls equally and
impartially upon all the persons and property subject to it.

Q: A law was passed exempting doctors and lawyers from the operation of the VAT. Other
professionals complained and filed a suit questioning the law for being discriminatory and
violative of the equal protection clause since complainants were not given the same exemption. Is
the suit meritorious?

A: Yes. The suit is meritorious. The VAT is designed for economic efficiency. Hence, should be
neutral to those who belong to the same class. Professionals are a class of taxpayers by
themselves who, in compliance with the rule of equality of taxation, must be treated alike for tax
purposes. Treating doctors and lawyers as a different class of professionals will not comply with
the requirements of a reasonable, hence valid classification, because the classification is not based
upon substantial distinction which makes real differences. The classification does not comply
with the requirement that it should be germane to the purpose of the law either.

Q: Does the 20% sales discount for senior citizens and persons with disabilities violate the
constitutional right of equal protection clause?

A: No. The equal protection clause is not infringed by legislation which applies only to those
falling within a specified class. If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another.

3. Grant by Congress of Authority to the President to impose tariff rates

Basis. The Congress may, by law, authorize the President to fix within a
specified limits and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties and imposts within the framework of the national development program of
the Government.
Flexible tariff clause. Provides the authority given to the President to adjust tariff
rates. This authority however, is subject to limitations and restrictions indicated
within the law itself.

Requisites.
1. Delegated by Congress through a law - authorization must be embodied
in a law. Hence, the justification cannot be supplied simply by inherent
executive powers.
2. Subject to Congressional limits and restrictions - authorization can only
be exercised within the specified limitations and restrictions which
Congress may impose. Consequently, if Congress specifies that the tariff
rates should not exceed a given amount, the President cannot impose a
tariff rate that exceeds such amount.
3. WIthin the framework of national development program

4. Prohibitions against taxation of Religious, Charitable entities, and Educational

Entities
Basis. Charitable institutions, churches, and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings and
improvements, actually, directly and exclusively used for religious, charitable or
educational purposes shall be exempt from taxation. (REAL PROPERTY TAX
ONLY)

ACTUAL, DIRECT and EXCLUSIVE USE. Means the direct, immediate and
actual application of the property itself to the purpose 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.

NON-STOCK CORPORATIONS FOR CHARITABLE AND RELIGIOUS

PURPOSES
1. For purposes of income taxation
a. The income, no part of which inures to the benefit of any
member, organizer, officer, or any specific person, shall be
exempt from tax. However, the income of whatever kind and
nature from any of their properties, real or personal or from any
of their activities for profit regardless of the disposition made of
such income shall be subject to tax.

Any income from activities conducted for profit is taxable, as

expressly provided in the last paragraph.

b. Donations received are considered as income but not taxable

income as they are items of exclusion.

On the part of the donor, such donations are deductible expense

provided that no part of the income of which inures to the benefit
of any private stockholder or individual in an amount not
exceeding 10% in case of individual and 5% in case of a
 corporation, of the taxpayer’s taxable income derived from trade
or business or profession.

2. For purposes of estate tax. Donations in favor of charitable institutions are

generally not subject to tax. Provided, however, that not more than 30% of the
said bequest, devises, legacies, or transfers shall be used by such institutions
for administration purposes.

3. For purposes of donor’s tax. 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, devises, legacies, or transfers shall be used by
such institutions for administration purposes.

5. Prohibitions against taxation of non-stock, non-profit educational institutions.

Basis. All revenues and assets of non-stock, non-profit education institutions are
used, actually, directly and exclusively for education purposes shall be exempt
from taxes and duties. (ALL TAXES ARE EXEMPT)

Subject to conditions prescribed by law, all grants, endowments, donations, or

contributions used actually, directly, and exclusively for educational purposes
shall be exempt from tax.

All revenues from whatever sources used actually, directly, and exclusively for
education purpose is exempt from taxation.

Q: UP is the registered owner of a parcel of land. UP entered into a contract of lease with ALI
over the subject land. The leased property is now known as UP-Ayala Hub. In a Notice of
Assessment addressed to ALI, informed that the subject property has been “reclassified and
assessed for taxation purposes. For the first time and without a prior Notice of Assessment, a
Statement of Delinquency addressed to UP was issued by the City Treasurer demanding the
payment of real property tax. Is UP liable for the real property tax?

A: No, Under the law, non-stock non-profit educational institutions are exempt from the payment
of taxes which are used actually, directly and exclusively for educational purposes. These
includes all revenues from whatever sources which are used for educational purpose.

6. Majority vote of Congress for grant of tax exemption.

Basis. No law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of Congress. The inherent power of
the State to impose taxes carries with it the power to grant tax exemptions.

Granting exemptions may be created by the Constitution or by statute, subject to

limitations as the Constitution may provide.

Relative majority or plurality of votes is sufficient for withdrawal of exemption.

7. Prohibition on use of tax levied for special purpose.

Basis. All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only. If the purpose for
 which a special fund was created has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of the government.

8. President's VETO power on Appropriation, Revenue, and Tariff Bills (ART)

Basis. The President shall have the power to veto any particular item or items in
an appropriation, revenue, or tariff bill but the veto shall not affect the item or
items which does not object.

9. Non-impairment of jurisdiction of the Supreme Court

Basis. The SC shall have the power to review, revise, reverse, modify or affirm
on appeal on certiorari as the laws or the Rules of Court may provide, final
judgements or orders of lower courts in all cases involving the legality of any tax,
imposts, assessment, or toll or any penalty imposed in relation thereto.

Jurisdiction is concurrent with the RTC. Thus, the petition should generally be
filed with the RTC following the hierarchy of courts. However, questions on tax
laws are usually filed directly with the Supreme Court as there are impressed
with paramount public interest.

The courts cannot inquire into the wisdom of a taxing act, EXCEPT when there
is an allegation of violation of constitutional limitations or restrictions.

10. Grant of power to the LGUs to create its own sources of revenue
Basis. Each LGU shall have the power to create its own sources of revenue and
to levy taxes, fees and charges subject to the guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees and other charges shall accrue exclusively to the LGU.

Delegation of legislative taxing power to LGU is justified by the necessary

implication that the power to create political corporations for purposes of self-
government carries with it the power to confer on such local government
agencies the authority to tax.

The right of LGU to collect taxes due must always be upheld to avoid tax
erosion. This consideration is consistent with the State policy to guarantee the
autonomy of the LGU and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to empower them to achieve their fullest
development as self-reliant communities and make them effective partners in the
attainment of national goals.

Q: May Congress abolish the power to tax of LGU?

A: No. The Congress cannot abolish the LGU power to tax as it cannot abrogate what is expressly
granted by the fundamental law. The only authority conferred to Congress is to provide
guidelines and limitations on the local government’s exercise of the power to tax.

11. Origin of Revenue and Tariff Bills (APRIL)

Basis. All appropriation, revenue or tariff bills, bills authorizing increase of
public debt, bills of local application, and private bills shall originate exclusively
 in the House of Representatives, but the Senate may propose or concur with
amendments.

On the theory that, elected as they are from the districts, the members of the HoR
can be expected to be more sensitive to the local needs and problems.

Q: RA 9337 is a consolidation of three legislative bills namely, HB 3555 and 3705, and SB 1950.
Because of the conflicting provisions of the proposed bills, the Senate agreed to the request of the
HoR for a committee conference. The conference Committee on the Disagreeing Provisions of
HB recommended the approval of its report, which the Senate and the HoR did.
1. Does RA 9337 violate Art VI Sec 24 of the Constitution on exclusive origination of
revenue bills?
2. Does RA 9337 violate Art VI Sec 26(2) of the Constitution on the No-Amendment Rule?

A: 1. No, the HB originated from the HoR. The Senate merely proposed amendments of said HB.
Since there is no question of its origin, RA 9337 is not violative of the Constitution,
2. No. The no-amendment rule refers only to the procedure to be followed by each house of
Congress with regard to bills initiated in each of said respective houses, before said bill is
transmitted to the other house for its concurrence or amendment. Verily, to construe said
provision in a way as to proscribe any further changes to a bill after one house has voted on it
would lead to absurdity as this would mean that the other house of Congress would be deprived
of its Constitutional power to amend or introduce changes to said bill. Thus, it is not violative of
the Constitution.

12. No appropriation or use of public money for religious purposes

Basis. No public money or property shall be appropriated, paid, or employed
directly or indirectly for the use, benefit or support of any sect, church,
denomination, sectarian institution, or system of religion or of any priest,
preacher, minister, or other religious teacher or dignitary as such, except, when
such priest, preacher, minister, or dignitary is assigned to the armed forces or to
any penal institution or government orphanage or leprosarium.

In consonance with the inviolable principle of separation of the Church and

State.

INDIRECT LIMITATION
1. DUE PROCESS–
BASIS. No person shall be deprived of life, liberty, or property without due
process of law.

Requirements:
1. Substantive Due Process
a. Tax must be for public purpose; and
b. It must be imposed within territorial jurisdiction.

2. Procedural Due Process

a. No arbitrariness or oppression either in the assessment or
collection.
Q: When is deprivation of life, liberty, and property by the government done in compliance with
due process?

A: If the act is done:

1. Under authority of law that is valid or the Constitution itself (substantive due process);
and
2. After compliance with fair and reasonable methods of procedure prescribed by law
(procedural due process).

Q: When may violation of due process be invoked by the taxpayer?

A: The due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution, as where it can be shown to amount to a confiscation of property.

2. EQUAL PROTECTION – All persons subjected to such legislation shall be

treated alike, under like circumstances and conditions, both in the privileges
conferred and, in the liabilities, imposed.
Basis. No person shall be denied the equal protection of the laws.

The power to select subjects of taxation and apportion the public burden
among them includes the power to make classifications. The inequalities
which result in the singling out of one particular class for taxation or
exemption infringe no Constitutional limitation.

Requisites: PEGS
1. Apply to both present and future conditions
2. Apply equally to all members of the same class
3. Must be germane to the purposes of the law
4. Must be based on substantial distinction

Q: Is Revenue Memorandum Circular no. 47-91 classifying copra as an agricultural non-food

product discriminatory and violative of the equal protection clause?

A: NO. It is not violative and not discriminatory because there is a material or substantial
difference between coconut farmers and copra producers, on one hand, and copra traders and
dealers, on the other. The former produce and sell copra, the latter merely sells copra. The
Constitution does not forbid the differential treatment of persons so long as there is a
reasonable basis for classifying them differently.

PRINCIPLE OF EQUALITY. It admits of classification or distinctions as long as they are

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 permissible government policy or legitimate end of the government.

Q: What is the “rational basis” test? Explain briefly.

A: The rational basis test is applied to gauge the constitutionality of an assailed law in the face of an
equal protection challenge. It has been held that “in areas of social and economic policy, a statutory
classification that neither proceeds along suspect lines nor infringes constitutional rights must be
upheld against equal protection challenge if there is any reasonably conceivable state of facts that
could provide a rational basis for the classification.” Under the rational basis test, it is sufficient that
the legislative classification is rationally related to achieving some legitimate State interest.

Q: RC is a law abiding citizen who pays his real estate taxes promptly. Due to a series of
typhoons and adverse economic conditions, an ordinance is passed by MM City granting a
50% discount for payment of unpaid real estate taxes for the preceding year and the
condonation of all penalties on fines resulting from late payment. Arguing that the ordinance
rewards delinquent taxpayers and discriminates against prompt ones, RC demands that he be
refunded an amount equivalent to ½ of the real taxes he paid. MM City rendered that he
cannot be reimbursed because the ordinance did not provide such reimbursements. RC files
suit to declare the ordinance void on the ground that it is a class legislation. Will the suit
prosper?

A: NO. The remission or condonation of taxes due and payable to the exclusion of taxes
already collected does not constitute unfair discrimination. Each set of taxes is a class by itself
and the law would be open to attack as class legislation only if all taxpayers belonging to one
class were not treated alike.

3. RELIGIOUS FREEDOM
Basis. No law shall be made respecting an establishment of religion or
prohibiting the free exercise thereof. The free exercise and enjoyment of
religious profession and worship, without discrimination or preference,
shall forever be allowed. No religious test shall be required for the
exercise of civil or political rights.

Q: Is the real property tax exemption of religious organizations violative of the non-
establishment clause?

A: NO. Neither the purpose nor the effect of the exemption is the advancement or the
inhibition of religion; and it constitutes neither personal sponsorship of, nor hostility to
religion.

Q: Is the imposition of a fixed license fee a prior restraint on the freedom of the press and
religious freedom?

A: YES. As a license fee is fixed in the amount and unrelated to the receipts of the taxpayer,
the license fee, when applied to a religious sect, is actually being imposed as a condition for
the exercise of the sect’s right under the Constitution.

Q: Is a municipal license tax on the sale of bibles and religious articles by a non-stock, non-
profit missionary organization at minimal profits valid?

A: NO. Such imposition of license constitutes curtailment of religious freedom and worship
which is guaranteed by the Constitution.

Q: Is VAT registration restrictive of religious and press freedom?

A: NO. The VAT registration fee, although fixed in amount, is not imposed for the exercise of
a privilege but only for defraying part of the cost of registration.

4. NON-IMPAIRMENT CLAUSE
Basis. No law impairing the obligation of contracts shall be passed.

Instances when there is impairment of the obligations of contract:

o Making new conditions
o Changing conditions in the contract
o Dispenses with the conditions expressed therein

Rationale:

o When the State grants an exemption on the basis of a contract,

consideration is presumed to be paid to the State and the public is
supposed to receive the whole equivalent thereof.
o NOTE: This applies only where one party is the government and
the other party, a private person.

Rules regarding non-impairment of obligation and contract with respect

to the grant of tax exemptions
o If the grant of the exemption is merely a spontaneous concession
by the legislature, such exemption may be revoked (Unilaterally
granted by law)
o If it is without payment of any consideration or the assumption of
any new burden by the grantee, it is a mere gratuity and
exemption may be revoked. (Franchise)
o However, if the tax exemption constitutes a binding contract and
for valuable consideration, the government cannot unilaterally
revoke the tax exemption. (Bilaterally agreed upon)

E-VAT Law does not violate the non-impairment clause. The contention
that the imposition of the VAT on the sales and leases of real estate by
virtue of contracts entered into prior to the effectivity of the law would
violate the constitutional provision “non-impairment of obligations and
contract” is without legal basis.

Parties to a contract cannot fetter the exercise of the taxing power of the
State. For not only are existing laws read into contracts in order to fix
obligations as between parties, but the reservation of essential attributes
of sovereign power is also read into contracts as a basic postulate of the
legal order.

The contract clause has never been thought of as a limitation on the

exercise of the State’s power of taxation save only where a tax exemption
has been granted for a valid consideration.

Q: X Corporation was the recipient in 1990 of two tax exemptions both from Congress,
one law exempting the company’s bond issues from taxes and the other exempting the
company from taxes in the operation of its public utilities. The two laws extending tax
 exemptions were revoked by Congress before their expiration dates. Were the revocations
constitutional?

A: YES. The exempting statutes are both unilaterally granted by Congress in the exercise
of taxing powers. Since taxation is the rule and tax exemption is the exception, any tax
exemptions unilaterally granted can be withdrawn at the pleasure of the taxing authority
without violating the Constitution.

5. FREEDOM OF THE PRESS

Basis. No law shall be passed abridging the freedom of speech, of
expression, or of the press or the right of the people to peaceably
assemble and petition the government for redress of grievances.

Q: Is RA 7716 unconstitutional for it violates the freedom of the press under the
Constitution by imposing VAT on the gross receipts of newspapers from advertisements
and on their acquisition of paper, ink and services for publication?

A: NO. Even with due recognition of its high estate and its importance in a democratic
society, however, the press is not immune from general regulation by the State. It has
been held that the publisher of a newspaper has no immunity from the application of
general laws. He has no special privilege to invade the rights and liberty of others. He
must answer for libel. He may be punished for contempt of court. Like others, he must
pay equitable and nondiscriminatory taxes on his business.

SITUS OF TAXATION
It is the place or authority that has the right to impose and collect taxes.

FACTORS THAT DETERMINE THE SITUS OF TAXATION (RCNSS)

o Residence of the taxpayer
o Citizenship of the taxpayer
o Nature of the tax
o Subject matter of the tax
o Source of income

RULES OBSERVED IN FIXING TAX SITUS

1. Poll/Capitation/Community Tax – Residence of taxpayer, regardless of the source of
income or location of property of the taxpayer

2. Property Tax
a) Real Property – lex rei sitate/lex situs

RATIONALE:
i. The taxing authority has control because of the stationary and fixed
character of the property.
ii. The place where the real property is situated gives protection to the real
property. Hence, the property or its owner should support the government of that
place.

b) Personal Property
 Tangible – Location of the property

Intangible –

General Rule: Domicile of the owner, wherever it is actually kept or

located, pursuant to the principle mobilia sequntur personam “movable
follows the person/owner”

Exception:

1. When the property has acquired a business situs in another

jurisdiction, such that it has definite location there, accompanied by some
degree of permanency, or
2. When an express provision of the statute provides for another rule.

NOTE: Under NIRC, in case of estate and donor’s tax, the following
properties are considered as situated, thus taxed, in the Philippines and
the residence of their owners are immaterial, except where the foreign
country grants exemption or does not impose taxes on intangible
properties to Filipino Citizens.

1. Franchise which must be exercised in the Philippines;

2. Shares, obligations, or bonds issued by any corporation Sociedad
anonima organized or constituted in the Philippines in accordance with
its laws;
3. Shares, obligations, or bonds by any foreign corporation 85% of its
business is located in the Philippines;
4. Shares, obligations, or bonds issued by any foreign corporation if such
shares, obligations have acquired a business situs in the Philippines; and
5. Shares or rights in any partnership or industry established in the
Philippines.

APPLICATION OF THE DOCTRINE OF MOBILIA SEQUUNTUR

PERSONAM NOT MANDATORY IN ALL CASES
Such doctrine has been decreed as mere “fiction of law having its origin in
considerations of general convenience and public policy and cannot be applied to
limit or control the right of the State to tax property within its jurisdiction” and
must “yield to established fact of legal ownership, actual presence and control
elsewhere, and cannot be applied if to do so would result in inescapable and
patent injustice”

3. Excise Tax

a) Income Tax and Donor’s Tax

CRITERIA INCOME TAX DONOR’S TAX

Place (applied to NRA, NRFC, NRC) (applied to NRA)
From sources of income derived within
the Philippines Taxed on properties situated
within the Philippines

Nationality (applied to RC, DC) (applied to RC, NRC)

From sources of income derived within Taxed upon their properties
and without the Philippines wherever situated

Residence (applied to RA, RFC) (applied to RA)

From sources of income derived within Taxed upon their properties
the Philippines wherever situated.

b) VAT – Place where the transaction is made. If the transaction is made

(perfected and consummated) outside of the Philippines, we can no
longer tax such transactions.

