TAXATION

GENERAL PRINCIPLES
Taxation. An incidental and destructive power of the State, unlimited in its
range, by which the sovereign raises revenue to defray government expenses
by way of apportionment to those privileged to enjoy its benefits.
Principles of a sound tax system

Fiscal adequacy. Sources should be sufficient to meet demand for

public expenditures

Theoretical justice. Tax burden should be in proportion to tax

payers ability to pay

Administrative feasibility. Tax laws should be capable of

convenient, just and effective implementation
Doctrine of Imprescriptibility of tax laws. In absence of a specific provision,
tax laws shall not prescribe. They shall only be repealed by subsequent laws
Statute of limitations. Assessment of tax liability prescribes 3 years from the
date of filing of the return or from expiry of period prescribed to file such.
Doctrine of equitable recoupment. Refers to a case where taxpayer has
claim for refund but fails to file claim due to prescription. Taxpayer is allowed
to credit refund to existing tax liability. Not allowed in the Philippines due to
lifeblood theory.
Doctrine of set-off. Applies when government and taxpayer are mutual
creditors and debtors of one another. Not allowed in the Philippines due to
the different nature of taxes and debts, and public policy is better served.
Direct tax. Demanded from person intended to pay the tax.
Indirect tax. Demanded from one person with the expectation that he can
shift the burden to someone else.
Final withholding tax. Constitutes final settlement of tax liability.
Expanded withholding tax. Constitutes advance payment of tax liability.
Nature of taxation

Necessary attribute of sovereignty

Legislative in character. Power to:

o
Determine

Nature

Object

Extent

Coverage

Apportionment

Situs

Method
o
Grant exemptions
o
Provide remedies

Cannot be delegated. Except:

o
To local legislative bodies
o
To the President
o
When only in respect to administration or
implementation

Subject to constitutional and inherent limitations

Stages of taxation (LAP)
1. Levy. Enactment of law by Congress
2. Assessment and collection. Implementation of the law
3. Payment. Compliance by the taxpayer
THEORIES BEHIND TAXATION
Lifeblood theory. The existence of the government is a necessity; it cannot
exist without a means to pay its expenses; and for those means, the
government has the right to compel those under its jurisdiction to contribute
in the form of taxes.
Benefits-protection theory. Every person who is able must contribute his
share to the running of the government. For its part, the government is also
expected to respond in the form of tangible and intangible benefits.
Expresses the symbiotic relationship between the taxpayer and government.
Characteristics of taxes (PIPFALL)

Payable in money

Imposed by the State with the principle of territoriality

Personal to the taxpayer

Forced charge

Assessed in accordance with the rule of apportionment

Levied by legislature

Levied for public purpose

Purpose of taxation (R3PEP)

Revenue

Regulation

Reduction of social inequality

Promotion of general welfare

Encourage economic growth through incentives and exemptions

Protectionism
General rule: The Constitution does not prohibit double taxation
Except: When it amounts to direct duplicate taxation; when both taxes are
imposed: (JAPPSC)

Within the same jurisdiction

By the same authority

For the same purposes

During the same period

On the same subject matter

Of the same kind or character

Usual methods to avoiding double taxation:

Reciprocal exemption by law or treaty

Allowing tax credit for foreign taxes

Allowing deduction for foreign taxes

Reduction of local tax rate

Tax pyramiding. Imposing a tax on a tax.
Tax exemptions. A grant of immunity to particular persons from a tax upon
property or excise, which they are generally obliged to pay. They are
generally construed against the claimant since they are, in essence, a
derogation of sovereignty.
Tax laws. Statutes levying taxes are construed strictly against the
government, because burdens are not imposed, nor presumed to be
imposed beyond what the statutes clearly import. Construction of a statute
by those administering it is not binding is not binding on their successors.
Tax avoidance. Tax saving device within the means sanctioned by law, used
by the taxpayer in good faith and at arms length.
Tax evasion. Scheme used outside of those lawful means, which subjects the
taxpayer to civil or criminal liability. Elements: (UBI)

Unlawful act or omission

Bad faith

Intent to pay less than what he legally owes

LIMITATIONS
Inherent. Those which exist despite the absence of an express provision of
the Constitution. (PITED)

Must be for a public purpose at inception

International comity

Territorial jurisdiction

Exemption of government entities (except GOCC)

Cannot be delegated. Except:

o
To local legislative bodies
o
To the President
o
When only in respect to implementation
Constitutional

Due process clause

o
Substantive due process. Statute free from ambiguity
o
Procedural due process. Notice and hearing

Equal protection clause. Subject to reasonable classification:

o
Substantial distinction
o
Germane to the purpose of the law
o
Not limited to existing conditions
o
Apply equally to all members of such class

Uniform and equitable. All taxable articles of the same class shall
be taxed at the same rate

Non-impairment of contractual obligations. Levying statues that

alter relative rights of the parties with each other are prohibited.
Unilateral tax exemptions may be revoked at will, but when
exemption is founded on valuable consideration, revocation
constitutes impairment.

Freedom of religion

Freedom of the press

Properties for religious, charitable and educational purposes are

exempt. Real property tax only. The test is usage of the property,
not ownership. Exemption extends to incidental and necessary
real properties.
Revenue used actually, directly and exclusively for religious,
charitable, and educational purposes are exempt. Exemption not
automatic, must show:
o
Certification of interest income from passive
investments, which are not subject to final withholding
tax
o
Certification of exclusive actual, direct and exclusive
utilization
o
Board resolution for the funded project
Revenue bills must originate from the House of Representatives,
but Senate may amend
Statute granting tax exemption requires concurrence of majority
of all members of Congress
Every bill must embrace only one subject

INCOME AND WITHHOLDING TAX

Income tax. Direct tax on all income, actual or presumed, that the taxpayer
received during the taxable year
Taxable income. In order to be taxable, following requisites:

There is income, gain or profit

It is realized during the taxable year

It is not exempt from income tax

Income tax systems
Global. Total allowable deductions and exemptions are deducted from the
gross income to arrive at the net taxable income. All items are reported in
one income tax return filed at least annually.
Schedular. Different types of income are subject to different tax rates.
Separate tax returns are filed by the taxpayer depending of the type of
income received.
Semi-schedular/global. Compensation and passive income not subject to
final withholding tax are added together to arrive at gross income. The
allowable deductions and exemptions are then deducted to arrive at taxable
income. However, passive income subject to final withholding tax and capital
gains from the sale of capital assets are subject to different tax rates and
returns.
Criteria for imposing income tax
Citizenship principle. Resident citizen is subject to income tax from sources
within and without the Philippines, while non-resident citizen only from
sources within. Non-resident include:

Physically abroad with the intention to reside therein

Immigrants on a permanent basis from the time they depart from

the Philippines

Employees of a foreign entity on a permanent basis from the time

they depart from the Philippines

OFWs who spend at least 183 days abroad

Residence principle. Resident alien is subject to income tax from sources
within the Philippines.
Source principle. Non-resident alien is subject to income tax from sources
within the Philippines. Income is deemed to be sourced within when it is
earned from services rendered in the Philippines.

Non-resident alien doing business in the Philippines. One who

spends more than 180 days in the country. Taxed in the same
manner as a resident citizen on sources within. Thus, he is allowed
deductions and personal exemptions, the latter being subject to
the rule on reciprocity.
Employees entitled to preferential tax rates

Regional headquarters of multinational corporations

Offshore banking units

Foreign service contractors engaged in petroleum operations

When is income taxable

There is income

It is realized during the taxable year

It is not exempt from income tax

KINDS OF TAXPAYERS
Citizens. See criteria for imposing income tax
Aliens. See criteria for imposing income tax
Estates and trusts. Taxed in the same manner as persons, except that the
income distributed to the heirs or beneficiaries shall be considered an
allowable deduction
Co-ownerships. Individual co-owners report their share of the income from
the property owned in common.
In the event of co-ownership resulting from death, the co-ownership of
inherited properties is automatically converted into an unregistered
partnership from the moment that the said properties are used as a common
fund to derive profit. However, if the transaction isolated transactions,
where there is no habituality, there is no basis to support the formation of an
unregistered partnership.
Partnerships. Treated as a corporation subject to income tax
General professional partnerships. Not considered a separate taxable entity.
Partners are liable for individual income tax
Domestic corporations
Joint ventures. Elements:

Contribute either property or industry

Profits must be shared

Joint proprietary interest and mutual control over the subject

matter

Single business transaction

Note: Joint ventures for the purpose undertaking a construction or
energy-related project are not taxable entities.
Resident foreign corporations. However, Philippine branch of a foreign
corporation is merely an extension of the head office. Income from branch
sourced within is subject to income tax
GROSS INCOME
Gross income. All income from whatever source derived, including but not
limited to: (CBP-CRAP-DRIPP)

Compensation income

Business income

Professional income

Capital gains

Rent

Annuities

Prizes and winnings

Dividends

Royalties

Interest

Pensions

Partners income in GPP

Net income. Also referred to as taxable income. Gross income less
deductions and exemptions.
Income vs. capital. Income is any wealth which flows into the taxpayer other
than the return of capital, while capital constitutes the investment which is
the source of the income.