NOTE: Situs of taxation of excise tax is the place where the privilege is
exercised. In case of a franchise, which is a right or privileges granted to
it by the government, the situs of taxation is the place where the
franchise holder exercises its franchise regardless of the place where its
services or products are delivered. Thus, in a franchise of electric power
distribution, the franchisee is liable within the jurisdiction it exercises its
privilege.

The documentary stamp Tax is in the nature of an excise tax because it is

imposed upon the privilege, opportunity, or facility offered at exchanges
for the transaction of the business.

REMEDIES AVAILABLE AGAINST MULTIPLICITY OF SITUS

Tax laws and treaties with other States may:
1. Exempt foreign nationals from local taxation and local nationals from
foreign taxation under the principle of reciprocity.
2. Credit foreign taxes paid from local taxes due.
3. Allow foreign taxes as deduction from gross income; or
4. Reduce the Philippine income tax rate.
 C. Requisites of a Valid Tax
1. Public Purpose
2. Rule on taxation must be Uniform
3. Within the jurisdiction of the taxing authority
4. Not impinge on the inherent and constitutional limitations on the power of
taxation
5. Assessment and collection must be in consonance with the Due Process clause

Essential Characteristics and Attributes of Taxes

1. Enforced contribution, independent of the will of the taxpayer
2. Generally payable in money;
Except: Tax credit certificate and Tax liens
3. Proportional in character, ability to pay
4. Levied on persons, property, exercise of a right or privilege, act or transaction
5. Levied by the State which has jurisdiction over the subject or object of
taxation
6. Levied by the lawmaking body of the State
7. For public purpose

D. Tax as Distinguished from Other Forms of Exactions

TAX V. DEBT
TAX DEBT

Basis Law Contract express or implied.

Effect of non- Imprisonment (xpn: poll No imprisonment (except when debt

payment tax) arises from crime)

Mode of payment GR: Money Money, property or service

XPN: in kind

Assignability Not assignable Can be assigned

Interest No interest unless If stipulated

delinquent

Authority Public authority Private individuals

Prescription NIRC, special prescriptive Civil Code, ordinary prescription

period

TAX V. TOLL
TAX TOLL
Definition Enforced proportional contribution Consideration paid for the use of a
from persons and property for public road, bridge or the like, of a public in
purpose nature.

Basis Demand of Sovereignty Proprietorship

Amount No limit Depends on cost of construction or

maintenance of public improvement

Purpose Support of the government For the use of another's property

Authority Government Government or private entities or

individuals as an attribute of
ownership

TAX V. LICENSE
Tax License

Purpose Raise Revenue Regulation and control

Basis Power of Taxation Police Power

Amount No limit Limited to cost of the license and expenses of

control and regulations

Subject Persons, property, rights exercise of a right or privilege such as the

or transactions commencement of a business or profession

Effect of non- Does not make illegal Illegal business

payment

Surrender Cannot be surrendered May be with or without consideration

Time of payment Normally paid after the Paid before the start of business.
business starts
Pre-activity imposition.
Post activity imposition
 Q: A municipality, BB, has an ordinance which requires that all stores, restaurants and other
establishments selling liquor should pay a fixed annual fee of P20K. Subsequently, the
municipal board proposed an ordinance imposing sales tax equivalent to 5% of the amount
paid for the purchase or consumption of liquor in stores, restaurants, and other establishments.
The municipal mayor, CC, refused to sign the ordinance on the ground that it would constitute
double taxation. Is the refusal of the mayor justified?

A: No. The refusal is not justified. The impositions are of different nature and character. The
fixed annual fee is in the nature of a license fee imposed through the exercise of police power
while the 5% tax on purchase or consumption is a local tax imposed through the exercise of
taxing powers. Both a license fee and a tax may be imposed on the same business or
occupation, or for selling the same article and this is not in violation of the rule against double
taxation.

TAX V. SPECIAL ASSESSMENT

TAX SPECIAL ASSESSMENT

Nature Enforced proportional An enforced proportional contribution

contributions from persons and from owners of lands especially those who
property for public purpose are peculiarly benefited by public
improvement

Subject Imposed on persons, property, Levied only on land

rights or transactions

Person liable Taxpayer Not a personal liability of the person

assessed

Imposing Imposed by the national or local Local government

authority government

Purpose Support of the government Contribution to the cost of public

improvement

Scope Regular exaction Exceptional as to time and locality

TAX V. PENALTY
TAX PENALTY
 Definition Enforced proportional Sanctions imposed as punishment for violations
contributions from persons of a law or acts deemed injurious, violation of
and property tax laws may give rise to imposition of penalty

Purpose Revenue Regulate conduct

Authority Government Government or private individuals or entities

TAX V. TARIFF/CUSTOMS DUTIES

TAX TARIFF/CUSTOMS
DUTIES

Definition Enforced proportional contributions from Only a kind of tax, therefore,

persons and property enforced upon persons limited coverage.
and property for the attainment of public
purpose.

Object Persons, property, privilege, or transactions. Goods imported or exported

Revenue - refers to all funds or income derived by the government whether from
tax or from whatever source and whatever manner.

E. Kinds of Taxes
AS TO OBJECT
1. Personal/poll or capitation tax – A fixed amount imposed upon all
persons, or upon all persons of a certain class or residents within a
specified territory, without regard to their property or occupation.
(community tax)

2. Property Tax – Tax imposed on property, whether real or personal, in proportion to its value, or
in accordance with some other reasonable method of apportionment. (real property tax)
 3. Privilege/excise tax – A charge upon the performance of an act,
the enjoyment of a privilege, or the engaging in an occupation. An excise
tax is a tax that does not fall as property tax. (income tax, estate tax,
donors tax, VAT)

AS TO BURDEN OR INCIDENCE
1. Direct – are demanded from the very person who, as intended, should
pay the tax which he cannot shift to another. (income, estate, donors)
a. Impact or liability for the payment of tax as well as
incidence or burden falls on the same person

2. Indirect – are demanded in the first instance from one person with the expectation that he can
shift the burden to someone else, not as tax but as part of the purchase price. (VAT,excise, other
percentage tax and documentary stamp tax)
o when the impact or liability for the payment of tax falls on one person
but the incidence or burden thereof can be shifted or passed to
another person.
o Liability of payment lies with the seller
o What is transferred is the burden not the liability

IMPACT OF TAXATION INCIDENCE OF TAXATION

Refers to the statutory liability to pay the tax, It It is the economic cost of tax. It is also
falls on the person originally assessed with a known as the burden of taxation. It is the
particular tax. It is an imposition of tax. (Liability) payment of tax. (Burden)

It is on the seller upon whom the tax is imposed. It is on the final consumer, the place at
which the tax comes to rest.

AS TO TAX RATES
1. Specific – tax of a fixed amount imposed by the head or number, or by
some standard of weight or measurement. (excise tax on cigar, cigarettes
and liquours)

2. Ad valorem – tax based on the value of the property with respect to which the tax is assessed.
Requires the intervention of assessors or appraisers to estimate the value of such property before the
amount due can be determined. (real estate, income, donors and estate tax)
 3. Mixed - Basis of the tax is the value of the article and weight
(customs duties)

AS TO PURPOSES
1. General/fiscal or revenue – tax imposed solely for the general purpose of
the government. These funds can be used for whatever purpose (income
and donors tax)

2. Special/Regulatory or sumptuary – tax levied for specific purpose to achieve some social or
economic ends. Funds can only be used for the specific purpose which creating law indicated. (tariff and
certain duties on imports)

AS TO SCOPE OR AUTHORITY TO IMPOSE

1. National Tax – levied by the national government. (Income, estate,
donors, VAT, other percentage taxes and documentary stamp taxes)

2. Local or municipal – levied by a local government. (Real estate tax and community tax)

AS TO GRADUATION
1. Progressive – Tax rate which increases as the tax base or bracket
increases (income, estate and donors’ tax)

Digressive - started as progressive but becomes stagnant at some point

2. Regressive – Tax rate decreases as the tax base or bracket decreases

3. Proportionate – Tax of a fixed percentage of amounts of the base

(VAT and other percentages) Fixed at 30%.

F. Doctrines in Taxation
Taxes are the lifeblood of the government and their prompt and certain availability is an
imperious need. Without taxes, the government would be paralyzed for lack of motive
power to activate and operate it.

Its collection should be made in accordance with law as any arbitrariness will negate the
very reason for government itself.

The court has no authority to grant injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the code. Except, upon the opinion of the
CTA that the collection thereof may jeopardize the interest of the government and/or the
taxpayer.
 1. Construction and Interpretation of Tax Laws, Rules, and Regulations
Internal revenue laws are not political in nature. Tax laws are civil in nature and
not penal in nature. Even if there is change in government control, it remains to
be implemented.

TAX LAWS
General Rule: In case of doubt, tax statutes must be construed strictly against the
government and liberally in favor of the taxpayer. The imposition of a tax cannot
be presumed.

Exception:
a. Unless a statute imposes a tax clearly, expressly and unambiguously.
b. Taxpayer claims exemption from taxation.
Exception:
a. Statute provides for the liberal construction
thereof;
b. Special taxes relating to special cases and affecting only special cases;
c. Exemption refer to public property;
d. Exemptions granted to religious, charitable and educational institutions or their property;
e. Exemptions in favor of the government, its
political subdivisions or instrumentalities.

TAX EXEMPTION AND EXCLUSION

General Rule: : Statutes granting tax exemptions are construed strictissimi juris
against the taxpayers and liberally in favor of the taxing authority.

Tax refunds are in the nature of tax exemptions which are construed in
strictissimi juris against the taxpayer and liberally in favor of the government.

It is a basic precept of statutory construction that the express mention of one

person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expression unius est exclusion alterius.

Exception::
1. If the grantee of the exemption is a political subdivision or
instrumentality
2. The exemption granted in favor of NAPOCOR must be liberally
construed.
3. Erroneous payment of the tax, or absence of law for the government’s
exaction.

TAX RULES AND REGULATIONS

1. Construction placed by the office charged with implementing and
enforcing the provisions of a Code should be given controlling weight
unless such interpretation is clearly erroneous
2. Revenue Memorandum Circulars must not override, supplant, or modify the law, but must remain
consistent and in harmony with the law they seek to apply and implement.

3. Admittedly the government is not estopped from collecting taxes

legally due because of mistakes or errors of its agents.

PROVISIONS OF TAX LAWS.

In criminal cases, statutes of limitations are acts of grace, a surrendering by the
sovereign of its right to prosecute. They receive strict construction in favor of the
Government and limitations in such cases will not be presumed in the absence of
clear legislation.

NON-RETROACTIVE APPLICATION TO TAXPAYERS

Tax laws, including rules and regulations operate prospectively unless otherwise
legislatively intended by express terms or by necessary implication.

Revenue statutes are substantive laws and in no sense must their application be
equated with that of remedial laws.

General Rule: Tax laws operate prospectively whether they enact, amend or
repeal.
Exception. Tax laws may only be given retroactive application if the legislature
expressly or impliedly provides that it shall be given retroactive application.

BIR RULES AND REGULATIONS THAT REVOKE, MODIFY OR

REVERSE A RULING OR CIRCULAR.
General Rule: It shall not be given retroactive application if revocation,
modification, or reversal will be prejudicial to taxpayers

Exception:
1. It may be given retroactive effect even if such would be prejudicial to
the taxpayer in the following cases:
a. Taxpayer deliberately misstates or omits
material facts from his return, or any document required
of him by the BIR;
b. The facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is
based; or
c. Taxpayer acted in bad faith

2. If the revocation is due to the fact that the regulation is erroneous or

contrary to law, such revocation shall have retroactive operation as to
affect past transactions, because a wrong construction of the law cannot
give rise to a vested right that can be invoked by a taxpayer.
 NOTE: Retroactive application of revenue laws may be allowed if it will not
amount to denial of due process. There is violation when the tax law imposes
harsh and oppressive tax.

2. Prospectivity of Tax Laws

General Rule: Must only be imposed prospectively because the nature and
amount of the tax could not be foreseen and understood by the taxpayer at the
time the transactions which the law seeks to tax were completed.

Exception:: Statute expressly provides for retroactive application. Allowed if it

will not amount to denial of due process.

XPN to the XPN: There is violation of due process when the tax law imposes
harsh and oppressive tax.

Ex-post facto law – does not apply to laws which are civil in nature

Non-retroactivity of repeal of regulations or rulings.

General rule: No retroactivity if the repeal, revocation, modification or reversal
of regulations or rulings is prejudicial to the taxpayer.

Exception:
1. taxpayer deliberately misstates or omits material facts from his return or
in any document required of him by the BIR;
2. the facts subsequently gathered by the BIR are materially different from
the facts on which the ruling is based;
3. taxpayer acted in bad faith

Q: In 1997, Mrs. R filed an amended return which showed an overpayment of income tax for
her 1996 income report. She now claims a refund of taxes withheld on her 1996 income as
provided for in the 1997 NIRC. Should the 1997 tax reform retroactively apply?

A: No. Tax laws are prospective in operations, unless the language of the statute clearly
provides otherwise. NIRC was not yet in effect. Hence, she has no reason at the time to think
that the filing of an amended return would constitute the written claim for refund.

3. Imprescriptibility of Taxes
General Rule: Taxes are imprescriptible by reason that it is the lifeblood of the
government.

Exception: Tax laws may provide for statute of limitations. NIRC and LGC
provide for the prescriptive periods for assessment and collections for the
purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment.

Note: Applicable only to those taxes that were returnable. Prescriptive period
shall start from the time the taxpayer files the tax return and declares his liability.
 4. Double Taxation
There is no constitutional prohibition against double taxation in the Philippines.
It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that
taxes must be uniform.

1. Direct (Strict Sense) – Double taxation in the objectionable or prohibited

sense since it violates the equal protection clause of the constitution.

Elements of Direct Double Taxation:

1. The same property is taxed twice when it should only be taxed
once; and
2. Both taxes are imposed:
1 On the same subject matter
2 Same purpose
3 Same taxing authority
4 Same jurisdiction
5 Same taxing period; and
6 Same kind or character.

All elements must be present in order to apply double taxation in its strict
sense.

2. Indirect (Broad Sense) – It is permissible double taxation. It is indirect when

some elements of direct double taxation are absent.

E.g. Two similar taxes are paid to different taxing authorities or two taxes are
imposed on the same property have different natures.

Domestic double taxation - arises when the taxes are imposed by the local or the
national government.

International double taxation - imposition of comparable taxes in two or more

states on the same taxpayer with respect to the same subject matter and for an
identical period.

How to eliminate?
1. Allowing reciprocal exemption either by law or by treaty
2. Allowance of tax credit for foreign taxes paid
Tax credit - deduction from tax payable. It reduces the amount
payable directly. It is a full deduction of the amount paid abroad.
This is the best option.
3. Allowance of deduction for foreign taxes paid
Tax credit - deduction from taxable income. The amount of taxes
paid is used to reduce tax payable in the Philippines. Here, the
amount paid abroad is multiplied by the tax rate in the
Philippines.
4. Reduction of Philippine tax rate
 Tax treaties as a relief from double taxation.
Purpose is to reconcile the national fiscal legislation of the contracting parties in order to
help the taxpayer avoid simultaneous taxation in two different jurisdictions. This is to
encourage the free flow of goods and services, and persons between countries, conditions
deemed vital in creating a robust and dynamic economies.

Tax treaty resorts to several methods:

1. First, it sets out the respective rights to tax of the state of source or situs and of
the state of residence with regard to certain classes of income or capital. In some
cases, an exclusive right to tax is conferred on one of the contracting states.
However, for other items of income or capital, both states are given the right to
tax, although the amount of tax that may be imposed by the state of source is
limited.

2. The second method for the elimination of double taxation applies whenever
the state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation. There are two methods of relief:
a. Exemption method – the income or capital which is taxable in the state of the
source is exempted in the state of residence, although in some instances it
may be taken into account in determining the rate of tax applicable to the
taxpayers remaining income or capital; and

b. Credit method - although the income or capital which is taxed in the state of
source is still taxable in the state of residence, the tax paid in the former is
credited against the tax levied in the latter.

NOTE: The basic difference between the two methods is that in the exemption
method, the focus is on the income or capital itself, whereas the credit method
focuses upon the tax.

5. Escape from Taxation

a. Shifting of Tax Burden - is the transfer of the burden of tax by the original or the one on whom
the tax was assessed or imposed to another or someone else without violating the law.

Statutory taxpayer, the original taxpayer required under the law to pay
the tax.
Impact of taxation, the point on which a tax is originally imposed.
Incidence of taxation, the point on which the tax burden finally rests or
settles down.

Examples of taxes when shifting may apply are VAT, percentage tax,
excise tax on excisable articles, ad valorem tax that oil companies pay to
BIR upon removal of petroleum products from its refinery.

Ways of shifting the tax burden:

 1. Forward shifting – When the burden of tax is transferred from a
factor of production through the factors of distribution until it finally
settles on the ultimate purchaser or consumer.

2. Backward shifting – When the burden is transferred from the

consumer through the factors of distribution to the factors of production.

3. Onward shifting – When the tax is shifted two or more times either
forward or backward.

NOTE: Only indirect taxes may be shifted. In case of direct taxes, the
shifting of the burden can only be made via contractual provision.

b. Tax Avoidance - A scheme where the taxpayer uses legally permissible

alternative of assessing taxable property or income, in order to avoid or
reduce tax liability. It is a tax saving device within the means sanctioned
by law. Done in good faith and at arm's length.

Q: Mr. Ps income from leasing his property reaches max rate of tax under the law. He donated ½
of his said property to a non-stock, non-profit educational institution whose income and assets are
directly, actually and exclusively used for educational purposes, and therefore qualified for tax
exemption under NIRC. Having this transferred a portion of his said asset, Mr. P succeeded in
paying a lesser tax on the rental income derived from his property. Is there tax avoidance or tax
evasion?
A: Tax avoidance. Mr. P has exploited a legally permissive alternative method to reduce his
income by transferring part of his rental income to a tax exempt entity through a donation of ½ of
the income producing property. The donation is likewise exempt from donor's tax. The donation
is the legal means employed to transfer the incidence of income tax on the rental income.

c. Tax Evasion - A scheme where the taxpayer uses illegal or fraudulent

means to defeat or lessen payment of a tax. Outside lawful means when
availed of. It subjects the taxpayer to further or additional civil or
criminal liabilities.