Source rules:

Interest: residence of the debtor

Dividends: residence of the corporation paying

Services: place of performance. If there is no accurate segregation

for compensation performed, the amount shall be determined on
apportionment of time basis
International shipping lines and air carriers. Gross Philippine billings
means gross revenue from persons, cargo or mail originating from the
Philippines up to the final destination, regardless of the place of sale of
passage or freight.
In the case of transhipment, only the portion of the cost from the
Philippines to the point of transhipment. Sale of tickets in the
Philippines by an off-line carrier (those without any flight operations in
the country) is treated as income from whatever source.

Rentals and royalties: location of the property or interest therein

Sale of real property: location of real property

Sale of personal property

o
Produced within, sold without and vice versa: partly
within, partly without
o
Purchase within, sold without and vice versa: country
where sold
o
Shares of stock of a domestic corporation: within
Tests in determining income

Realization test. No income until there is a separation from

capital of something of exchangeable value. The transmutation
results in the receipt of income.

Claim of right doctrine. A taxable gain is conditioned on the

presence of a claim of right to such gain and the absence of an
unconditional obligation to return such.

Income from whatever source. All income not expressly excluded

or exempted from taxable income, irrespective of voluntariness
and its source, is taxable.

Economic benefit test. Any economic benefit that increases net

worth, whatever the mode, is taxable.
COMPENSATION INCOME
All remuneration for services performed under an employer-employee
relationship, unless expressly excluded by the law.
Elements of an employer-employee relationship:

Power to select

Payment of wages

Power to dismiss

Power to control
Items not considered compensation income:

Agricultural labor paid entirely in the farms produce

Domestic service in a private home

Casual labor not in the course of employers trade

Services for a foreign government or international organization

Fringe benefits. Any benefit furnished by an employer to an employee.

Managerial and supervisory employees: fringe benefit tax is

withheld by employer, who is then liable to remit it and deduct
such as a business expense.

Rank-and-file: fringe benefits are treated as part of compensation

BUSINESS INCOME
Continuity of commercial dealings incidental to the pursuit of commercial
gain. In the case of manufacturing, merchandising and mining, it means the
total sales, less cost of goods sold, plus income from outside investments.
Rental income is business income.
Exchange of real property classified as ordinary assets is business income.
PROFESSIONAL INCOME
Fees received by a professional in the practice of his profession, provided
there is no employer-employee relationship between him and his clients.

CAPITAL GAINS
General types of capital assets:

Shares of stock in a domestic corporation

o
If transferor is a dealer, shares are ordinary assets,
subject to income tax
o
If transferor is not a dealer, shares are capital assets:

If shares are listed and traded in the local

stock exchange, exempt from income tax.
Subject to stock transaction tax.

If shares are not listed, or listed but not

traded, subject to capital gains tax.
Note: Intracorporate dividend. Stock is transferred from one
corporation to another. Transaction not taxable.

Real property. Gain is determined by either selling price or zonal

value of the property, whichever is higher
o
If transferor is a dealer, property is ordinary asset,
subject to income tax.
o
If transferor is not a dealer:

If used in trade or business, property is

ordinary asset, subject to income tax.

If not used in trade or business, property is

capital asset, subject to capital gains tax.

Other types of assets. Holding period rules: (applicable only to

individual tax payers)
o
Long-term. Held for more than 12 months. Only 50% of
long-term capital assets are subject to income tax.
o
Short-term. Held for 12 months or less. 100% of shortterm capital assets are subject to income tax.
INTEREST INCOME
Interests received are included in gross income, unless exempt from tax or
subject to final withholding tax

Interest income from Philippine currency deposits. Subject to local

income tax

Interest income on foreign currency deposits. Bank outside

Philippines, deposit made by nonresident, alien, or foreign
corporation, not subject to local income tax. Otherwise, subject.

Interest income from traditional loans by local banks. Subject to

income tax. Exempt from withholding tax.

Discounts are treated in the same manner as interest income

Interest income from long-term investments of individuals are

exempt. Long-term investments are those for 5 years and over.
Pre-terminate, final income tax shall be imposed.

Interest income from long-term investments of corporations are

taxable.

Interest on foreign loans extended by nonresident foreign

corporations is subject to income tax.
DIVIDEND INCOME
Corporate profit set aside, declared and ordered by the directors to be paid
to stockholders on demand or at a fixed time. Until the dividend is declared,
the profits belong to the corporation, not to the stockholders.
Cash dividend. Disbursement to the stockholder of the corporations
accumulated earnings.
Stock dividend. Payable in reserve or additional stock of the corporation.
Involves no disbursement, since stockholders do not receive an actual
dividend, but only a certificate of stock.
General rule: Stock dividends are exempt from income tax. They are
considered unrealized gain, and as such cannot be considered income, but
rather capital.
Exception: If the dividend gives the stockholder an interest different from
what his former holdings represented, i.e. increase in interest.
ROYALTY INCOME
Where a person pays royalty to another for the use of its intellectual
property rights, considered passive income subject to final withholding tax

OTHER INCOME FROM ANY SOURCE WHATSOEVER

Discloses the legislative intent to include all income not expressly exempted
by law, irrespective of the its voluntariness or the source.
PRIZES AND AWARDS
Prizes and awards received within the Philippines are subject to final
withholding tax. Except if 10,000 or less.
Prizes and awards for the recognition of religious, charitable, scientific,
education, artistic, literary or civic achievement is excluded if the recipient:

Was selected without any action on his part

Is not required to render substantial future service as a condition

Prizes and awards granted to athletes in sports competitions, whether held
within or without the Philippines, are exempt if sanctioned by their national
sports associations
Prizes and awards received by professional athletes are no longer exempt as
they were earned in the exercise of their profession or occupation
EXCLUSIONS FROM GROSS INCOME (MAGPAIR)
Refer to income not included because:

Represent a return of capital

Subject to another kind of internal revenue tax

Income that are expressly exempt from income tax by:

o
Constitution
o
Statute
o
Treaty
Proceeds of life insurance. Because it is a contract of indemnity; it is
compensatory in nature
Amounts received under life insurance, endowment or annuity. Only the
excess of the aggregate premiums and interest payments shall be subject to
income tax
Property acquired by gift, bequest, devise or decent. Because they are
subject to another kind of internal revenue tax
Amounts received through accident and health insurance. Compensatory
Income exempt under treaty
Retirement, benefits, pensions and gratuities. Retirement benefits received
in accordance with a reasonable private benefit plan is exempt if:

Retiree is not less than 50 years old

In the service of the same employer for at least 10 years

Benefit availed of only once

Separation pay for causes beyond the control of the employee. Exempt
Terminal leave pay. Commutation of leave credits. Exempt
Retirement benefits from foreign government agencies. Exempt
Miscellaneous items

Income derived from Philippine investments by foreign

governments, and financial institutions controlled and/or
established by such

Income derived by the government from a public utility

13th month pay and other gross benefits are exempt up to 30,000

GSIS, SSS, Pag-ibig and PhilHealth contributions

RETURN OF CAPITAL
Sale of inventory of goods. Cost of goods manufactured (manufacturers) and
cost of goods sold (dealers) are deductable from gross sales
Sale of stock in trade. Real estate and security dealers are required to deduct
total cost specifically identifiable to the real property or stocks sold
Sale of services. Since no inventory or stocks in trade, entire gross receipts
are treated as income

DEDUCTIONS
Exclusions vs. deductions. Exclusions refer to a flow of wealth not treated as
part of gross income, while deductions are amounts which the law allows to
be deducted to arrive at net income. Exclusions are amounts received, while
deductions are amounts paid. Both are construed strictly against the
claimant.
Types of deduction

Itemized deductions

Optional standard deductions

Special deductions
BUSINESS EXPENSES
Conditions

Ordinary and necessary

o
Ordinary. Normal in relation to the type of business
o
Necessary. Appropriate or helpful for the development
of the business
o
Expenses in connection with the creation of goodwill
are considered capital expenditures