Elements:
1. Course of action is unlawful
2. Accompanying state of mind, which is described as being evil, in
bad faith, willful or deliberate and not accidental
3. End to be achieved, i.e., payment of less than that known by
taxpayer to be legally due, or non-payment when due

Indicis of fraud:
a. Failure to declare true and actual income derived from business for 2 consecutive years; or
b. Substantial under-declaration of ITR for 4 consecutive
years coupled with intentional overstatement of deductions.
 TAX AVOIDANCE TAX EVASION

Validity Legal Illegal

Effect Minimize tax Absence of tax payment

Q: CIC, thru its authorized representative BT, sold a 16-storey commercial building to RA for
100M who then sold it on the same day to RMI for 200M. These two transactions were evidenced
by two separate DoAS notarized on the same day by the same notary public. For the sale of the
property to RMI, RA paid a capital gains tax in the amount of 10M. Is the scheme perpetuated a
case of tax evasion or tax avoidance

A: Tax evasion scheme. The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties from CIC to RA, and then from RA to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud.

Q: GK was charged with violation of NIRC for failure to make or file her ITRs. GK claimed that
she entrusted the duty of filing the said returns to her husband who filed their ITRs, through a
hired accountant. Is GK guilty of tax evasion?

A: Yes. The SC, held the conviction of a taxpayer for a tax evasion due to non-filing of ITR. The
accused GK was not able to satisfactorily convince the court that she did not deliberately and
willfully neglected to file her ITR, considering that she entrusted the filing to her husband who
caused the filing through an accountant. The CTA doctrine on willful blindness simply means
that an individual or corporation can no longer say that the errors on their tax returns are not their
responsibility or that it is the fault of the accountant they hired.

6. Exemption from Taxation

Grant of immunity, express or implied to a particular person or corporations,
from a tax upon property or an excise tax which persons or corporations
generally within the same taxing districts are obliged to pay.

It is the legislature, unless limited by a provision of the state constitution, which

has full power to exempt any person, corporation or class of property from
taxation; its power to exempt being as broad as its power to tax. Other than
Congress, the constitution may itself provide specific tax exemptions, or LGU
may pass ordinances on exemption only from local taxes.

Broad sense - tax not applied on a particular property. Tax on particular property
or object within the same jurisdiction but not taxed by the taxing authority. e.g.
Tax on property used by the Government when the other properties in the same
area are subject to tax.

Narrow sense - exemption of a particular class. An entire class of the same

conditions are exempted from taxes supposedly imposed on a bigger class.
Classification of tax exemptions:
1. Express - explicitly granted by the Constitution, law or ordinance.
2. Implied - when tax is imposed on a certain class of persons, properties or
transactions without mentioning other classes; those not mentioned are deemed
exempted.
3. Contractual - those agreed to by the taxing authority in contracts, lawfully
entered into by them under enabling laws in which the government, acting in its
private capacity, sheds it cloak of authority and waives its governmental
immunity.

Nature of tax exemption:

1. Personal – covers only taxes for which grantee is directly liable. Cannot be
transferred without consent of the State

2. Strictly construed against the taxpayer

3. Implies a waiver on the part of the government of its right to collect what
otherwise would be due, freedom of financial charge or burden

4. Exemptions are not presumed. Burden is on the claimant to establish the right
to exemption beyond reasonable doubt. However, the strict interpretation does
not apply in case of exemptions running to the benefit of the government itself or
its agencies.

5. It is not necessarily discriminatory as long as there is a reasonable foundation

or rational basis.

Note: Taxation is the rule and exemption is the exception.

Double Nexus Rule: Person claiming exemption must prove:

1. The law granting the exemption; and
2. That he falls within the law or is qualified in the exemption.

Principles governing tax exemptions

1. Highly disfavored in law
2. Personal and non-transferrable
3. He who claims must justify that the legislature intended to exempt him by
words too plain to be mistaken. He must convincingly prove that he is exempted.
4. Strictly construed against the taxpayer. (income tax)

NOTE: Deductions for income tax purposes partake of the nature of tax
exemptions, hence, they are also strictly construed against the taxpayer.

5. Constitutional grants of tax exemptions are self-executing

6. Generally revocable unless founded on contracts protected by non-impairment
clause
 7. To be irrevocable, tax exemption must be founded on a contract or granted by
the Constitution.
8. Congressional power to grant an exemption necessarily carries with it the
consequent power to revoke the same.

Note: Mayor cannot unilaterally revoke the same.

9. Revocations are constitutional even though the corporate do not have to

perform a reciprocal duty for them to avail of tax exemptions.

Not all refunds are in the nature of a tax exemption. It is only considered when it
is based on a tax-exemption statute or tax-refund statute. Tax refunds or tax
credits are not founded principally on legislative grace, but on the legal principle
of quasi-contracts against a person's unjust enrichment at the expense of another.

NOTE: Government is not excused to pay back erroneous payment of tax as a

claim for tax refund under solutio indebiti.

KINDS OF TAX EXEMPTION

AS TO BASIS
1. Constitutional – immunities from taxation which originate from the
Constitution
2. Statutory – emanates from legislation
3. Contractual – agreed by taxing authority in contracts lawfully entered
into under enabling laws
4. Implied – persons, properties or excises are deemed exempt as they
fall outside the scope of the taxing provision. Disfavored thus privilege
must be justified by words too plain to be mistaken and too categorical to
be misinterpreted.
5. Treaty
6. Licensing ordinance

AS TO EXTENT
1. Total – absolute immunity
2. Partial – a collection of a part of the tax is dispensed with

AS TO OBJECT
1. Personal – directly in favor of certain persons
2. Impersonal – directly in favor of certain class of property.

These exemptions must not be confused with tax exemptions granted under
franchises which are not contracts within the purview of the non-impairment
clause of the constitution.

NOTE: Contractual tax exemptions may not be unilaterally so revoked by the

taxing authority.

Rationale/grounds for exemption - The same as the non-revenue/special or

regulatory purposes of taxation:
1. Sumptuary/regulatory purpose – promote general welfare and to
protect the health, safety, or morals of inhabitants.
 2. Implement of the states police power
3. Compensatory purpose – to implement the social justice provisions of
the Constitution through progressive system of taxation, which would
result to equal distribution of wealth.

NOTE: There is no tax exemption based solely on the ground of equity.

Q: BTC entered into a BOT agreement with the NPC, a tax exempt entity as provided by its
Charter under a special law. The BOT Agreement provided that NPC shall be responsible for
the payment of all taxes imposed on the power station except income and permit fees. Later
on, the City Treasurer demanded payment of business taxes and penalties. BTC contended
that NPC should be liable for such taxes and penalties, as provided for in their BOT
Agreement. NPC, however, contends that it’s a tax-exempt entity. Is NPC correct?

A: No. The LGC repealed NPCs exemption from all taxes under its Charter. IT removed the
blanket exclusion of government instrumentalities from local taxation as it expressed a general
repeal of all statutes granting exemptions from local taxes. Considered as the most
revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal
constraints faced by LGUs

Restrictions on revocation of tax exemptions

o Non-impairment clause
o A municipal franchise once granted as a contract cannot be altered or amended except by
actual consent of the parties concerned
o Adherence to form. If granted by constitution, revocation thru constitution only.
o Where the tax exemption grant is in the form of a special law and not by general law; even
if the terms of the general act are broad enough to include the codes in the general law
unless there is manifest intent to repeal or alter the special law.

Withdrawal of tax exemption is not to be construed as prohibiting future grants of tax

exemptions.

Tax exemption is a grant of immunity from payment of tax, while an assumption of tax
liability does not provide immunity from payment of tax as it merely allows the shifting
of the burden of taxation to another entity.

7. Equitable Recoupment
A principle which allows a taxpayer, whose claim for refund has been barred due
to prescription, to recover said tax by setting off the prescribed refund against a
tax that may be due and collectible from him. Under this doctrine, the taxpayer is
allowed to credit such refund to his existing liability.

NOTE: Allowed only in common-law countries, not in the Philippines.

8. Prohibition on Compensation and Set-Off

Compensation or set-off shall take place when two persons, in their own right,
are creditors and debtors of each other.
 RULES GOVERNING COMPENSATION OR SET-OFF AS APPLIED IN
TAXATION:
General Rule:: No set-off is admissible against the demands for taxes levied for
general or local governmental purposes. Taxes are not in the nature of contracts
between parties.

Taxes cannot be subject to compensation because the government and taxpayer

are not creditors and debtors of each other.

NOTE: The prevalent rule in our jurisdiction disfavors set-off or legal

compensation of tax obligations for the following reasons:
(1) Distinct kind, essence and nature and these impositions cannot be so
classed in merely the same category as ordinary obligation
(2) Peculiar, not necessarily common to each
(3) Public policy, better subserved if the integrity and independence of taxes
be maintained (lifeblood doctrine)

Exception: Where both claims of the government and the taxpayer against each
other have already become due, demandable, and fully liquidated, compensation
takes place by operation of law and both are extinguished to their concurrent
amounts.

Offsetting can be allowed if the determination of the taxpayers’ liability is

intertwined with the resolution of the claim for tax refund of erroneously or
illegally collected taxes under NIRC.

NOTE: Compensation not allowed in VAT refund claim.

RATIONALE: To award such refund despite the existence of that deficiency

assessment is an absurdity and a polarity in the conceptual effects and that to
grant the refund without determination of the proper assessment and the tax due
would inevitably result in multiplicity of proceedings or suits.

Q: Can an assessment for a local tax be the subject of set-off or compensation against a final
judgement for a sum of money obtained by the taxpayer against the LGU that made the
assessment?

A: NO. Taxes and debts are of different nature and character. Taxes cannot be subject to
compensation for the simple reason that the Government and the taxpayers are not creditors and
debtors of each other, debts are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity. Hence, no set-off or compensation between the
two different classes of obligation.

NOTE: It is only when the local tax assessment and the final judgement are both overdue,
demandable, as well fully liquidated may set-off or compensation be allowed

9. Compromise and Tax Amnesty

 COMPROMISE
Is a contract whereby the parties by reciprocal concessions, avoid litigation or
put an end to one already commenced. It implies the mutual agreement by the
parties in regard to the thing or subject matter which is to be compromised.

Compromises are generally allowed and enforceable when the subject matter
thereof is not prohibited from being compromised and the person entering such
compromised is duly authorized to do so.

PERSONS ALLOWED TO ENTER INTO COMPROMISE OF TAX

OBLIGATIONS:
1. BIR Commissioner, conditions
a. When a reasonable doubt as to validity of the claim against the taxpayer exists. Minimum at 40%
of the basic assessed tax.
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
Minimum at 10% of the basic assessed tax.

Subject to the approval of the National Evaluation Board (NEB) if:

1. Basic tax involved exceeds 1M; or
2. Settlement offered is less than minimum rates

2. Collector of Customs, respect to customs duties limited to cases where the

legitimate authority is specifically granted such as in the remission of duties.

3. Custom Commissioner, subject to the approval of the SoF, in cases involving

the imposition of fines, surcharges, and forfeitures.

TAX AMNESTY
A general pardon or intentional overlooking by the State of its authority to
impose penalties on persons otherwise guilty of evasion or violation of a revenue
or tax law.

Not favored. Must be construed strictly against the taxpayer and liberally in favor
of taxing authority.

AMNESTY EXEMPTION

SCOPE OF Criminal, civil and administrative Civil liability only

IMMUNITY obligations arising from non-
payment of taxes

Grantee General pardon to all erring A freedom from charge or burden

taxpayers to which others are subjected
 Applied Retroactively Prospectively

Presence of There is revenue loss since there None, because there were no actual
actual revenue was actually taxes due, but taxes due as the person or
loss collection was waived by the transaction is protected by tax
government exemption.

Q: Does the mere filing of a tax amnesty return shield the taxpayer from immunity against
prosecution?

A: No. The taxpayer must have voluntarily disclosed his previously untaxed income and must
have paid the corresponding tax on such previously untaxed income.

Q: Can a taxpayer claim tax amnesty if he is a withholding tax agent?

A: No. The claim of a taxpayer under a tax amnesty shall be allowed when the liability involves
the deficiency in payment of income tax. However, it must be disallowed when the taxpayer is
assessed on his capacity as a withholding tax agent because the person who earned the taxable
income was another person other than the withholding agent.

Q: The BIR assessed GCO deficiencies on taxes for non-payment of VAT on its undeclared sales.
While the case was pending before the SC, GCO filed a Manifestation and Motion that it had
availed and was able to comply with the governments tax amnesty program. However, BIR
contends that GCO is disqualified under BIR RMC 19-2008 which disqualifies taxpayers with
issues and cases that were ruled by any court (even without finality) in favor of the BIR prior to
amnesty availment of the taxpayer. Did GCO qualify?

A: Yes. While tax amnesty, similar to a tax exemption, must be construed strictly against the
taxpayer and liberally in favor of the taxing authority. It is also a well-settled doctrine that the
rule making power of administrative agencies cannot be extended to amend or expand statutory
requirements or to embrace matters not originally encompassed by the law. Administrative
regulations should always be in accord with the provisions of the statute they seek to carry into
effect, and any resulting inconsistency shall be resolved in favor of the basic law. Thus, BIR
RMC 19-2008 is invalid as the exception goes beyond the scope of the provisions of the 2007
Tax Amnesty Law.

II. National Taxation

A. Taxing Authority
The Bureau of Internal Revenue (BIR) is headed by the Commissioner of Internal Revenue
(CIR), who is assisted by four (4) Deputy Commissioners.

Powers and duties of the BIR

1. Assessment and collection of all national internal revenue taxes, fees,
and charges;
2. Enforcement of all forfeitures, penalties, and fines;
3. Execution of judgements in all cases decided in its favor (by CTA and
courts);
 4. Give effect and administer the supervisory and police powers conferred
to it by the NIRC and other laws; and
5. Recommend to the Secretary of Finance all needful rules and regulations
for the effective enforcement of the provision of the NIRC.

Q: Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy upon
sale of real properties of the decedent without first securing the authority of the court sitting in
probate over the supposed will of the decedent?

A; Yes. The BIR is authorized to collect estate tax deficiency through the summary remedy of
levying upon the sale of real properties of a decedent without the consent of the court sitting in
probate over the supposed will of the deceased because the collection of estate tax is executive in
character. As such the estate tax is exempted from the application of the statute of non-claims,
and this is justified by the necessity of government funding, immortalized in the maxim that taxes
are the lifeblood of the government.

Note: The CIR has only one (1) year to challenge the SALN following the date of filing of the
Tax Amnesty Documents.

1. Jurisdiction, Power, and Functions of the Commissioner of

Internal Revenue
Powers of the CIR
1. Power to interpret tax laws and decide cases
2. Power to obtain information and to summon or examine and take
testimony of persons.

Purpose:
1. Ascertain correctness of return
2. To make a return when non has been made
3. To determine liability of any person for any internal revenue tax;
4. To collect such liability; and
5. To evaluate tax compliance.

Scope:
1. Examination of books, records or other data relevant to the inquiry
2. obtain information on a regular basis from any person other than person
under investigation and any office or officer of the NG or LG
3. Summon of persons and records/books
4. Make assessments and prescribe additional requirements for tax
administration and enforcement
5. Assign internal revenue officers and other employees
6. Suspend business operations for violations of VAT rules
a. In case of VAT-registered persons:
i. failure to issue receipts or invoices;
ii. failure to file VAT return as required
iii. Understatement of taxable sales or receipts by
30% or more for the taxable quarter
b. Failure of any person to register as required
The temporary closure of the establishment shall be for the
duration of not less than 5 days and shall be lifted only upon
 compliance with whatever requirements prescribed by the CIR in
the closure order.

The court cannot order the BIR to open and examine the books of accounts of domestic
private juridical entity because the law only allows the BIR to ascertain the correctness of
return or in making a return when none was made, or in determining the liability of any
person for any internal revenue tax, or in collecting such liability, or evaluation the
person’s tax compliance.

Other powers of the CIR

1. Terminate taxable period for reasons provided in the NIRC;
a. Retiring from business subject to tax;
b. Intending to leave the Philippines or to remove his
property therefrom or to hide or conceal his property; or
c. Performing any act tending to obstruct the proceedings
for the collection of the tax for the past or current quarter or year
or to render the same totally or party ineffective unless such
proceedings are begun immediately.
2. Make or amend return in case taxpayer fails to file a return or files a false
or fraudulent return
3. Examine returns and determine tax due
Authorize the examination of any taxpayer and the assessment of the
correct amount of tax, notwithstanding any law requiring the prior
authorization of any government agency or instrumentality.

Assessment based on best evidence obtainable rule

a. a taxpayer’s return is not forthcoming; or
b. there is a reason to believe that the return is false.
incomplete or erroneous, the CIR may still assess the taxpayer
based on the best evidence obtainable.
4. Prescribe any additional requirements for the submission or
preparation of financial statements accompanying tax returns
5. Inquire into bank deposits of:
a. Decedent to determine his gross income
b. A taxpayer who filed application to compromise
payment of tax liability by reason of financial incapacity; and
c. A specific taxpayer or taxpayers subject of a request for
the supply of tax information from a foreign tax authority
pursuant to an international convention or agreement on tax
matters which the Philippines is a signatory or a party of.

Provided that the information obtained from the banks and other
financial institutions may be used by the BIR for tax
assessments, verification, audit and enforcement purposes.
6. Delegate powers vested upon him to subordinate officials with
rank equivalent to Division CHief or higher, subject to limitations and
restrictions imposed under the rules and regulations
Except:
1. to recommend promulgation of rules and regulations by
the Secretary of Finance
 2. To issue rulings of first impression or to reverse, modify
or revoke any existing rule of the BIR
a. GR: To compromise or abate any tax
liability
b. XPN: The regional evaluation board may compromise assessments involving deficiency
taxes of P500k or less and minor crime violations
3. assign or reassign internal revenue officers to
establishments where articles are subject to excise tax
are kept.
7. Prescribe property values
Divide the Philippines into different zones or areas and shall, upon
mandatory consultation with competent appraisers both from the private
and public sectors, and with prior notice to affected taxpayers, determine
the fair market value of real property located in each zone or area,
subject to automatic adjustment once every three (3) years through rules
and regulations issued by the Secretary of Finance based on the current
valuation standards.
8. Take inventory of goods of any taxpayer, and place any business
under observation or surveillance if there is a reason to believe that such
is not declaring his correct income, sales or receipts for tax purposes;
9. To accredit and register tax agents.
Based on their professional competence, integrity and moral fitness,
individuals and general professional partnerships and their
representatives who prepare and file tax returns, statements, reports,
protests, and other papers with or who appear before, the BIR for
taxpayers.
10. Duty to ensure the provision and distribution of forms, receipts, certificates, and appliances, and
the acknowledgement of the payment of taxes
a. Prescribe, provide, and distribute to the proper officials
the requisite licenses; internal revenue stamps; unique, secure
and non-removable identification markings, such as codes or
stamps, be affixed to or form part of all unit packets and
packages and any outside packaging of cigarettes and bottles of
distilled spirits; labels and other forms; certificates; bonds;
records; invoices; books; receipts; instruments; appliances and
apparatus used in administering laws falling within the
jurisdiction of the BIR; and
b. Acknowledge the payment of any tax, expressing the amount paid and the particular
account for which such payment was made in a form and manner prescribed therefor.

a. Interpreting Tax Laws and Deciding Tax Cases

The CIR has the exclusive and original jurisdiction to interpret the
provisions of the NIRC, subject to the review of the Secretary of
Finance.

 The power to interpret tax laws is a quasi-legislative function.

 Issue Revenue Memorandum Circulars (RMC), which are
administrative rulings of the CIR. However, an administrative
 issuance that overrides, instead of remaining consistent and in
harmony with, the law it seeks to interpret are void.
 In the interpretation and classification of tax laws, the CIR may
issue BIR Rulings which are the official position of the BIR to
queries raised by taxpayers and other stakeholders.
 A taxpayer who is adversely affected by an interpretation made
by the CIR may have it reviewed by the Secretary of Finance by
filing a sworn request for review within thirty (30) days from
receipt of the CIR’s interpretation.
 The decision issued by the Secretary of Finance under its power
to review the interpretations made by the CIR is appealable to
the Court of Tax Appeals (CTA).
 Has the power to decide disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the NIRC or
other laws or portions thereof administered by the BIR, subject
to the exclusive appellate jurisdiction of the CTA. This power is
quasi-judicial in nature.

Power to interpret Tax Laws Power to decide disputed assessments, refunds and other matters u
NIRC

Quasi-legislative Quasi-Judicial

Review by Secretary of FInance and appealable to Appealable to the CTA

the CTA

Q: On Jan 27, 2017, R, executed a document entitled Waiver of the Statute of Limitations
in connection with the BIR’s investigation of the tax liabilities of the company for 2012.
However, the BOD did not adopt a board resolution authorizing R to execute the waiver.
On Oct 14, 2017, VPI received a preliminary assessment notice (PAN) from the BIR
indicating its deficiency withholding taxes for the year 2012. VPI filed its protest. On Oct
30, 2017, the BIR issued a formal letter of demand and final assessment notice. VPI again
filed a protest. The CIR denied the protests and directed the collection of the assessed
deficiency taxes. Accordingly, VPI, filed a petition for review in the CTA to seek the
cancellation and withdrawal of the assessment on the ground of prescription.
a. What constitutes a valid waiver of the statute of limitation for the assessment and collection of
taxes?
b. Has the right of the Government to assess and collect deficiency taxes from VPI for the year 2012
prescribe?

A: a. Generally, a valid waiver of the statute of limitations for the assessment and
collection of taxes must be executed by the taxpayer and accepted by the BIR prior to the
expiration period which it seeks to extend. The same must also be executed by the
taxpayer or his duly authorized representative, or in the case of a corporation, it must be
signed by any of its responsible officers. Such requirements must be met considering that
a waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation
of the taxpayers right to security against prolonged and unscrupulous investigations and
must therefore be carefully and strictly construed.
 b, Yes. The final assessment was issued beyond the three-year prescriptive period to
make an assessment. Waiver did not extend the prescriptive period since ti was executed
after the expiration of such period,

b. Non-Retroactivity of Rulings
The rulings of the BIR are not retroactive. Any revocation, modification,
or reversal of any of the rules and regulations promulgated or any of the
rulings or circulars promulgated by the CIR shall not be given retroactive
application if it will be prejudicial to the taxpayers, except in the
following cases:
a. Where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the BIR;
b. Where the facts subsequently gathered by the BIR are
materially different from the facts on which the ruling is based;
or
c. Where the taxpayer acted in bad faith.
Taxpayers may rely in good faith under the essence of the doctrine of
operative fact.

If the revocation is due to the fact that the regulation is erroneous or

contrary to law, such revocation shall have retroactive operation as to
affect past transactions, because a wrong construction of the law cannot
give rise to a vested right that can be invoked by a taxpayer.

Q: XYZ Corp, an export-oriented company, was able to secure a BIR Ruling in June
2005 that exempts from tax the importation of some of its raw materials. The ruling is of
first impression, which means the interpretation was made by the CIR is one without
established precedents. Subsequently, however, the BIR issued another ruling which in
effect would subject to tax such kind of importation. XYZ Corp is concerned that said
ruling may have a retroactive effect, which means that all their importations done before
the issuance of the second ruling could be subject to tax.
a. What is a BIR Ruling?
b. What is required to make a BIR ruling of first impression a valid one?
c. Does a BIR ruling have a retroactive effect, considering the principle that tax exemptions should
be interpreted strictly against the taxpayer?

A: a. A BIR ruling is an administrative interpretation of the Revenue law as applied and

implemented by the Bureau. They can be relied upon by taxpayers and are valid until
otherwise determined by the courts or modified or revoked by a subsequent ruling or
opinion. They are accorded great weight and respect, but not binding on the courts.

b. A BIR ruling of first impression, to be valid ruling, must be issued within the scope of
authority granted to the CIR, and not contravene any law or decision of the SC.

c. A BIR ruling cannot be given retroactive effect if it would be prejudicial to the

taxpayer. Unless, the taxpayer deliberately misstates or omits material facts from his
return or other documents required by the BIR, taxpayer acted in bad faith, and where the
 facts subsequently gathered by the BIR are materially different from the facts on which
the rulings are based on.

Q: Due to an uncertainty whether or not a new tax law is applicable to printing

companies, DEF submitted a legal query to the BIR on that issue. The BIR issued a ruling
that printing companies are not covered by the new law. Relying on this ruling, DEF did
not pay said tax. However, this ruling was subsequently reversed and state that they are
covered by the tax law. Could BIR assess DEF for back taxes corresponding to the years
before the new ruling?

A: No. The reversal of a ruling shall not be given a retroactive operation if said reversal
will be prejudicial to the taxpayer. Therefore, the BIR cannot assess DEF for back taxes.

2. Rule-Making Authority of the Secretary of Finance.

Upon the recommendation of the Commissioner, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of the NIRC.

 These rules and regulations come in the form of Revenue Regulations

(RRs)
 RRs are quasi-legislative in nature

General Principles:
 Has the force and effect of law
 May not enlarge, alter or restrict a provision of law. It cannot add to the
requirements provided by law.
 RR cannot supplant the provisions of the NIRC.

Specific provisions to be contained in RRs.

Must contain provisions specifying, prescribing or defining:
1. Persons and property liable
2. Goods subject to excise tax
3. Condition and manner for goods intended for export
4. Conditions to be observed by revenue officers respecting
institutions and conduct of legal actions and proceedings
5. Conditions in which the goods intended for storage
6. Conditions of denature alcohol may be removed and dealt in
7. Manner in which the revenue shall be paid and collected
8. Conditions to be observed by revenue officers respecting
enforcement imposing a tax on estate of a decedent and other
transfers mortis causa
9. Manner on tax returns, informations and reports shall be
prepared and tax paid and collected
10. Manner in which internal tax revenue shall be paid through the
collection officers of the BIR

B. Income Tax
1. Definition, Nature, and General Principles
Definition
 Tax on all yearly profits arising from property, professions, trades or officers, or
as a tax on a person’s income, emoluments, profits and the like.

Nature
1. It is a national tax since it is imposed and collected by the National
Government through the BIR.
2. It is a direct tax since the taxpayer who received the income is directly
liable to pay the tax.
3. It is progressive tax since the tax rates goes up when the tax base goes up
4. It is comprehensive since all criteria for the imposition of income tax are
applied
5. It is of American origin
6. Applies a semi-global, semi-schedular tax system
a. Global tax system - one in which a single tax is imposed on all income, whatever its
nature.
b. Schedular tax system - one in which separate taxes are imposed on different categories of
income
c. Mixed - it is schedular in the sense that we lump
different items of income per type or category and it is global in
the sense that we subject all the items in this lump to one tax rate

General Principles

RESIDENT NON- RESIDENT NON- DOMESTIC FOREIGN

CITIZEN RESIDENT ALIEN RESIDENT CORPORATION CORPORAT
CITIZEN ALIEN

WITHIN Y Y Y Y Y Y

WITHOUT Y N N N Y N

a. Criteria in Imposing Philippine Income Tax

1. Citizenship or Nationality Principle - A resident citizen or a
domestic corporation is liable for all income sourced within and
outside the jurisdiction of the Philippines, and a nonresident
citizen is liable for all income sourced within the Philippines.
2. Residence or Domicile Principle - A resident alien is liable for
all income sourced within the Philippines.
3. Source of income Principle - A nonresident alien or foreign
corporation, whether or not engaged in trade or business in the
Philippines, is liable for all income sourced within the
Philippines.
b. Types of Philippine Income Taxes
1. Graduated income tax on individuals
2. Special 8% tax on gross sales/receipts for business/professional
income earners and mixed earners
3. Final withholding tax on certain passive income
4. Special income ta for certain alien
5. Normal corporate income tax
 6. Minimum corporate income tax
7. Special income tax for certain corporations
8. Capital gains tax on sale or exchange of real property located in
the Philippines classified as a capital asset
9. Capital gains tax from sales of shares of stock not traded in the
stock exchange
10. Final withholding tax on income payments made to non-
residents
11. Fringe benefit tax
12. Branch remittance tax
13. Improperly accumulated earnings tax
14. Optional income tax of 8% of individuals

c. Taxable Period is a period within which the net income is computed as a

whole for income tax purposes.
1. Calendar year - From Jan 1 to Dec 31
Instances:
a. Taxpayer is an individual
b. Taxpayer does not keep books of
account
c. Taxpayer has no annual accounting
period; or
d. Taxpayer is an estate or a trust

Taxpayers other than a corporation are required to use only the

calendar year. The final adjustment return shall be filed on or
before April 15th.

2 Fiscal year - It is a period of 12 months ending on the last day of

any month other than December..

The final adjustment return shall be filed on or before the 15th day
of the 4th month following the close of the fiscal year.

3. Short period -
General Rule; The taxable period, whether it is a calendar or fiscal
year always consists of 12 months.
Exception:
1. Newly organized corporation and commenced
operations on any day within the year
2. Corporation changes accounting period
3. Corporation is dissolved
4. CIR terminates taxable period of a taxpayer
5. In case of final return of the decedent and such period
ends at the time of his death.

d. Kinds of Taxpayers
1. Individuals
a. Citizen
i. Resident Citizen (RC) - a citizen of the
Philippines who resides in the Philippines or
stayed outside the Philippines for less than 183
days during the taxable year.
1. Engaged in trade or business or in the
exercise of his profession in the
Philippines
2. Not engaged in trade or business or in
the exercise of his profession
3. engaged in trade or business and at the
same time, he derives compensation
and/or other income “mixed income”

ii. Non-Resident Citizen (NRC)

1. Establishes to the satisfaction of the CIR
the fact of his physical presence abroad
with a definite intention to reside
therein.
2. Leaves the Philippines during the
taxable year to reside abroad, either as
an immigrant or for employment on a
permanent basis.
3. Works and derives income from abroad
and whose employment thereat requires
him to be physically present abroad
most of the time during the taxable year,
for at least 183 days in temporary
employment.
4. Previously considered as non-resident
and who arrives in the Philippines at any
time during the taxable year to reside
permanently in the Philippines shall
likewise be treated as a non-resident for
the taxable year in which he arrives with
respect to his income derived from
sources abroad until the date of his
arrival in the Philippines.
5. Taxpayer shall submit proof to the CIR
to show his intention of leaving the
Philippines to reside permanently
abroad or to return to and reside in the
Philippines as the case may be.
6. Receives compensation for services
rendered abroad as a seaman.
a. He is a member of the
complement of a vessel
b. Vessel is engaged
exclusively in international
trade
Requirements:
 1. Registered with POEA
2. With valid Overseas
employment contract
3. With valid Seafarer's
identification record
book or seamans book
issued by the maritime
industry authority

7. Overseas contract worker - Filipino

citizen employed in foreign country,
commonly referred to as OFWs, who are
physically present in a foreign country
as a consequence of their employment
thereat. Their salaries are paid by an
employer abroad and is not borne by any
entity or person in the Philippines.
Requisites:
1. Registered with POEA;
2. With valid OEC

b. Aliens
i. Resident Alien (RA)
An individual whose residence is within the
Philippines and who is not a citizen thereof. He
has no definite period of stay in the Philippines.
He is not a mere transient or sojourner. His
definite purpose for staying requires and
extended stay and to that end, he makes his
home temporarily in the Philippines.

ii. Non-resident alien (NRA)

An individual whose residence is not within the
Philippines and who is not a citizen thereof.

The test to classify NRA is the length of stay in

the Philippines whether he stays for more than
180 days or less.

1. Engaged in trade or business (NRA-

ETB)
Stays therein for an aggregate period of
more than 180 days during any
calendar year

Taxed on net income – 0% to 35%

 2. Not engaged in trade or business (NRA-NETB)
Stays an aggregate period of less than 180
days

25% final tax on gross income

c. Special class of individual employees

Special employees are alien individuals or Filipino
citizens who are subject to 15% tax based on their gross
compensation income when:
1. They are employed occupying managerial
and/or technical positions with regional or area
headquarters of
a. Multinational corporations
b. Petroleum service contractors
and subcontractors
c. Offshore banking unis
2. If the special taxpayer is an alien, all of his
gross compensation income received is subject
to 15% final tax
3. If the taxpayer is a Filipino citizen, he has the
option to be taxed at 15% final tax based on his
gross compensation income received or at a
regular income tax rate 0%-35% based on the
net taxable compensation income if his gross
annual taxable compensation is at least P975K
(whether or not actually received)

i. Minimum wage earner

A worker in the private sector paid the statutory
minimum wage or to an employee in the public
sector with compensation income of not more
than the statutory minimum wage in the non-
agricultural sector

2. Corporations
Shall include one person corporation, partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations, or insurance companies
a. Domestic - a corporation created or organized in the Philippines or under its laws.
b. Foreign - a corporation which is not domestice.
i. Resident Foreign corporation (RFC)
a foreign corporation engaged in trade or
business within the Philippines
 ii. Non-resident foreign corporation (NRFC)
a foreign corporation not engaged in trade or
business within the Philippines.
c. Joint venture and consortium
1. Joint venture or consortium formed for the
purpose of undertaking construction projects.
Requisites:
1. For the undertaking of construction
project,
2. Should involve joining or pooling of
resources by licensed local contractors;
that is, licensed as general contractor by
the PCAB of the DTI
3. These local contractors are engaged in
the construction business; and
4. The joint venture itself must likewise
be duly licensed as such by PCAB of the
DTI
2. Joint venture or consortium for the purpose of
engaging in petroleum, coal, geothermal and
other energy operations pursuant to an
operating consortium agreement under a
service contract with the Government.
An unregistered partnership is taxable as a
corporation, provided that:
1. There is an agreement, oral or
writing, to contribute money, property
or industry to a common fund; and
2. There is intention to divide profits

If an act which gives rise to the profit is proved

to be an isolated transaction, such that there is
no unmistakable intention to form a partnership
or joint venture, then the profit therein is not
taxable as income of the partnership or joint
venture.

A pool of insurers where the companies cede

their reinsurance contracts where there is a
pooling of a common fund controlled by an
independent board, is considered unregistered
partnership, hence taxable as a corporation.

A joint emergency operation, which has no legal

personality and which operates the business
affairs of two companies as though they
constitute a single entity thereby obtaining
substantial economy and profit in operation is
considered a corporation under the NIRC and
hence taxable.
 d. Partnership

General professional partnerships (GPPs) formed by

persons for the sole purpose of exercising their common
profession, no part of the income of which is derived
from engaging in any trade, or business.

Not subject to income tax, but the partners are liable for
income tax in their separate and individual capacities.

3. Estates
Is a device by which the law gives a kind of personality and
unity to undetermined tangible persons, the heirs. As there are
procedural requisites for their identification and determination
that need time for their compliance, a legal fiction has been
devised to represent them, which is the estate.

Compose of all properties, rights and obligations including those

properties, earnings or obligations that have accrued thereto
since the opening of the succession. The estate is to be
transferred from the decedent to his successors. Its status is the
same as that of the decedent prior to his death.

4. Trusts
Is the legal relationship between one person having an equitable
ownership of property and another person owning the legal title
to such property, the equitable ownership of the former entitling
him to the performance of certain duties and the exercise of
certain powers by the latter.

An obligation imposed or a right to administer over a property

given to a person for the benefit of another.
1. Where the income is accumulated or held for future
distribution by the trustee;
2. Where it is up to the fiduciary whether there will be
distribution or not;
3. Where the income is collected by a guardian of an infant
which is to be held or distributed as the court may direct.

2. Income
a. Definition and Nature
b. When Income is Taxable
c. Tests in Determining Whether Income is Earned for Tax
Purposes
1. Realization Test
 2. Economic Benefit Test, Doctrine of
Proprietary
Interest
3. Severance Test
d. Tax-Free Exchanges
d. Situs of Income Taxation

3. Gross Income
a. Definition
b. Concept of Income from Whatever Source Derived
c. Gross Income vs. Net Income vs. Taxable Income
d. Sources of Income Subject to Tax

1. Compensation Income
2. Fringe Benefits
3. Professional Income
4. Income from Business
5. Income from Dealings in Property
6. Passive Investment Income
7. Annuities, Proceeds from Life Insurance or Other Types of
Insurance
8. Prizes and Awards
9. Pensions, Retirement Benefit or Separation Pay
10. Income from Any Source
e) Exclusions
1. Taxpayers Who May Avail
2. Distinguished from Deductions and Tax Credits
4. Deductions from Gross Income
a. Concept as Return of Capital
b. Itemized Deductions vs. Optional Standard Deduction
c. Items Not Deductible
5. Income Tax on Individuals
a. Resident Citizens, Non-Resident Citizens, and Resident Aliens
1. Inclusions and Exclusions for Taxation on Compensation Income
2. Taxation of Business Income/Income from Practice of Profession
3. Taxation of Passive Income
4. Taxation of Capital Gains
5. Capital Asset vs. Ordinary Asset
b. Income Tax on Non-Resident Aliens Engaged in Trade or
Business
c. Income Tax on Non-Resident Aliens Not Engaged in Trade or Business
c. Individual Taxpayers Exempt from Income Tax
1. Senior Citizens
2. Minimum Wage Earners
3. Exemptions GrantedUnder International Agreements
6. Income Tax on Corporations
a. Income Tax on Domestic Corporations and Resident
Foreign Corporations
1. Branch Profit Remittance Tax
2. Itemized Deductions vs. Optional Standard
 Deductions
b. Income Tax on Non-Resident Foreign Corporations
b. Income Tax on Special Corporations
b. Exemptions from Tax on Corporations
b. Period Within Which to File Income Tax Return of
Individuals and Corporations
b. Substituted Filing
b. Failure to File Returns
7. Withholding Taxes
a. Concept
b. Creditable vs. Withholding Taxes
C. Value-Added Tax (VAT)
1. Concept and Elements of VATable Transactions
2. Impact and Incidence of Tax
3. Destination Principle and Cross-Border Doctrine
4. Imposition of VAT on Transfer of Goods by Tax Exempt Persons
5. Transactions Deemed Sale Subject to VAT
6. Zero-Rated and Effectively Zero-Rated Sales of Goods
or
Properties
7. VAT-Exempt Transactions
8. Input and Output Tax
9. Tax Refund or Tax Credit
10. Filing of Returns and Payment

D. Tax Remedies Under the National Internal Revenue

1. Assessment of Internal Revenue Taxes
a. Procedural Due Process in Tax Assessments
b. Requisites of a Valid Assessment
c. Tax Delinquency vs. Tax Deficiency
d. Prescriptive Period for Assessment
1. False Returns vs. Fraudulent Returns vs. Non-Filing of Returns
2. Suspension of the Running of Statute of Limitations
2. Taxpayer’s Remedies
a) Protesting an Assessment
1. Period to File Protest
2. Submission of Supporting Documents
3. Effect of Failure to File Protest
4. Action of the Commissioner on the Protest Filed
b. Compromise and Abatement of Taxes
b. Recovery of Tax Erroneously or Illegally Collected
3. Government Remedies for Collection of Delinquent Taxes
a. Requisites
b. Prescriptive Periods
4. Civil Penalties
a. Delinquency Interest and Deficiency Interest
b. Surcharge
c. Compromise Penalty
III. Local Taxation
A. Local Government Taxation
Power of the local government units (LGUs) to impose and collect taxes on its
constituents in order to raise revenues to enable them to perform the functions
for which they have been organized (1 DOMONDON, Bar Reviewer (2006), p. 651)
[hereinafter, 1 DOMONDON, Bar Reviewer].