Incurred during the taxable year

o
Satisfaction of the all events test:

Fact of liability has been determined by

events which have already occurred

Amount of liability is determined with

reasonable accuracy

Incurred in the conduct of trade

Supported by adequate receipts

Not contrary to law, public policy or morals

Tax required to be withheld is remitted

INTEREST
Amount paid by the debtor for the use of money. Interest expense incurred
in connection with the taxpayers trade shall be allowable deduction
Interest expense on capital expenditure may, at the taxpayers option, be:

Treated as deduction in full in the year incurred; or

Treated as a capital expenditure, in which case the taxpayer may

claim the periodic amortization as the deduction
Conditions

Valid and existing indebtedness

Indebtedness is that of the taxpayer

Interest is legally due and stipulated

Indebtedness is connected with the taxpayers business

The arrangement must not be between related taxpayers

Deduction of interest expense must not be expressly disallowed

Amount of interest deducted must not exceed the limits set forth
by law (Interest arbitrage rule. See below)
Amt loaned * interest rate
Interest income * 33%

=
=
=

interest expense
- interest arbitrage
deductable interest expense

TAXES
General rule: All national or local taxes
Except:

Philippines income tax

Foreign income tax

Estate and donors tax

Special assessments on real property

Electric energy consumption tax

Conditions

Payment for taxes

Taxes are imposed by law

Taxes are not specifically excluded by law

Incurred during the taxable year

Incurred in the conduct of trade

LOSSES
Classes

Incurred in trade
Incurred in any transaction entered into for profit, although not
connected with trade
Casualty losses, although not connected with trade. Destruction
of property resulting from an identifiable event of sudden,
unexpected or unusual nature

Conditions

Loss must be that of the taxpayer

Incurred within the taxable year

Incurred in the conduct of trade

Evidenced by a closed transaction

Not claimed as a deduction for estate tax

Not compensated by insurance

In case of casualty loss, reported within 45 days

BAD DEBT
Debt resulting from the worthlessness of amount due to the taxpayer. In
order to be considered a bad debt, taxpayer should show that during the
taxable year of the deduction, a situation developed which it became evident
that there remained no practical, but only vaguely theoretical, prospect that
the debt would ever be paid
Tax benefit rule. Taxpayer is obliged to declare as taxable income the
recovery of bad debts in the year collected to the extent of the tax benefit
enjoyed by him when the bad debts were claimed as deduction
DEPRECIATION
Gradual diminution in the useful value of tangible property resulting from
wear and tear and normal obsolescence, and the amortization of value of
intangible assets, the use of which is limited in duration. It cannot go beyond
the cost of acquisition and cannot be based on appraisal value
Conditions

Allowance must be reasonable. Must be computed through:

o
Straight-line method
o
Declining balance method
o
Sum-of-years-digit method
o
Other methods prescribed by the Secretary

Property must be used in trade

Incurred within the taxable year

CHARITABLE CONTRIBUTIONS
Conditions

Made to the Philippine government or accredited domestic

corporation or association specified by law

Incurred within the taxable year

Not exceed 10% (individual) or 5% (corporation) of taxable

income before charitable contributions

Evidenced by receipts

Based on acquisition cost

OPTIONAL STANDARD DEDUCTIONS
May be claimed in lieu of itemized deductions
Conditions

Claimant must be a citizen or resident alien

Intention to avail must be expressed in the tax return

Such availment is irrevocable for the taxable year

Limited to 40% of gross income

Proof of expenses not required

NON-DEDUCTABLE EXPENSES

Personal expenses

Amount paid for permanent improvements

Amount paid for restoration of property

Premiums paid on life insurance

Losses for exchanges of property between related parties

PERSONAL EXEMPTIONS
Basic personal exemption. 50,000
Additional exemption. Maximum of 4 dependent children. 25,000 each.