1. General Principles
1. General principles

(PIE-CUP-UP)
1. Levied and collected for Public purposes;
2. Revenues collected under the LGC shall Inure solely to the benefit
of, and subject to disposition by the LGU levying the tax or other
imposition unless otherwise specifically provided therein;
3. Shall be Equitable and based as much as possible on the taxpayer’s
ability to pay;
4. Shall not be Contrary to law, public policy, national economically
policy, or in restraint of trade;
5. Shall be Uniform in each local LGU;
6. Collection of local taxes and other impositions shall not be let to
any Private person;
7. Shall not be Unjust, excessive, oppressive, or confiscatory; and
8. Each LGU shall, as far as practicable, evolve a Progressive system of
taxation (LGC, Sec. 130).

2. Nature and Source of Taxing Power

 a) Grant of Local Taxing Power Under
the Local Government
Code
1. Not inherent but a direct grant – the taxing power of provinces,
cities, municipalities and barangay, though not inherent, is not a mere
delegation by the legislative body but a direct grant from the
Constitution (CONST. Art. X, Sec. 5).

The power to tax is no longer vested exclusively on Congress; local

legislative bodies are now given direct authority to levy taxes, fees and
other charges pursuant to Article X, Section 5 of the 1987 Constitution
(Batangas Power Corp. v. Batangas City, G.R. No. 152675, April 28, 2004).

Where there is neither a grant nor a prohibition by statute, the taxing

power must be deemed to exist although Congress may provide
statutory limitations and guidelines.

Reason: To safeguard the viability and self-sufficiency of LGUs (Manila

Electric Co. v. Province of Laguna, G.R. No. 131359, May 5, 1999)

2. Limited – it is neither plenary nor absolute. While a direct grant, the

same is limited and would be subject to such guidelines as Congress
has provided such as progressively, etc.

3. Legislative – It may be exercised only by the local legislatures i.e.,

the Sanggunian.

4. Territorial – It can only be exercised within the territorial jurisdiction

of the LGU.

b) Authority to Prescribe Penalties for

Tax Violations
 1. The Sanggunian is authorized to prescribe fines or other penalties
for violations of tax ordinances.
a. in no case shall fines be less than P1,000 nor more than
P5,000
b. nor shall the imprisonment be less than one (1) month nor
more than six (6) month.
2. Such fine or other penalty shall be imposed at the discretion of the
court.
3. The Sangguniang Barangay may prescribe a fine of not less than
P100 nor more than P1,000.

c) Authority to Grant Local Tax

Exemptions
Local government units may, through ordinances duly approved,
grant tax exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary.

d) Withdrawal of Exemptions
The withdrawal of tax exemptions or incentives provided in the LGC
can only affect those franchises granted prior to the effectivity of the
law. Because petitioner’s franchise was granted 2 month after the
effectivity of the said law, it is thus not covered by the said withdrawal.
However, the “in lieu of all taxes” clause applies only to national
internal revenue taxes and not to local taxes. Furthermore, the “in lieu
of all taxes” clause in R.A. 7294 was rendered ineffective by the advent
of the VAT Law (Smart Communications, Inc. v. City of Davao, G.R. No.
155491, September 16, 2008).

3. Scope of Taxing Power

Provinces – Except as otherwise provided in this Code, the province may levy
only the taxes, fees, and charges as provided in this Article. (LGC, Sec. 134)

Municipalities – Except as otherwise provided in this Code, municipalities may

levy taxes, fees, and charges not otherwise levied by provinces. (LGC, Sec. 142)

Cities – Except as otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this code. The rates of taxes
that the city may levy may exceed the maximum rates allowed for the province
or municipality by not more than fifty percent (50%) except the rates of
professional and amusement taxes. (LGC, Sec. 151)

Barangays – The Barangays may levy taxes, fees, and charges, as provided in
this Article, which shall exclusively accrue to them:
a. Taxes – On stores or retailers with fixed business establishments
with gross sales or receipts of the preceding calendar year of Fifty
Thousand pesos (P50,000.00) or less, in the case of cities and Thirty
thousand pesos (P30,000.00) or less, in the case of municipalities, at a
rate not exceeding one percent (1%) on such gross sales or receipts.
b. Service Fees or Charges – Barangays may collect reasonable fees or
charges for services rendered in connectioin with the regulation or the
use of Barangay-owned properties or service facilities such as palay,
copra, or tobacco dryers.
c. Barangay Clearance – No city or municipality may issue any license
or permit for any business or activity unless a clearance is first obtained
from the Barangay where such business or activity is located or
conducted. For such clearance, the Sangguniang Barangay may impose a
reasonable fee. The application for clearance shall be acted upon within
seven (7) working days from the filing thereof. In the event that the
clearance is not issued within the said period, the city or municipality may
issue the said license or permit.
d. Other Fees and Charges - The Barangay may levy reasonable fees
and charges:
1. On commercial breeding of fighting cocks, cockfighting and
cockpits;
2. On places of recreation which charge admission fees; and
3. On billboards, signboards, neon signs, and outdoor advertisements.
(LGC, Sec. 152)

4. Specific Taxing Power of Local

Government Units
A. Provinces
 1. Tax on transfer of real property ownership
2. Tax on business of printing and publication
3. Franchise tax
4. Tax on sand, gravel and other quarry resources extracted from
public land
5. Professional tax
6. Amusement tax
7. Annual fixed tax for every delivery truck or van of manufacturers or
producers, wholesalers of, dealers, or retailer, in certain products

B. Municipalities
1. Tax on manufacturers, assemblers, re-packers, processors, brewers,
distillers, rectifiers, and compounders of liquors, distilled spirits, and
wines or manufacturers of any article of commerce of whatever kind
or nature
2. Tax on wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature
3. Tax on exporters, and on manufacturers, millers, producers,
wholesalers, distributors, dealers or retailers of essential commodities
4. Tax on retailers
5. Tax on contractors and other independent contractors
6. Tax on banks and other financial institutions
7. Tax on peddlers engaged in the sale of any merchandiser or article
of commerce
8. Tax on any business, not otherwise specified in the preceding
paragraphs, which the Sanggunian concerned may deem proper to
tax

C. Cities
D. Barangays

6. Taxing powers of provinces (Exclude: Rates)

a. Tax on transfer or real property ownership

Transaction Taxed – Sale, donation, barter, or any other mode of

transferring ownership or title of real property.

Tax Rate – not more than 50% of 1% (0.5%)

Tax Base – The total consideration involved or of the fair market value in
case the monetary consideration involved in the transfer is not substantial,
whichever is higher

Exception – Transfer or disposition pursuant to R.A. 6657 (Comprehensive

Agrarian Reform Program) (LGC, Sec. 135)

Person Liable to Pay – Seller, donor, transferor, executor, or administrator

Time of Payment – Within 60 days from the date of the execution of the
deed or from the date of the decedent’s death.

Embassies, consulates, and other diplomatic offices are deemed part of the
territory of the country they represent and therefore, are exempt from any
national or local taxes based on the generally accepted principle that the tax
laws of one country are not applicable to another. Consequently, the
purchase of property by the Embassy of the Islamic Republic of Iran of a real
property in the Republic of Iran of a real property in the Republic of the
Philippines for official use as the ambassador’s residence was considered as
tax exempt and the transfer taxes paid by the buyer under protest was
ordered refunded (DOF 2nd Indorsement dated February 10, 1993 to the
Treasurer of Makati).

b. Tax on business of printing and publication

Transaction Taxed – Business of printing and/or publication of books,

cards, posters, etc.

Tax Rate – a) Not more than 50% of 1%; or b) In case of a newly started
business: not more than 1/20 of 1%

Tax Base – a) Gross annual receipts for the preceding year; or b) In case of a
newly started business: capital investment

Exception – Printing of DepED/CHED/TESDA prescribed texts or references

The press is not exempt from the taxing power of the State and that what
the Constitutional guarantee of free press prohibits are laws which single out
or target a group belonging to the press for a special treatment or which in
any way discriminate the press on the basis of the content of the publication
(Tolentino v. Secretary of Finance, G.R. No. 115455, October 31, 1995).

General Rule: Only cities and municipalities can impose business taxes.

Exception: Provinces can impose business taxes on business of printing and

publication.

c. Franchise tax

Transaction Taxed – Enjoyment of a franchise (secondary franchise)

Tax Rate – a) Not more than 50% of 1%; or b) In case of a newly started
business: not more than 1/20 of 1%.

Tax Base – a) Gross annual receipts for the preceding year; or b) In case of a
newly started business: capital investment.

No Exception – Notwithstanding any exemption granted by any law or

other special law, the province may impose a tax on businesses enjoying a
franchise (LGC, Sec. 137).

A franchise tax is a tax on the privilege of transacting business in the state

and exercising corporate franchise granted by the state (National Power
Corp. v. City of Cabanatuan, G.R. No. 149110, April 9, 2003).

The tax covers special or secondary franchises which refer to the right or
privileges conferred upon an existing corporation such as the right to use
the streets of a municipality to lay pipes of tracks, erect poles or string wires.
To be covered by franchise tax, two requisites must be satisfied:
a. It has a “franchise” in the sense of a secondary or special franchise;
and
b. It is exercising its rights or privileges under this franchise within the
territory of the LGU (National Power Corp. v. City of Cabanatuan, G.R.
No. 149110, April 9, 2003).

Simultaneous imposition of Franchise and Local Business Tax

While the ‘city of business tax’ and the ‘franchise tax’ are both based on the
gross receipts and sales of petitioner’s business, the 2 taxes, however are
different in terms of their nature or character. A business tax is imposed on
the privilege of engaging in the business of contracting a system of
communications, whereas a franchise tax is imposed for the exercise of
enjoying a franchise. Clearly, while the city tax and franchise tax are both
imposed by the same taxing authority, on the same subject matter and for
the same taxing period, the imposition thereof, however, does not constitute
double taxation as they are not of the same kind of character (Sky Cable
Corp. v. Quezon City, CTA AC No. 102, February 10, 2014).

d. Tax on sand, gravel and other quarry services

Transaction Taxed – Extraction of ordinary stones, gravel, sand, earth and

other quarry resources as defined under the NIRC, from public lands or from
the beds of seas, lakes, river, streams, creeks, and other public waters within
its territorial jurisdiction.

Tax Rate – Not more than 10%

Tax Base – Fair market value in the locality per cubic meter of the subject

Who Issues Permit – Issued exclusively by the provincial governor pursuant

to the ordinance of the Sangguniang Panlalawigan

Distribution of Tax Proceeds – a) Province – 30%; b) Component city or

municipality where resources extracted – 30%; c) Barangay where resources
extracted – 40%

Notes: The authority to impose taxes and fees for extraction of sand and
gravel belongs to the province, and not to the municipality where they are
found (Municipality of San Fernando La Union v. Sta. Romana, G.R. No. L-
30159, March 31, 1987).

Province has no authority to impose taxes on stone, sand, gravel, earth and
cother quarry resources extracted from private lands because such tax is a
tax upon the performance, carrying on, or, exercise of an activity already
being taxed under the NIRC. The common limitations prohibit the LGU from
imposing such tax (V DOMONDON, Taxation, supra at 103).
The payment of local tax on sand, gravel and quarry resources and obtaining
of business permit from the local government are pre-requisites before one
can engage in quarrying operations (Province of Cagayan v. Lara, G.R. No.
188500, July 24, 2013).

e. Professional tax

Transaction Taxed – Exercise or practice of profession requiring

government licensure examination

Tax Rate – Not to exceed P300

Tax Base – Reasonable classification by the Sangguniang Panlalawigan

Exception – Professionals exclusively employed in the government

Time of Payment – Payable annually on or before January 31 or before

beginning the practice of the profession

Place of Payment – Province where he practices his profession or where the

principal office is located.

Notes: Employer of a person subject to professional tax shall require

payment by that person of the tax on his profession before employment and
annually thereafter (LGC, 139(c)).

Tax is to be paid only once every year. A person who has paid the
corresponding professional tax shall be entitled to practice his profession in
any part of the Philippines without being subjected to any other national of
local tax, license, or fee for the practice of such profession (LGC, Sec. 139(b)).

The professionals subject to tax herein imposed are only those who have
passed the bar examinations, or in any board or other examinations
conducted by the Professional Regulation Commission (PRC).

For example, a lawyer who is also a Certified Public Accountant (CPA) must
pay the professional tax imposed on lawyers and that fixed for CPAs, if he is
to practice both professions (IPR of LGC, Art. 228(f)).
 f. Amusement tax

Transaction Taxed – Ownership, lease or operation of theaters, cinemas,

concert halls, circuses, boxing stadium and other places of amusement

Tax Rate – Not more than 10% (as amended by R.A. 9640 (An Act
Amending Sec. 140(A) of the LGC, May 21, 2009))

Tax Base – Gross receipts from admission fees

Exception – Operas, concerts, dramas, recitals, painting and art exhibitions,

flower shows, musical programs, literary and oratorical presentation. Except
(Taxable): Pop, rock, or similar concerts

Distribution of Proceeds – Tax shall be shared equally by the province and

municipality where such amusement places are located.

Amusement is a pleasurable diversion and entertainment. It is synonymous

to relaxation, avocation, pastime or fun (LGC, Sec. 131(b)).

Amusement places include theaters, cinemas, concert halls, circuses and

other places of amusement where one seeks admission to entertain oneself
by seeing or viewing the show or performances (LGC, Sec. 131(c)).

Businesses not subject to Amusement Tax

a. Resorts, swimming pools, bath houses, hot springs, and tourists
spots – cannot be considered as among the ‘other places of
amusement’ contemplated by Sec. 140 of the LGC and which may
properly be subject to amusement tax (Principle of Ejusdem Generis)
(Pelizloy Realty Corp. v. Province of Benguet, G.R. No. 183137, April
10, 2013).
b. Professional basketball games – they do not fall within the
meaning of “other places of amusement” under the same category as
theaters, cinematographs, concert halls and circuses which basically
belong to artistic forms of entertainment, while the former cater
sports and gaming (Principle of Ejusdem Generis) (Philippine
Basketball Association vs. Court of Appeals, G.R. No. 119122, August
8, 2000).
 It is the intent of the legislature not to impose VAT on persons already
covered by the amusement tax. Thus, the gross receipts derived by
respondent from admission ticket in showing motion pictures, films or
movies are subject to the amusement tax and not VAT under the NIRC
(Commissioner of Internal Revenue v. SM Prime Holdings, Inc., G.R. No.
183505, February 26, 2010).

Place upon which Provinces/Cities cannot impose Amusement Tax

(because the NIRC already imposes Amusement Tax):
1. Cockpits;
2. Cabarets;
3. Night or day clubs;
4. Boxing exhibitions;
5. Professional basketball games;
6. Jai-Alai; and
7. Racetracks (NIRC, Sec. 125).

g. Tax on deliver truck/van

Transaction Taxed – Used by manufacturer, producers, wholesalers, dealers,

retailers, of truck, van, vehicle in the delivery or distribution of distilled
spirits, fermented liquors, softdrinks, cigar and cigarettes and other products,
determined by the Sangguniang Panlalawigan, to sale outlets or consumers,
whether directly or indirectly, within the province.

Tax Rate – not to exceed P500

Tax Base – Every truck, van or vehicle

Note: They shall be exempt from the tax on peddlers which may be imposed
by municipalities (LGC, Sec. 141(b)).

7. Taxing powers of cities (Exclude: Rates)

Except as otherwise provided in the LGC, the city may levy the taxes, fees, and
charges which the province or municipality may impose (LGC, Sec. 151).
 1. The taxes, fees, and charges levied and collected by highly
urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of the Code.
2. The rate of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than 50%.

Exception: The rates of professional and amusement taxes.

Under the LGC, there are three types of cities: Component Cities (CCs),
Independent Component Cities (ICCs) and Highly Urbanized Cities (HUCs).
ICCs and HUCs are independent of the province (LGC, Secs. 451-452). This
means that taxes, fees, and charges levied and collected by ICCs and HUCs
accrue solely to them (LGC, Sec. 151).

8. Taxing powers of municipalities (Exclude: Rates)

a. Tax on various types of businesses

A municipality may impose taxes on the following businesses:

1. On manufacturers, assemblers, re-packers, processors, brewers,
distillers, rectifiers, and compounders of liquors, distilled spirits,
and wines or manufacturers of any article of commerce of
whatever kind of nature;

Tax Rate: Graduated scale of P165 - P24,375 per annum or a tax rate not
exceeding 37½% of 1%.

Tax Base: Gross sales or receipts for the preceding calendar year.

2. On wholesalers, distributors, or dealers in any article of

commerce of whatever kind of nature;

Tax Rate: Graduated scale of P18,000 – P10,000 per annum or rate not
exceeding 50% of 1%.

Tax Base: Gross sales or receipts for the preceding calendar year.
Wholesale – Sale where the purchaser buys or imports the commodities
for resale to persons other than the end user regardless of the quantity
of the transaction (LGC, Sec. 131(z)).

Dealer – One whose business is to buy and sell merchandise, goods, and
chattels as a merchant. He stands immediately between the producer or
manufacturer and the consumer (LGC, Sec. 131(k)).

3. On exporters, and on manufacturers, millers, producers,

wholesalers, distributors, dealers or retailers of essential
commodities;

Tax Rate: No exceeding ½ of the rates prescribed under Nos. 1, 2 & 4.

Essential Commodities (RW-CLAP-SC)

1. Rice and corn;
2. Wheat or cassava flour, meat, dairy products, locally
manufactured, processed or preserved food, sugar, salt and other
agricultural, marine, and fresh water products, whether in their
original state or not;
3. Cooking oil and cooking gas;
4. Laundry soap, detergents, and medicine;
5. Agricultural implements, equipment and post- harvest
facilities, fertilizers, pesticides, insecticides, herbicides and other
farm inputs;
6. Poultry feeds and other animal feeds;
7. School supplies; and
8. Cement.

4. On retailers;

Tax Rate: Two percent (2%) for P400,000 or less; 1% for the excess over
P400,000.

Tax Base: Gross sales or receipts for the preceding calendar year.

Note: Barangays shall have the exclusive power to levy the business tax
on retailers as provided under Sec. 152 of the LGC, if gross sales or
receipts do not exceed P50,000 in case or cities or P30,000 in case of
municipalities.

Retail – a sale where the purchaser buys the commodity for his own
consumption, irrespective of the quantity of the commodity sold (LGC,
Sec. 131(w)).

5. On contractors and other independent contractors;

Tax Rate: Graduated scale of P27.50 – P11,500 per annum or rate not
exceeding 50% of 1%

Tax Base: Gross sales or receipts for the preceding calendar year.

Contractor – includes persons, natural or juridical, not subject to

professional tax under Sec. 139 of the LGC, whose activity consists
essentially of the sale of all kinds of services for a free, regardless of
whether or not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractor or his
employees (LGC, Sec. 131(h)).

Transportation contractors are not included in the term “contractor” a

defined in Sec. 131 of LGC. The taxing power of LGUs does not extend to
taxes on the gross receipts of transportation contractors (LGC, Sec.
133(j)).

6. On banks and other financial institutions;

Tax Rate: Not exceeding 50% of 1%.

Tax Base: Gross sales or receipts for the preceding calendar year derived
from interests, commissions and discounts from lending activities,
income from financial leasing, dividends, rentals on property and profit
from exchange or sale of property, insurance premium.

Note: All other income and receipt of banks and financial institutions not
otherwise enumerated above shall be excluded from the taxing authority
of the LGU (IRR of LGC, Art. 232(f)).
 7. On peddlers engaged in the sale of any merchandise or article
of commerce; and

Tax Rate: Not exceeding P50 per peddler annually.

Peddler – any person who, either for himself or on commission, travels

from place to place and sells his goods or offers to sell and deliver the
same (LGC, Sec. 131(t)).

8. On any business, not otherwise specified in the preceding

paragraphs, which the Sanggunian concerned may deem proper
to tax.

Conditions:
a. Business not subject to VAT or percentage tax under NIRC;
or
b. If the business is subject to VAT or percentage tax under
NIRC, the tax rate shall not exceed 2% of gross sales/receipts of
the preceding calendar year (LGC, Sec. 143(h)).

Exception: Any business engaged in the production, manufacture,

refining, distribution or sale of oil, gasoline, and other petroleum
products shall not be subject to any local tax (IRR of LGC, Art. 232(h)).

b. Ceiling on business taxes imposable by LGUs within Metro

Manila

The municipalities within Metro Manila may levy taxes at rates which shall
not exceed by 50% the maximum rates prescribed in Sec. 143 of the LGC for
another municipalities (LGC, Sec. 144).

c. Tax on retirement of business

A business subject to tax shall, upon termination thereof, submit a sworn

statement of its gross sales or receipts for the current year.

If the tax paid during the year be less than the tax due in said gross sales or
receipts of the current year, the difference shall be paid before the business
is considered officially retired.
d. Rules on payment of business taxes

1. The taxes shall be payable for every separate or distinct

establishment or place where business subject to the tax is conducted
and one line of business does not become exempt by being
conducted with some other business for which such tax has been
paid.

The basis for the computation of business tax is the gross sales/receipts
for the preceding year and the latest income tax returns and financial
statements for purposes of verifying the accuracy of the declarations that
they have made the previous year.

Presumptive Income Level Approach Assessment (PILAA)

The PILAA may be used only if the taxpayer is unable to provide proof of
its income (First Planters Pawnshop, Inc. v. City Treasurer of Pasay City,
CTA EB No. 501, December 10, 2010).

2. The tax on a business must be paid by the person conducting the

same;

3. In cases where a person conducts or operates 2 or more of the

businesses mentioned in Sec. 143 of LGC which are subject to:
a. Same rate of tax – the tax shall be computed on the
combined total gross sales or receipts of the said 2 or more
related businesses.
b. Different rates of tax – the gross sales or receipts of each
business shall be separately reported for the purpose of
computing the tax due from each business.

e. Fees and charges for regulation & licensing

1. The municipality may impose and collect such reasonable fees and
charges on business and occupation (LGC, Sec. 147);

Exception: Professional taxes reserved for provinces on the practice of

any profession or calling, commensurate with the cost of regulation,
inspection and licensing before any person may engage in such business
or occupation, or practice such profession or calling.

2. Fees for sealing and licensing of weights and measures (LGC, Sec.
148); and

3. Fishery rentals, fees and charges (LGC, Sec. 149).

f. Situs of tax collected

1. When there is a branch or sales office or warehouse in the city

or municipality where the sale was made – tax shall accrue and
shall be paid to the municipality where such branch or sales outlet is
located.

Branch office – a fixed place in a locality which conducts operations of

the business as an extension of the principal office (IRR of the LGC, Art.
243(a)(2)).

Offices used only as display areas of the product where no stocks or

items are stored for sale although orders for the products may be
received thereat, are not branch or sales offices as herein contemplated.
A warehouse which accepts orders and/or issues sales invoices
independent of a branch with sales office shall be considered as sales
office (ABAN, supra at 415).

2. Where there is no branch, sales office, or warehouse – the sale

shall be duly recorded in the principal office and the taxes due shall
accrue and shall be paid to such city or municipality.

Principal office – the head or main office of the business appearing in

pertinent documents submitted to the SEC and specifically mentioned in
the Articles of Incorporation (IRR of the LGC, Art. 243(a)(1)).

3. If there is no branch but there is a factory, project office, plant,

or plantation in pursuit of business
a. Thirty percent (30%) of all sales recorded in the principal
office – taxable by the city or municipality where the principal
office is located (IRR of LGC, Art. 243(b)(3));
 b. Seventy percent (70%) of all sales recorded in the principal
office – taxable by the city or municipality where the factory,
project office, plant or plantation is located (IRR of LGC, Art.
243(b)(3)); if the plantation is located in a locality other that where
the factory is located, the 70% sales allocation shall be divided as
follows:
i. Sixty percent (60%) – city or municipality where the factory is
located (IRR of LGC, Art. 243(b)(4)(i));
ii. Forty percent (40%) – city or municipality where the
plantation is located (IRR of LGC, Art. 243(b)(4)(ii)).

Where there are two or more factories, project offices, plants or

plantations, located in different localities, the 70% sales allocation
mentioned above shall be prorated among the localities where the
factories, project offices, plants, and plantations are located in
proportion to their respective volumes of production during the
period for which the tax is due (IRR of LGC, Art. 243(b)(5)).

Plantation – a tract of agricultural land where trees or seedlings are

planted, whether fruit bearing or not, uniformly spaced or seeded by
broadcast methods or normally arranged to allow highest production.
Inland fishing ground shall be considered as plantation (IRR of the
LGC, Art. 243(a)(4)).

4. Where Sales are made by Route Trucks, Vans or Vehicles (IRR of

LGC, Art. 243(d))
a. Sale made in the locality where manufacturer, producer,
wholesaler, retailer or dealer has a branch, sales office or
warehouse, the sales are recorded in the branch, sales office or
warehouse – tax due is paid to LGU where such branch, sales office
or warehouse is located.
b. Sale made in the locality where manufacture, producer,
wholesaler, retailer or dealer has no branch, sales office or
warehouse – Sales are recorded in the branch, sales office or
warehouse from where the route trucks withdraw their products
for sale and tax due is to be paid to the LGU where such branch,
sales office or warehouse is located.

Notes:
 1. As long as there is a branch, the sale will be recorded there.
2. The rules for allocation apply only if there is no branch.
3. The sales allocation shall be applied irrespective of whether
or not sales are made in the locality where the factory, project office,
plant, or plantation is located.
4. A city can validly tax orders booked and paid for in the
company’s branch office in the city, even if the orders are delivered
outside the city (Philippine Match v. City of Cebu, G.R. No. L-30745,
January 18, 1978).

9. Taxing powers of barangays (Exclude: Rates)

The Barangays may levy taxes, fees, and charges, as provided in this Article,
which shall exclusively accrue to them:

a. Taxes – On stores or retailers with fixed business establishments

with gross sales or receipts of the preceding calendar year of Fifty
Thousand pesos (P50,000.00) or less, in the case of cities and Thirty
thousand pesos (P30,000.00) or less, in the case of municipalities, at a
rate not exceeding one percent (1%) on such gross sales or receipts.

b. Service Fees or Charges – Barangays may collect reasonable fees

or charges for services rendered in connectioin with the regulation or the
use of Barangay-owned properties or service facilities such as palay,
copra, or tobacco dryers.

c. Barangay Clearance – No city or municipality may issue any license

or permit for any business or activity unless a clearance is first obtained
from the Barangay where such business or activity is located or
conducted. For such clearance, the Sangguniang Barangay may impose a
reasonable fee. The application for clearance shall be acted upon within
seven (7) working days from the filing thereof. In the event that the
clearance is not issued within the said period, the city or municipality may
issue the said license or permit.

d. Other Fees and Charges – The Barangay may levy reasonable fees
and charges:
1. On commercial breeding of fighting cocks, cockfighting and
cockpits;
 2. On places of recreation which charge admission fees; and
3. On billboards, signboards, neon signs, and outdoor advertisements.
(Sec. 152, LGC)

5. Common Revenue Raising Powers

a. Service fees and charges – Local government units may impose
and collect such reasonable fees and charges for services rendered.

b. Public utility charges – Public Utility Charges for the operation of

public utilities owned, operated and maintained by LGUs within their
jurisdiction.

c. Toll fees or charges – Toll fees or charges for the use of any public
road, pier or wharf, waterway, bridge, ferry or telecommunication system
funded and constructed by the local government unit concerned
Exceptions: a. Officers and enlisted men of the AFP and PNP; b. Post
office personnel delivering mail; and c. Physically handicapped and
disabled citizens who are sixty-five (65) years or older. (Sec. 152, LGC)

When public safety and welfare so requires, the sanggunian concerned may
discontinue the collection of the tolls, and thereafter the said facility shall be
free and open for public use.

6. Community Tax
It is a poll or capitation tax imposed upon the residents of a city or municipality
(V DOMONDON, Taxation, supra at 161).

Authorized to Cities or municipalities (LGC, Sec. 156)

Levy
Persons 1. Individuals
Liable 2. Juridical Persons
Individuals 1. Every inhabitant of the Philippines (regardless of
Liable (LGC, citizenship);
Sec. 157) 2. Who is 18 years or over; and
a. Who has been regularly employed on a wage or
 salary basis for at least 30 consecutive working days
during any calendar year; or
b. Who is engaged in business or occupation; or
c. Who owns a real property with an aggregate assessed
value of P1,000 or more; or
d. Who is required by law to file an income tax return.
Juridical Every corporation no matter how created or organized, whether
Persons domestic or resident foreign, engaged in or doing business in the
Liable (LGC, Philippines.
Sec. 158)
Exempted Absolutely (LGC, Sec. 159);
from Paying 1. Diplomatic; and
the Tax 2. Consular Representatives.
Exempt for the rest of the year:
1. Transient visitors when their stay in the Philippines
does not exceed 3 months (LGC, Sec. 159);
2. Persons who come to reside in the Philippines on or
after July 1 (LGC, Sec. 161);
3. Persons who become 18 years of age or on after July
1 (LGC, Sec. 161);
4. Persons who cease to belong to an exempt class on
or after July 1 (LGC, Sec. 161).
Tax Rate for P5.00 plus P1.00 for every P1,000 income regardless of whether
Individuals from business, exercise of profession or from property (not to
(LGC, Sec. exceed P5,000)
157)
Note: In case of husband and wife, the additional tax shall be
based on the total property, gross receipts or earnings owned or
derived by them.
Tax Rate for P500 plus annual additional tax (not to exceed P10,000)
Juridical
Persons (LGC, Annual additional tax in accordance with the following schedule:
Sec. 158) 1. For every P5,000 worth of real property owned by it
during the preceding year based on the valuation used
for the payment of the real property tax – P2.00; and
2. For every P5,000 of gross receipts or earnings derived
by it from its business in the Philippines during the
preceding year – P2.00.
Place of Residence of the individual or in the place where the principal
Payment office of the juridical entity is located.
(LGC, Sec.
160)
Time of Accrues on the 1st day of January of each year which shall be paid
Payment not later than the last day of February of each year.
(LGC, Sec.
161) If a person reaches the age of 18 years or losses the benefit of
exemption on or before the last day of March, he shall have 20
days within which to pay the community tax without becoming
delinquent.

Corporations established and organized on or before the last day

of March shall have 20 days within which to pay the community tax
without becoming delinquent.
Penalty for An interest of 24% per annum from the due date until it is paid
Delinquency shall be added to the amount due.
(LGC, Sec.
161)

7. Common Limitations on the Taxing

Powers of Local Government Units
Local government units cannot levy:
1. Income tax, except on banks and other financial institutions;
2. Documentary stamp tax;
3. Estate tax, inheritance, gifts, legacies and other acquisitions mortis
causa except as otherwise provided
4. Customs duties, registration fees of vessels and wharfage on
wharves, tonnage dues and all other kinds of customs fees, charges and
dues except wharfage on wharves constructed and maintained by the
local government unit concerned;
5. Taxes, fees, charges and other impositions upon goods carried into
or out of, or passing through, the territorial jurisdictions of local
government units in the guise of charges for wharfage, tolls for bridges
or otherwise.
6. Taxes, fees or charges on agricultural and aquatic products when
sold by marginal farmers or fishermen;
7. Taxes on business enterprises certified by the Board of Investments
as pioneer or non-pioneer for a period of 6 and 4 years, respectively,
from the date of registration;
8. Excise taxes on articles enumerated under the NIRC, as amended,
and taxes, fees or charges on petroleum products;
9. Percentage or value-added tax (VAT) on sales, barters or exchanges
or similar transactions on goods or services except as otherwise provided
herein;
10. Taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire
and common carriers by air, land or water, except as provided in the
Code;
11. Taxes on premiums paid by way of Reinsurance or retrocession;
12. Taxes, fees or charges for the registration of motor vehicles and for
the issuance of all kinds of licenses or permits for the driving thereof,
except tricycle;
13. Taxes, fees or other charges on Philippine products actually
exported, except as otherwise provided in the Code;
14. Taxes, fees or charges on Countryside and barangay business
enterprises and cooperatives duly registered under R.A. 6810 and R.A.
6938, (Cooperatives Code of the Philippines) ; and
15. Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities, and local government units. (LGC, Sec.
133)

8. Requirements for a Valid Tax Ordinance

Formal test:
1. Must be within the corporate powers of the LGU to enact; and
2. Must be passed according to the procedure prescribed by law.
Substantive test:
1. Must not contravene the Constitution or any statute;
2. Must not be unfair or oppressive;
3. Must not be partial or discriminatory;
4. Must not prohibit, but may regulate trade;
5. Must be general and consistent with public policy; and
6. Must not be unreasonable. (City of Batangas v. Philippine Shell
Petroleum Corporation, G.R. No. 195003, 2017, J. Caguioa
Q: Petitioner Smart Communications, Inc. (Smart) is a domestic
corporation engaged in the business of providing
telecommunications services to the general public. In the course of
its business, Smart constructed a telecommunications tower within
the territorial jurisdiction of the Municipality of Malvar, Batangas,
The construction of the tower was for the purpose of receiving and
transmitting cellular communications within the covered area.

On 30 July 2003, the Municipality passed Ordinance No. 18, series of

2003, entitled “An Ordinance Regulating the Establishment of
Special Projects.” On 24 August 2004, Smart received from the
Permit and Licensing Division of the Office of the Mayor of the
Municipality an assessment letter with a schedule of payment for the
total amount of ₱389,950.00 for Smart’s telecommunications tower.
Is the imposition a tax ?

SUGGESTED ANSWER: No. The imposition of fees on “cell

sites” is under police power. The main purpose of Ordinance No. 18
is to regulate certain construction activities of the identified special
projects, which includes “cell sites” or telecommunications towers.
Thus, the fees imposed in Ordinance No. 18 are primarily regulatory
in nature, and not primarily revenue-raising. They are not taxes.
While the fees may contribute to the revenues of the Municipality,
this effect is merely incidental. (Smart Communications, Inc. v.
Municipality of Malvar, Batangas, G.R. No. 204429, February
18, 2014) (Source:Domondon)

Q: Quezon City passed Ordinance No. SP-2095 that imposes a

Socialized Housing Tax (SHT) equivalent to 0.5% on the assessed
value of land in excess of Php100,000.00. The special assessment
shall accrue to the General Fund under a special account to be
established for the purpose. Effective for five (5) years, the Socialized
Housing Tax (SHT) shall be utilized by the Quezon City Government
for the following projects: (a) land purchase/land banking; (b)
improvement of current/existing socialized housing facilities; (c) land
development; (d) construction of core 28 houses, sanitary cores,
medium-rise buildings and other similar structures; and (e) financing
of public-private partnership agreement of the Quezon City
Government and National Housing Authority (NHA) with the private
sector.

Under certain conditions, a tax credit shall be enjoyed by taxpayers

regularly paying the special assessment: The tax credit to be granted
shall be equivalent to the total amount of the special assessment
paid by the property owner.

Is the imposition valid ?

SUGGESTED ANSWER: Yes. The ordinance imposing the Socialized

Housing Tax of Quezon City, (SHT) is valid.