Not more than 21 years old or any age if incapable of self-support

Unmarried

Not gainfully employed

Living with the taxpayer

Deductions vs. personal exemptions. Deductions are expenses incurred in
the conduct of trade, while personal exemptions are arbitrary amounts for
personal expenses. Deductions can be claimed by all taxpayers, while
personal exemptions can only be claimed by individuals
Status-at-the-end-of-the-year rule. Whatever the taxpayers status at the
end of the calendar year shall be used for purposes of determining his
personal and additional exemptions. Change of status generally benefits, but
does not prejudice the taxpayer.
TAX BASES AND RATES
Tax bases can be grouped into:

Compensation, business, professional income, capital gains not

subject to final tax, passive income not subject to final tax, and
other income

Capital gains subject to final tax

Passive income subject to final tax

INDIVIDUALS
Tax bracket
Not over 10,000
10,001 30,000
30,001 70,000
70,001 140,000
140,001 250,000
250,001 500,000
Over 500,000

Tax rate
5%
500+ 10% excess 10,000
2,500 + 15% excess 30,000
8,500 + 20% excess 70,000
22,500 + 25% excess 140,000
50,000 + 30% excess 250,000
125,000 + 32% excess 500,000

DOMESTIC CORPORATIONS
General rule: 30% of taxable income (normal corporate income tax) or 2% of
gross income (MCIT, imposable on the 4th year of operation)
Except: Non-profit hospital and educational institutions, 10% of taxable
income. Provided that gross income from unrelated trade does not exceed
50% of total gross income
Purpose of the MCIT

Prevent over-claiming of deductions

Ensure minimum contribution to support the government

Grounds for valid suspension of MCIT

Force majeure

Prolonged labor dispute

RESIDENT FOREIGN CORPORATIONS
30% of taxable income on sources within
Preferential tax rate for resident foreign corporations

International carriers. 2.5% of GPB

Offshore banking units. 10% of income derived from transactions

with Philippine residents

Regional headquarters. 10% of taxable income sourced within

Preferential tax rate for non-resident foreign corporations

Cinematographic film owner. 25% of gross income sourced within

Lessor of vessels chartered by Filipinos. 4.5% of gross rentals

Lessor of aircraft, machines or other equipment. 7.5% of gross

rentals

Interest income on foreign loans. 20% final withholding tax

Dividends received from domestic corporations. 15% final

withholding tax

Net capital gains realized by non-resident foreign corporation

from disposition of stock in a domestic corporation. Final
withholding tax of:
o
5% of net capital gains, if not over 100,000
o
10% of net capital gains, if over 100,000

GAINS FROM SALE OF PROPERTY

Excess of the amount realized over the basis or adjusted basis.
Amount realized shall be the sum of money received plus the fair market
value (other than money) received
Basis shall be:

Acquisition cost

Fair market value as of date of acquisition

If acquired by gift, the basis shall be the same as the last

preceding owner by whom it was not acquired by gift. For loss, if
basis is greater than fair market value, latter shall prevail

Acquired for less than adequate consideration, acquisition cost

paid by the transferee
Adjusted basis shall be the original cost plus amounts spent for improvement
Transfer for inadequate consideration. Is deemed as a gift. Except: When
sold for a bona fide business purpose. What is important is the showing of
donative intent on the part of the seller
Nature of property

If ordinary asset, use either individual or corporate tax rate

If capital asset, 6% of actual consideration or fair market value,

whichever is higher
ORDINARY AND CAPITAL ASSETS
Ordinary assets. Include:

Stock in trade, included in inventory

Property held by taxpayer for sale

Property used in trade, subject to depreciation

Real property used in trade

Capital assets. All else
Loss limitation rule. A capital loss can only be deducted from capital gains
but never from an ordinary gain.
TAX-FREE EXCHANGES
No gain or loss in the following circumstances

Merger or consolidation
o
Corp A, property > Corp B, stock
o
Shareholder A, stock > Corp B, stock
o
Security holder A, securities > Corp B, stock or
securities

Property transferred to corporation in exchange for stock, which

as a result of such exchange maximum of 5 persons gain control
of the corporation
Sale of principal residence
Dwelling house, including land where situated, where husband and wife or
an unmarried individual, and members of his family reside. Character of
permanency must be present; individual intends to return to the dwelling,
whenever he is absent
Where ownership of land and house belongs to a different person, only
house shall be treated as principal residence
Where owned by several co-owners and actually used as principal residence
by one or more, property shall be treated as principal residence of coowner/s actually using the same to the extent of their share
When exempt from capital gains tax:

Proceeds of the sale of principal residence are fully utilized in the

acquisition of new principal residence within 18 months

Commissioner is duly notified within 30 days of taxpayers

intention to avail of the exemption

Tax exemption can be availed only once every 10 years

ACCOUNTING METHODS AND PERIODS

There is no uniform method of accounting prescribed for all taxpayers.
Taxpayer may adopt such methods as are in his judgment best suited to his
purpose. If the method that clearly reflects his income, it is to be followed
with respect. In case of conflict, tax code prevails over generally accepted
accounting principles