The tax is not a pure exercise of taxing power or merely to raise

revenue; it is levied with a regulatory purpose. The levy is primarily
in
the exercise of the police power for the general welfare of the entire
city. It is greatly imbued with public interest. Removing slum areas in
Quezon City is not only beneficial to the underprivileged and
homeless constituents but advantageous to the real property
owners as well. The situation will improve the value of their property
investments, fully enjoying the same in view of an orderly, secure,
and safe community, and will enhance the quality of life of the poor,
making them law-abiding constituents and better consumers of
business products. (Ferrer, Jr. v. City Mayor Bautista, G.R. No.
210551, June 30, 2015) (Source:Domondon)

Q:The city of Makati, in order to solve the traffic problem in its

business districts, decided to impose a tax, to be paid by the driver,
on all private cars entering the city during peak hours from 8:00 a.m.
to 9:00 a.m. from Mondays to Fridays, but exempts those cars
carrying more than two occupants, excluding the driver. Is the
ordinance valid ?

SUGGESTED ANSWER: Yes. It is an imposition under the police

power because it seeks to promote the general welfare, for the
protection of the health, safety and convenience of the public who
would be affected by the traffic problem. (Source:Domondon)
 9. Taxpayer's Remedies
a) Protest
a. Periods of assessment and collection of local taxes, fees or
charges

1. Local taxes, fees, or charges shall be assessed within five (5) years
from the date they became due. No action for the collection of such
taxes, fees, or charges, whether administrative or judicial, shall be
instituted after the expiration of such period: Provided, That, taxes,
fees or charges which have accrued before the effectivity of this Code
may be assessed within a period of three (3) years from the date they
became due.
2. In case of fraud or intent to evade the payment of taxes, fees, or
charges, the same may be assessed within ten (10) years from
discovery of the fraud or intent to evade payment.
3. Local taxes, fees, or charges may be collected within five (5) years
from the date of by or judicial action. No such action shall be
instituted after the expiration of said period: Provided, however, That,
taxes, fees or charges assessed before the effectivity of this Code may
be collected within a period of three (3) years from the date of
assessment.
4. The running of the periods of prescription provided in the
preceding paragraphs shall be for the time during which:
1. The treasurer is legally prevented from making the
assessment of collection;
2. The taxpayer requests for a reinvestigation and executes a
waiver in writing before expiration of the period within which to
assess or collect; and
3. The taxpayer is out of the country or otherwise cannot be
located. (LGC, Sec. 194)

b. Protest of assessment

When the local treasurer or his duly authorized representative finds that
correct taxes, fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee or charge, the amount of
deficiency, the surcharges, interests and penalties. Within sixty (60) days
from the receipt of the notice of assessment, the taxpayer may file a written
protest with the local treasurer contesting the assessment; otherwise, the
assessment shall become final and executory. The local treasurer shall decide
the protest within sixty (60) days from the time of its filing. If the local
treasurer finds the protest to be wholly or partly meritorious, he shall issue a
notice canceling wholly or partially the assessment. However, if the local
treasurer finds the assessment to be wholly or partly correct, he shall deny
the protest wholly or partly with notice to the taxpayer. The taxpayer shall
have thirty (30) days from the receipt of the denial of the protest or from the
lapse of the sixty (60) day period prescribed herein within which to appeal
with the court of competent jurisdiction otherwise the assessment becomes
conclusive and unappealable. (LGC, Sec. 195)

b) Refund
c. Claim for refund of tax credit for erroneously or illegally
collected tax, fee or charge

In order to be entitled to a refund or credit of local taxes, the following

procedural requirements must concur:
a. Must file a written claim for refund or credit with the local treasurer;
and
b. The case or proceeding for refund has to be filed within 2 years
from the date of the payment of the tax, fee, or charge of from the
date the taxpayer is entitled to a refund or credit (LGC, Sec. 196).

In Local Taxation, supervening causes are allowed as reckoning points for

prescriptive period purposes. In national taxes, they are not considered
(INGLES, supra at 478).

c) Action before the Secretary of

Justice
Sec 187, LGC: Any question on the constitutionality or legality of tax
ordinances or revenue measures may be raised on appeal within 30 days
from the effectivity thereof to the Secretary of Justice, who shall render
within 60 days from the date of receipt of the appeal.

The appeal shall not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee or charge levied
therein.

Within 30days after receipt of the decision or the lapse of 60-day period
without the Secretary of Justice acting upon the appeal the aggrieved
party may file the appropriate proceedings with a court of competent
jurisdiction.

Bar Question 2015:

In 2014, M City approved an ordinance levying custom duties and fees on
goods coming into the territorial jurisdiction of the city. Said city
ordinance was published on February 15, 2014 with effectivity date on
March 1, 2014.

What is the proper procedural remedy and applicable time periods for
challenging the ordinance?

Answer:
Any question on the constitutionality of the ordinance may be rainsed on
appeal within 30days from the effectivity to the Secretary of Justice. The
Secretary of Justice shall render a decision within 60days from the date of
receipt of the appeal. Thereafter, within 30days after receipt of the decision
or the lapse of the sixty day period without the Secretary of Justice acting
upon the appeal, the aggrieved party may file the appropriate proceedings
with the Regional Trial Court. (Source: Mamalateo)

10. Assessment and Collection of Local

Taxes
a) Remedies of Local Government Units
 a. Local government’s lien for delinquent taxes, fees or charges

Local taxes, fees, charges, and other revenues constitute a lien, superior of all
liens, charges or encumbrances in favour of any person, enforceable by any
appropriate administrative or judicial action (LGC, Sec. 173).

How local government lien extinguished

The lien may only be extinguished upon full payment of the delinquent local
taxes, fees, and charges, including related surcharges and interest (LGC, Sec.
173).

b. Civil remedies, in general

1. Administration action

By Administrative Action through Distraint of Personal Property and

by Levy upon Real Property

A. Distraint of any personal property belonging to the taxpayer

or subject to the lien (LGC, Sec. 175).

At any time prior to the consummation of the sale, the taxpayer may
pay the proper charges (LGC, Sec. 175(d)).

When personal property considered sold to LGU: Should the

property distrained be not disposed of within 120 days, the same shall
be considered as sold to the LGU (LGC, Sec. 175(e)).

Unlike the NIRC, the Local Tax Code does not contain any specific
provision prohibiting courts from enjoining the collection of local
taxes. Such statutory lapse or intent may have allowed preliminary
injunction where local taxes are involved. But it cannot negate the
procedural rules and requirements under Rule 58 of the Rules of
Courts (Valley of Trading Co. v. CFI of Isabela, G.R. No. L-49529,
March 31, 1989).

B. Levy of any real property belonging to the delinquent

taxpayer (LGC, Secs. 176-180).
At any time before the date fixed for the sale, the taxpayer may stay
the proceedings by paying the proper charges.

When LGU may purchase real property advertised for sale:

1. There is no bidders; or
2. The highest bid is for an amount insufficient to pay the taxes,
fees, charges, surcharges, interests or penalties (LGC, Sec. 181).

Further Distraint and Levy: The remedies of distraint and levy may
be repeated if necessary until the full amount due including all
expenses is collected (LGC, Sec. 184).

Properties Exempt from Distraint and Levy (LGC, Sec. 185)

1. Tools and implements necessarily used by the delinquent
taxpayer in his trade or employment;
2. One (1) horse, cow, carabao, or other beast of burden, such
as the delinquent taxpayer may select, and necessarily used by
him in his ordinary occupation;
3. His necessary clothing, and that of all his family;
4. Household furniture and utensils for housekeeping and used
for that purpose by the delinquent taxpayer, such as he may
select, of a value not exceeding P10,000.00;
5. Provisions, including crops, actually provided for individual
or family use sufficient 4 months;
6. The professional libraries of doctors, engineers, lawyers and
judges;

Note: Under the 1997 Rules of Court (RULE 39, Sec. 13(g))
professional libraries and equipment of professionals are exempt
from execution not exceeding P300,000.00.

7. One fishing boat and net, not exceeding the total value of
P10,000.00, by the lawful use of which a fisherman earns his
livelihood; and
8. Any material or article forming part of a house or
improvement of any real property.

2. Judicial action
The LGU concerned may enforce the collection of delinquent taxes, fees,
charges or other revenues by civil action in any court of competent
jurisdiction within 5 years from the date taxes, fees or charges become
due (LGC, Secs. 183 and 194). The local government files an ordinary suit
for the collection of sum of money before the MTC, RTC, or CTA Division
depending upon the jurisdiction amount (V DOMONDON, Taxation,
supra at 225).

Jurisdiction

Court Jurisdictional Amount

MTC
Original If principal amount of taxes, fees exclusive of charges and
penalties does not exceed P300,000 or P400,000 in Metro
Manila
RTC
Original If principal amount of taxes, fees exclusive of charges and
penalties exceeds P300,000 or P400,000 in Metro Manila
Provided: The amount is less than P1 million
Appellate The RTC shall exercise appellate jurisdiction over all cases
decided by the MeTCs, MTCs, and MCTCs in their respective
territorial jurisdiction.
CTA Division
Original If principal amount of taxes, fees exclusive of charges and
penalties is P1 million or above
Appellate Over appeals from the judgments resolutions or orders of
the RTCs in tax collection cases originally decided by them
in their respective jurisdiction.
CTA En Banc
Appellate 1. Decisions or resolutions over petitions for
review of the CTA Division in the exercise of its
exclusive appellate jurisdiction over local taxes
decided by the RTC in the exercise of their
original jurisdiction; and
2. Over petitions for review of the judgments,
resolution of orders of the RTCs in the exercise of
their appellate jurisdiction over tax collection
 cases originally decided by the MeTCs, MTCs, and
MCTCs, in their respective territorial jurisdiction.

b) Prescriptive Period
1.Prescriptive period for Assessment
Local taxes, fees, or charges shall be assessed within five (5) years
from the date they became due. No action for the collection of such
taxes, fees, or charges, whether administrative or judicial, shall be
instituted after the expiration of such period: Provided, That, taxes,
fees or charges which have accrued before the effectivity of this Code
may be assessed within a period of three (3) years from the date they
became due.

In case of fraud or intent to evade the payment of taxes, fees, or

charges, the same may be assessed within ten (10) years from
discovery of the fraud or intent to evade payment.

2. Prescriptive period for Collection

4. Local taxes, fees, or charges may be collected within five (5) years
from the date of by or judicial action. No such action shall be
instituted after the expiration of said period: Provided, however, That,
taxes, fees or charges assessed before the effectivity of this Code may
be collected within a period of three (3) years from the date of
assessment.

3.Suspension of Running of the Prescriptive Periods

The running of the periods of prescription provided in the preceding
paragraphs shall be for the time during which:
2. The treasurer is legally prevented from making the
assessment of collection;
3. The taxpayer requests for a reinvestigation and executes a
waiver in writing before expiration of the period within which to
assess or collect; and
4. The taxpayer is out of the country or otherwise cannot be
located. (LGC, Sec. 194)
 Bar Question 2010
On May 15, 2009, La Manga Trading Corporation received a
deficiency business tax assessment of P1,500,000.00 from the Pasay
City Treasurer. On June 30, 2009, the corporation contested the
assessment by filing a written protest with the City Treasurer.

On October 10, 2009, the corporation received a collection letter

from the City Treasurer, drawing it to file on October 25, 2009 an
appeal against the assessment before the Pasay Regional Trial Court
(RTC).

a.Was the protest of the corporation filed on time? Explain.

b.Was the appeal with the Pasay RTC filed on time? Explain.

Answer:
1. Yes. Since the business tax assessment was received on May 15,
2009 and the protest thereto was filed on June 30, 2009 or a total
period of 46 days, the taxpayer thus timely filed such protest. The
law allows the taxpayer to file its protest within 60 days from the
date of receipt of assessment.
2. The taxpayer shall, within 30days from receipt of the denial of the
protest or from the lapse of the 60-day period prescribed within
which to appeal with the court of competent jurisdiction; otherwise,
the assessment becomes conclusive and unappealable. The fifth
sentence of Section 195 of the LGC does not provide for any
administrative appeal. Hence, the taxpayer can only appeal to a
court of competent jurisdiction. In this case, the local treasurer
acting as a quasi-judicial agency. Under Section 49 of the 1997
Rules of Civil Procedure, appeals from quasi-judicial agencies in the
exercise of judicial functions shall be brought to the Court of
Appeals. In this case, the appeal was brought by the corporation to
the Pasay RTC, which is not the court of competent jurisdiction.
Thus, the appeal was not filed on time.

B. Real Property Taxation

 1. Fundamental Principles
Direct taxes imposed on the privilege to use real property such as land, building,
machinery, and other improvements, unless specifically exempted (Province of
Nueva Ecija v. Imperial Mining Co., Inc. G.R. No. L-59463, November 19, 1982).

Fundamental Principles Governing Real Property Taxation: (PAUCE)

a. The appraisals, assessment, levy and collection of real property tax shall
not be let to any Private person;
b. Real property shall be classified for assessment purposes on the basis of its
Actual use;
c. Real property shall be assessed on the basis of Uniform classification
within each local government unit (LGU);
d. Real property shall be appraised at its Current and fair market value; and
e. The appraisal and assessment of real property shall be Equitable (LGC,
Sec. 198).

2. Nature
Nature or Characteristics of Real Property Tax: (DIAL UP)
a. Direct tax whose burden could not be shifted by the one who pays to other
persons;
b. Indivisible single obligation;
c. Ad valorem tax based on the assessed value of the property;
d. Local tax;
e. Imposed on the Use and not on the ownership; and
f.Progressive/proportionate in character depending to a certain extent on the use
and value of the property (

3. Imposition
a) Power to Levy
A province or city or a municipality within the Metropolitan Manila Area
may levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvement not hereinafter specifically
exempted.

b) Exemption from Real Property Tax

The following are exempted from payment of the real property tax:
a. Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;

b. Charitable institutions, churches, parsonages or convents appurtenant

thereto, mosques, nonprofit or religious cemeteries and all lands, buildings,
and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;

c. All machineries and equipment that are actually, directly and exclusively
used by local water districts and government-owned or controlled
corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power;

d. All real property owned by duly registered cooperatives as provided for

under R. A. No. 6938; and

e. Machinery and equipment used for pollution control and environmental

protection. Except as provided herein, any exemption from payment of real
property tax previously granted to, or presently enjoyed by, all persons,
whether natural or juridical, including all government-owned or -controlled
corporations are hereby withdrawn upon the effectivity of this Code. (LGC,
Sec. 234

Section 234(a) of RA 7160: Real Property owned by the Republic of the

Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted for consideration or otherwise, to a taxable
person. (Bar Question 2022)

EXCEPTIONS:
a. Properties owned by GOCCs not exercising essential governmental
functions or whose real properties are not devoted to public or governmental
use (except those engaged in water or electric supply) are subject to RPT
since they are not enumerated herein, unless they fall under other exceptions.

b. When beneficial use has been granted to a taxable person.

To reiterate, Section 234(a) of RA 7160 exempts real property owned by the

Republic from real property taxes except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable
person. Thus, the Court has invariably held that a government
instrumentality, though vested with corporate powers, are exempt from real
 property tax but the exemption shall not extend to taxable private entities to
whom the beneficial use of the government instrumentality's properties has
been vested. (Philippine Heart Center vs Local Government of Quezon City,
March 11, 2020)

4. Appraisal and Assessment

a) Classes of Real Property
a. Rule on appraisal of real property tax at fair market value

All real property, whether taxable or exempt, shall be appraised at the current and
fair market value prevailing in the locality where the property is situated. The
Department of Finance shall promulgate the necessary rules and regulations for the
classification, appraisal, and assessment of real property pursuant to the provisions
of this Code. (LGC, Sec. 201)

b. Declaration of real property

Declaration of Real Property by the Owner or Administrator. – It shall be the

duty of all persons, natural or juridical, owning or administering real property,
including the improvements therein, within a city or municipality, or their duly
authorized representative, to prepare, or cause to be prepared, and file with the
provincial, city or municipal assessor, a sworn statement declaring the true value of
their property, whether previously declared or undeclared, taxable or exempt, which
shall be the current and fair market value of the property, as determined by the
declarant. Such declaration shall contain a description of the property sufficient in
detail to enable the assessor or his deputy to identify the same for assessment
purposes. The sworn declaration of real property herein referred to shall be filed
with the assessor concerned once every three (3) years during the period from
January first (1st) to June thirtieth (30th) commencing with the calendar year 1992.
(LGC, Sec. 202)

Declaration of Real Property by the Assessor. – When any person, natural or

juridical, by whom real property is required to be declared under Section 202 hereof,
refuses or fails for any reason to make such declaration within the time prescribed,
the provincial, city or municipal assessor shall himself declare the property in the
name of the defaulting owner, if known, or against an unknown owner, as the case
may be, and shall assess the property for taxation in accordance with the provision
of this Title. No oath shall be required of a declaration thus made by the provincial,
city or municipal assessor. (LGC, Sec. 204)

c. Listing of real property in assessment rolls

 1. Real property shall be listed, valued and assessed in the name of the
owner, administrator, or anyone having legal interest in the property. The
exceptions are:
a. Undivided real property – in the name of the estate or heirs or
devisees without designating them individually;
b. In case of undivided real property other than that owned by a
deceased – in the name of one or more co-owners;
c. Corporation, partnership, and association – same as
individuals; and
d. Owned by Republic of the Philippines, its instrumentalities,
political subdivision, beneficial use is transferred to a taxable person
– in the name of the possessor (LGC, Sec. 205).

2. All declaration shall be kept and filed under a uniform classification

system to be established by the provincial, city or municipal assessor (LGC,
Sec. 207)

d. Preparation of schedules of fair market values

Before any general revision of property assessment is made pursuant to the

provisions of this Title, there shall be prepared a schedule of fair market values by
the provincial, city and the municipal assessors of the municipalities within the
Metropolitan Manila Area for the different classes of real property situated in their
respective local government units for enactment by ordinance of the Sanggunian
concerned. The schedule of fair market values shall be published in a newspaper of
general circulation in the province, city or municipality concerned, or in the absence
thereof, shall be posted in the provincial capitol, city or municipal hall and in two
other conspicuous public places therein. (LGC, Sec. 212).

1. Authority of assessor to take evidence

For the purpose of obtaining information on which to base the market value of
any real property, the assessor of the province, city or municipality or his deputy
may summon the owners of the properties to be affected or persons having legal
interest therein and witnesses, administer oaths, and take deposition concerning
the property, its ownership, amount, nature, and value. (LGC, Sec. 213).

2. Amendment of schedule of fair market values

The provincial, city or municipal assessor may recommend to the Sanggunian

concerned amendments to correct errors in valuation in the schedule of fair
market values. The Sanggunian concerned shall, by ordinance, act upon the
within ninety (90) days from receipt thereof. (LGC, Sec. 214).

e. Classes of real property

Classes of Real Property for Assessment Purposes
For purposes of assessment, real property shall be classified as residential,
agricultural, commercial, industrial, mineral, or special. The city or municipality
within the Metropolitan Manila Area, through their respective Sanggunian, have the
power to classify lands as residential, agricultural, commercial, industrial, mineral,
timberland, or special in accordance with their zoning ordinances. (LGC, Sec. 215).

Special Classes of Real Property

All lands, buildings, and other improvements actually, directly and exclusively used
for hospitals, cultural, or scientific purposes, and those owned and used by local
water districts, and government-owned or -controlled corporations rendering
essential public services in the supply and distribution of water and/or generation
and transmission of electric power shall be classified as special. (LGC, Sec. 216).

b) Assessment Based on Actual Use

Actual use of property as basis of assessment

Real property shall be classified, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and whoever uses it. (LGC, Sec.
217).

Indeed, it is a fundamental principle in real property taxation that the

assessment of real property shall be based on its actual use. [52] The Court has
consistently ruled that while the liability for taxes generally rests on the
owner of the real property, personal liability for real property taxes may also
expressly rest on the entity with the beneficial use of the real property at the
time the tax accrues.[53] In as early as 1980 in the case of City of Baguio v.
Busuego,[54] we ruled that the taxable person who purchased in installment
the property belonging to a tax-exempt person was held liable to pay the real
property taxes from the time the possession of the property was transferred to
him despite such tax-exempt person's retention of ownership and title over the
property pending full payment of the purchase price. (MWSS vs CBAA,
January 13, 2021)

Assessment of property

1. General revisions of assessments and property classifications

The provincial, city or municipal assessor shall undertake a general revision of

real property assessments within two (2) years after the effectivity of this Code
and every three (3) years thereafter. (LGC, Sec. 219).
 Date of effectivity of assessment or reassessment

Rule: All assessments or reassessments made after January 1 of any year shall
take effect on January 1 of the succeeding year.

Exception: Reassessments shall take effect at the beginning of the quarter next
following the reassessment IF made due to:
1. Its partial or total destruction;
2. Major change in its actual use;
3. Great and sudden inflation or deflation of real property values;
4. Gross illegality of the assessment; and
5. Any other abnormal cause (LGC, Sec. 221).

Assessment of property subject to back taxes

Real property declared for the first time shall be assessed for taxes for the period
during which it would have been liable but in no case for more than ten (10) years
prior to the date of initial assessment: Provided, however, That such taxes shall be
computed on the basis of the applicable schedule of values in force during the
corresponding period. If such taxes are paid on or before the end of the quarter
following the date the notice of assessment was received by the owner or his
representative, no interest for delinquency shall be imposed thereon; otherwise, such
taxes shall be subject to an interest at the rate of two percent (2%) per month or a
fraction thereof from the date of the receipt of the assessment until such taxes are
fully paid. (LGC, Sec. 222).

Notification of new or revised assessments

When real property is assessed for the first time or when an existing assessment is
increased or decreased, the provincial, city or municipal assessor shall within thirty
(30) days give written notice of such new or revised assessment to the person in
whose name the property is declared. The notice may be delivered personally or by
registered mail or through the assistance of the punong Barangay to the last known
address of the person to be served. (LGC, Sec. 223).

5. Collection
a) Date of Accrual

1. Date of accrual of real property taxes and special levies

The real property tax for any year shall accrue on the first day of January and from that
date it shall constitute a lien on the property which shall be superior to any other lien,
mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon
the payment of the delinquent tax. (LGC, Sec. 246).

b) Periods to Collect
The basic real property tax and any other tax levied under this Title shall be
collected within five (5) years from the date they become due. No action for the
collection of the tax, whether administrative or judicial, shall be instituted after the
expiration of such period. In case of fraud or intent to evade payment of the tax, such
action may be instituted for the collection of the same within ten (10) years from the
discovery of such fraud or intent to evade payment. The period of prescription within
which to collect shall be suspended for the time during which:

1. The local treasurer is legally prevented from collecting the tax;

2. The owner of the property or the person having legal interest therein
requests for reinvestigation and executes a waiver in writing before the
expiration of the period within which to collect; and
3. The owner of the property or the person having legal interest therein is out
of the country or otherwise cannot be located. (LGC, Sec. 270).

a. Collecting authority

The collection of the real property tax with interest thereon and related expenses,
and the enforcement of the remedies provided for in this Title or any applicable
laws, shall be the responsibility of the city or municipal treasurer concerned. The
city or municipal treasurer may deputize the Barangay treasurer to collect all taxes
on real property located in the Barangay: Provided, That the Barangay treasurer is
properly bonded for the purpose: Provided, further, That the premium on the bond
shall be paid by the city or municipal government concerned. (LGC, Sec. 247).

c) Remedies of Local Government Units

a. Issuance of notice of delinquency for real property tax payment

When the real property tax becomes delinquent, the local treasurer concerned shall
immediately cause a notice of the delinquency which shall specify the date upon
which the tax became delinquent and that personal property may be distrained to
effect payment of the tax, surcharges, interests and penalties. The notice of the
delinquency shall be:
1. Posted at the main hall and in a publicly accessible and conspicuous place
in each barangay of the local government unit concerned and
 2. Published once a week for two (2) consecutive weeks, in a newspaper of
general circulation in the province, city, or municipality (Ibid).

The basic real property tax and any other tax related thereto constitute a lien on the
property subject to tax (LGC, Sec. 257).

b. Local government’s lien

A legal claim on the property subject to RPT as security for the payment of the tax
obligation (V DOMONDON, supra at 360).

It is superior to all liens, charges or encumbrances irrespective of the owner or

possessor thereof, and is enforceable by administrative or judicial action. It is
extinguished only upon payment of tax and related interests and expenses (LGC,
Sec. 257).

It is constituted on the property subject to the tax from the date the real property tax
accrued which is on the first day of January (LGC, Sec. 246).

c. Remedies in general

The LGU concerned may avail any (or ALL) of the following remedies:
I. Lien;
II. Administrative action; or
A. Levy on the real property subject to tax
B.Distraint of personal property
III. Judicial action

Note: The LGC does not approve for a hierarchy of remedies on what should be first
exercised, the administrative or judicial remedies, subject to the doctrine of
exhaustion of administrative remedies (i.e. Appeal to the Local Board of Assessment
Appeals before institution of judicial action) (V DOMONDON, supra at 361).

d. Resale of real estate taken for taxes, fees or charges

The Sanggunian concerned may, by ordinance duly approved, and upon notice of
not less than twenty (20) days, sell and dispose of the real property acquired under
the preceding section at public auction. The proceeds of the sale shall accrue to the
general fund of the local government unit concerned. (LGC, Sec. 264).

e. Further levy until full payment of amount due

Levy may be repeated if necessary until the full due, including all expenses, is
collected. (LGC, Sec. 265).
 Payment under protest

a. 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". The protest
in writing must be filed within thirty (30) days from payment of the tax to the
provincial, city treasurer or municipal treasurer, in the case of a municipality
within Metropolitan Manila Area, who shall decide the protest within sixty (60)
days from receipt.
b. The tax or a portion thereof paid under protest, shall be held in trust by the
treasurer concerned.
c. In the event that the protest is finally decided in favor of the taxpayer, the
amount or portion of the tax protested shall be refunded to the protestant, or
applied as tax credit against his existing or future tax liability.
d. In the event that the protest is denied or upon the lapse of the sixty day
period prescribed in subparagraph (a), the taxpayer may avail of the remedies as
provided for in Chapter 3, Title II, Book II of this Code. (LGC, Sec. 252).

Repayment of excessive collections

When an assessment of basic real property tax, or any other tax levied under
this Title, is found to be illegal or erroneous and the tax is accordingly reduced or
adjusted, the taxpayer may file a written claim for refund or credit for taxes and
interests with the provincial or city treasurer within two (2) years from the date
the taxpayer is entitled to such reduction or adjustment. The provincial or city
treasurer shall decide the claim for tax refund or credit within sixty (60) days from
receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer
may avail of the remedies as provided in Chapter 3, II, Book II of this Code.
(LGC, Sec. 253).

6. Taxpayer’s Remedies
a) Contesting an Assessment
a. Appeal to the Local Board of Assessment Appeals (LBAA)

Any owner or person having legal interest in the property who is not satisfied with
the action of the provincial, city or municipal assessor in the assessment of his
property may, within sixty (60) days from the date of receipt of the written notice
of assessment, appeal to the Board of Assessment appeals of the province or city
by filing a petition under oath in the form prescribed for the purpose, together with
copies of the tax declarations and such affidavits or documents submitted in support
of the appeal. (LGC, Sec. 226).

b. Appeal to the Central Board of Assessment Appeals (CBAA)

The Central Board of Assessment appeals shall be composed of a chairman and two
(2) members to be appointed by the President, who shall serve for a term of seven
(7) years, without reappointment. Of those first appointed, the chairman shall hold
office for seven (7) years, one member for five (5) years, and the other member for
three (3) years. Appointment to any vacancy shall be only for the unexpired portion
of the term of the predecessor. In no case shall any member be appointed or
designated in a temporary or acting capacity. The chairman and the members of the
Board shall be Filipino citizens, at least forty (40) years old at the time of their
appointment, and members of the Bar or Certified Public Accountants for at least
ten (10) years immediately preceding their appointment. The chairman of the Board
of Assessment appeals shall have the salary grade equivalent to the rank of Director
III under the Salary Standardization Law exclusive of allowances and other
emoluments. The members of the Board shall have the salary grade equivalent to the
rank of Director II under the Salary Standardization Law exclusive of allowances
and other emoluments. The Board shall have appellate jurisdiction over all
assessment cases decided by the Local Board of Assessment appeals.

There shall be Hearing Officers to be appointed by the Central Board of Assessment

appeals to civil service laws, rules and regulations, one each for Luzon, Visayas and
Mindanao, who shall hold office in Manila, Cebu City and Cagayan de Oro City,
respectively, and who shall serve for a term of six (6) years, without reappointment
until their successors have been appointed and qualified. The Hearing Officers shall
have the same qualifications as that of the Judges of the Municipal Trial Courts.

The Hearing Officers shall each have the salary grade equivalent to the rank of
Director I under the Salary Standardization Law exclusive of allowances and other
emoluments. The Hearing Officers shall try and receive evidences on the appealed
assessment cases as may be directed by the Board.

The Central Board Assessment appeals, in the performance of its powers and duties,
may and organize staffs, offices, units, prescribe the titles, functions and duties of
their members and adopt its own rules and regulations. Unless otherwise provided
by law, the annual appropriations for the Central Board of Assessment appeals shall
be included in the annual budget of the Department of Finance in the corresponding
General Appropriations Act. (LGC, Sec. 230).

c. Effect of payment of tax

Appeal on assessments of real property shall, in no case, suspend the collection of

the corresponding realty taxes on the property involved (LGC, Sec. 231).
 (1) Payment Under Protest;
Exceptions
1. File protest with local treasurer

Assessor submits assessment roll to Local Treasurer (LT) (LGC, Sec. 248). Posting of
notice of deadline for payment at a conspicuous place at the LGU hall OR publish the
same in a newspaper of gen. circulation in the LGU once a week for 2 consecutive
weeks. Local Treasurer collects the tax starting January 1 of calendar year (LGC, Sec.
249).

Owner pays the tax. Written protest must be filed within 30 days from payment before
the LT (LGC, Sec. 252(a)).

Taxpayer pays tax under protest. Protest is then filed within 30 days from payment of
tax to LT. LT shall decide within 60 days from receipt (LGC, Sec. 252(a)).

If protest is approved: the amount shall be refunded or applied as tax credit (LGC, Sec.
252(c)).

2. Appeal to the LBAA

If Protest is denied of after the lapse of 60 days: Appeal to LBAA (Sec. 252(d), LGC).
LBAA shall decide within 120 days from date of receipt of appeal (LGC, Sec. 229(a)).

3. Appeal to the CBAA

If LBAA rejects protest, owner may appeal to CBAA within 30 days from receipt of
notice (LGC, Sec. 229(a))

4. Appeal to the Court of Tax Appeals (CTA)

If CBAA rejects protest, owner may appeal to CTA en banc within 30 days from receipt
of decision (R.A. No. 9282).

5. Appeal to the Supreme Court (SC)

Appeal to SC 15 days (RULES OF COURT, RULE 43)

b) Contesting a Valuation of Property

 (1) Appeal to the Local Board of
Assessment Appeals

Composition of the LBAA

1. The Registrar of Deeds, as Chairman;
2. The provincial or city prosecutor as member;
3. The provincial or city engineer as a member (Sec. 227, LGC)

Jurisdiction of the LBAA

LBAA has Jurisdiction to hear appeals of owners or persons having legal interest in the
property who are not satisfied with the action of the assessor on an assessment of his
property.

NOTE: In the exercise of its appellate jurisdiction, the LBAA shall have the power to
1. summon witnesses,
2. administer oaths,
3. conduct ocular inspection,
4. take depositions, and
5. issue subpoena and subpoena duces tecum.

The proceedings of the Board shall be conducted solely for the purpose of ascertaining the
facts without necessarily adhering to technical rules applicable in judicial proceedings (Sec.
229(b), LGC)

Period for the decision of an appeal

The LBAA shall decide the appeal within 120 days from the date of receipt of such appeal.
The Board, after hearing, shall render its decision based on substantial evidence or such
relevant evidence on record as a reasonable mind might accept as adequate to support the
conclusion (Sec 229(a), LGC)

(2) Appeal to the Central Board of

Assessment Appeals
Composition of the CBAA
1. A Chairman; and
2. Two (2) members (Sec. 230, LGC)

Jurisdiction of the CBAA

The Board shall have appellate jurisdiction over all assessment cases decided by the
LBAA. (Sec. 230, LGC)

NOTE: The CBAA can be appointed by the Supreme Court to act as a court-appointed
factfinding commission to assist the Court in resolving the factual issues raised in the
cases before it. In that regard, the CBAA is not acting in its appellate jurisdiction.
(Mathay v.Undersecretary of Finance, En banc Minute Resolution, Nov. 5, 1991)

The owner of the property or the person having legal interest therein or the assessor who
is not satisfied with the decision of the Board may, within 30 days after receipt of the
decision of said Board, appeal to the Central Board of Assessment Appeals, as herein
provided. The decision of the Central Board shall be final and executory. (Sec. 229(c),
LGC)

CBAA has NO authority to hear purely legal issues

Such authority is lodged with the regular courts. Thus, the issue of whether R.A. 7160
repealed P.D. 921, is an issue which does not find referral to the CBAA before resort is
made to the courts. (Ty, v. Trampe, G.R. No. 117577. December 1, 1995)

Appeal to LBAA or CBAA do NOT suspend the collection of tax

An appeal on assessments of real property shall in no case, suspend the collection of the
corresponding realty taxes the property involved as assessed. This is without prejudice to
subsequent adjustment depending upon the final outcome of the appeal. (Sec. 231)

(3) Effect of Payment of Taxes

NOTE: No court shall have the authority to enjoin or restrain the collection of any tax,
fee, or charge collected by the provincial, city or municipal treasurer. “No injunction
rule”

Q: A Co., a Philippine corporation, is the owner of machinery, equipment and fixtures

located at its plant in Muntinlupa City. The City Assessor characterized all these
properties as real properties subject to the real property tax. A Co. appealed the matter
to the Muntinlupa Board of Assessment Appeals. The Board ruled in favor of the City.
A Co. brought a petition for review before the CTA to appeal the decision of the City
Board of Assessment Appeals. Is the Petition for Review proper? Explain. (1999 BAR)

A: NO. The CTA’s devoid of jurisdiction to entertain appeals from the decision of the
City
Board of Assessment Appeals. Said decision is instead appealable to the Central Board
of Assessment Appeals, which under the LGC, has appellate jurisdiction over decisions
of LBAA. (Caltex Phils. v. CBAA, G.R. No. L50466, May 31, 1982)

Instances where CTA (En Banc) has exclusive

appellate jurisdiction over cases filed with CBAA
1. In the exercise of its appellate jurisdiction
2. Over cases involving the assessment and taxation of real property
3. Originally decided by the provincial or CBAA Period within which CBAA should
resolve a case submitted to it for decision The Central Board shall decide cases brought
on appeal within 12 months from the date of receipt thereof, which decision shall
become final and executory after the lapse if 15 days from the date of receipt thereof
by the appellant.

Exception when prior resort to administrative action is not required.

In disputes involving real property taxation, the general rule is to require the taxpayer
to first avail of administrative remedies and pay the tax under protest before allowing
any resort to a judicial action, except when the assessment itself is alleged to be illegal
or is made without legal authority. For example, prior resort to administrative action is
required when among the issues raised is an allegedly erroneous assessment, like when
the reasonableness of the amount is challenged, while direct court action is permitted
when only the legality, power, validity or authority of the assessment itself is in
question. Stated differently, the general rule of a prerequisite recourse to administrative
remedies applies when questions of fact are raised, but the exception of direct court
action is allowed when purely questions of law are involved. (Capitol Wireless, Inc. vs.
Provincial Treasurer of Batangas, G.R. No. 180110. May 30, 2016)

Effect of payment of taxes

Appeal on assessments of real property shall, in no case, suspend the collection of the
corresponding realty taxes on the property involved as assessed by the provincial or
city assessor, without prejudice to subsequent adjustment depending upon the final
outcome of the appeal. (Sec. 231, LGC)

c) Compromise of Real Property Tax

Assessment
Instances which the sanggunian may condone or reduce real property tax

The sanggunian by ordinance passed prior to the 1st day of January of any year and upon
recommendation of the local disaster coordinating council, may condone or reduce,
wholly or partially, the taxes and interest thereon for the succeeding year or years in the
city or municipality affected by the calamity in cases of: (p-cal-cro)

1. General failure of crops;

2. Substantial decrease in the price of agricultural or agri-based products;

3. Calamity in any province, city or municipality

President’s power to condone or reduce real property tax

The president may, when public interest so requires, condone or reduce the real property
tax and interest for any year in any province or city or a municipality within the Metro.
(Sec. 277, LGC)
 Taxpayer’s Remedies involving the Collection of Real Property Tax under the Local
Government Code

IV. Judicial Remedies

A. Court of Tax Appeals (CTA)
1. Exclusive Original and Appellate
Jurisdiction Over Civil Cases
2. Exclusive Original and Appellate
Jurisdiction Over Criminal Cases
B. Procedures
1. Filing of an Action for Collection of Taxes

Page
a) Internal Revenue Taxes
b) Local Taxes

2. Civil Cases
a) Who May Appeal, Mode of Appeal,

and Effect of Appeal

b) Suspension of Collection of Taxes

c) Injunction Not Available to Restrain

Collection
3. Criminal Cases
a) Institution and Prosecution of
Criminal Action
 b) Institution of Civil Action in Criminal
Action
c) Period to Appeal

4. Appeal to the CTA En Banc

5. Petition for Review on Certiorari to the
SC

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