Cash receipts and disbursements method. Income is realized

upon actual or constructive receipt, and expenses are deductible
only upon actual payment thereof, regardless of the period in
which service is rendered or expense is incurred

Accrual method. Income is accounted for in the period it is

earned, regardless if received or not; expenses are accounted for
in the period they are incurred, regardless if paid or not
o
Income is recognized when the requirements for the
realization principle are met:

Earning process is complete

Exchange has taken place

o
All events test is followed for expenses

Fact of liability has been determined by

events which have already occurred

Amount of liability is determined with

reasonable accuracy

Installment method. Appropriate when collections of income

extend over long periods of time and there is a strong possibility
that full collection may not be made. As customers pay
installments, seller recognizes profit in proportion to the
collection during the year

Percentage of completion method. Applicable in the case of

building , installation or construction contract covering a period in
excess of 1 year. Gross income reported upon basis of percentage
of completion of contract. Basis:
o
Cost incurred compared with estimated total
o
Work performed compared with estimated total

Crop year basis

General rule: All income received during the year shall be included
computation of gross income
Income which is credited or set aside for the taxpayer and may be drawn at
any time is deemed received during the year it was credited
Except: Under permitted accounting methods, such amounts are to be
properly accounted for during a different period
General rule: Deductions must be taken for the year in which they were paid
or incurred
Except: Under permitted accounting methods, such amounts are to be
properly accounted for during a different period
FILING OF RETURNS
Exemption from income tax does not mean an exemption from filing ITR
Individuals deriving purely compensation income. Exempt from filing ITR if,
substituted filing of tax returns are filed by the employer:

Employee receives purely compensation income

From only one employer

Tax due is equal to tax withheld

Individual deriving purely trade, business or professional income or mixed
income. Must file quarterly ITR and annual ITR
Domestic corporation and resident foreign corporation. Must file quarterly
corporate ITR and annual corporate ITR
Computation for quarterly and annual ITR made on a cumulative basis

WITHHOLDING TAXES
Method of collecting income tax in advance of the income of the recipient.
The amount withheld constitutes a full and final payment of the income tax
due from the recipient. The liability for the payment of tax withheld lies
solely on the withholding agent.
Since it is considered as advance payment, it follows that all persons exempt
from income tax are also exempt from withholding tax
Creditable withholding tax. Taxes withheld are intended to equal or at least
approximated the tax due. Recipient is still required to file ITR, report the
income, and pay the difference between tax withheld and tax due.
Withholding agent. In application of the territoriality principle, must be
resident of the Philippines

In general, any juridical person

An individual, payments made in connection with trade

All government offices and GOCCs

Bases for withholding tax

Based on gross income, for expanded withholding tax

Based on gross selling price or fair market value, whichever is

higher, for creditable withholding tax

TRANSFER TAXES
Imposed upon the privilege granted by the State to the taxpayer so that hey
may transfer his property to another. As popularly understood in taxation,
refers to estate and donors tax.
ESTATE TAX. Graduated tax imposed on the privilege of the decedent to
transmit his property at death. Based on the entire net estate, regardless of
the number of heirs or their relation to the decedent
In the absence of an express provision to the contrary, a transfer is presumed
revoked during the life of the donor. Hence subject to estate tax
The law in force at the time of death applies.
Notice of death should be given to the BIR within 2 months from death
Estate tax return must be filed within 6 months from death
Approval of probate court is not required to collect estate tax. There is
nothing in the NIRC that requires such. Lifeblood
Justifications:

Benefit-received theory

Privilege theory. Succession to the property is not a fundamental

right. Hence legislature can burden such with a tax.

Ability to pay theory. Those with more properties to transfer

should pay more taxes.
Gross estate. All properties and interests of the decedent at the time of his
death. Gross estate of a citizen and resident alien consist of all property
within and without the Philippines. For nonresident aliens, it consists of
properties within the Philippines (intangible property is subject to the rule of
reciprocity)
Valuation of real property. Fair market value as determined by the
Commissioner or provincial or city assessors, whichever is higher.
Mobilia sequuntur personam. Intangible property generally follows the
residence or domicile of the owner.
Residence refers to the permanent home. The place which whenever absent,
one intends to return. It depends on facts and circumstances that disclose
the intent. It is not necessarily the actual place of residence.
Instances when it does not apply:

When inconsistent with the provisions of a statute

Justice demands that it should not be applied

Intangible personal properties within the Philippines:

Franchise exercised within

Shares of a domestic corporation

Shares of a foreign corporation 85% business within

Shares of a foreign corporation with business situs within

Shares of a business established within

Transfers inter vivos which still for part of the gross estate:

Transfers in contemplation of death. Motive for the transfer is the

thought of death, regardless if imminent. Exception: transfers
made in a bona fide sale for full and adequate consideration

Revocable transfers. Transferor reserves his right to alter, amend

or revoke the transfer.

Property passing under general power of appointment. See power

of appointment.

Transfers for insufficient consideration. Not a bona fide sale for a

full and adequate consideration. Difference between
consideration and fair market value forms part
Power of appointment. Right to designate a person who shall possess the
property from a prior decedent:

General. Any person he pleases. Thus donee has full dominion

over the property, as though it was his own. Donee subject to
estate tax

Special. Only to a restricted class of persons other than donee.

Thus donee holds the property in the concept of a trustee. Donee
not subject to estate tax

Exclusions from gross estate:

Proceeds of irrevocable life insurance payable to a beneficiary

other than the estate.

GSIS, SSS

Proceeds of GSIS life insurance

Transfers made in a bona fide sale for full and adequate

consideration

Retirement benefits from BIR-approved private pension plans

Amount from US Veterans Administration

Transfers expressly declares as exempt:

o
Merger of the usufruct in the owner of the naked title
o
Transmission of the inheritance by the fiduciary heir to
the fideicommissary
o
Transmission of the first heir in favor of another, in
accordance to the desires of the decedent
o
Transfers to charitable institutions, no part of the net
income inures to the benefit of an individual. Provided,
not more than 30% is used for administrative purposes
o
Separate property of surviving spouse
Deductions from gross estate:

Funeral expenses. Not to include expenses made after burial or

paid for by other persons. Whichever is lower:
o
Actual amount
o
5% gross estate, not exceeding 200,000

Medical expenses. Requirements:

o
Incurred 1 year prior to death
o
Substantiated by receipts
o
Not to exceed 500,000

Judicial expenses for testate or intestate proceedings

Claims against the estate. Obligations of the decedent. Requisites:

o
Contracted in good faith
o
Existing against the estate
o
Enforced by claimants
o
Reasonably certain in amount
o
Notarized instrument
o
Loan contracted within 3 years before death,
administrator shall submit a statement showing the
disposition of the proceeds of the loan

Claims of decedent against insolvent persons. Requirements:

o
Amount of claim initially included as part of the estate
o
Incapacity of the debtor is proven, not merely alleged

Unpaid mortgage. Decedents interest in the property must be

included in the gross estate

Losses. Requisites:
o
Not compensated for by insurance
o
Not claimed as deductions in ITR
o
Incurred not later than 6 months from death

Unpaid taxes:
o
Income tax on income received before death
o
Real property tax accrued before death

Family home. Dwelling house, including land, where head of the

family and its members actually reside. Requisites:
o
Actual residence, as certified by Barangay Captain
o
Initially included in the gross estate
o
Amount equivalent to fair market value, not exceeding
1,000,000

Standard deduction. 1,000,000, without need of substantiation

Vanishing deduction. Operates to ease the harshness of successive taxation
on the same property within a 5 years occasioned by the untimely death of
the transferee after the decedent. Requisities:

Death within 5 years from death of prior decedent or gift

Identity of property

Inclusion of property as part of gross estate or taxable gift of the

prior decedent

Previous taxation of the property

No previous vanishing deduction on the property

DONORS TAX. Graduated tax imposed on the privilege of the donor to

transfer property during his lifetime without any consideration.
Purpose. To complement estate tax by preventing tax-free depletion of the
estate during the lifetime of the decedent
Requisites for taxable gift:

Capacity of the donor to donate the property

Donative intent. Except: transfers of ordinary assets for less than

a full and adequate consideration. Reason: transfer of capital
assets is subject to capital gains tax on presumed gain

Acceptance by the donee

Delivery of the gift

Tax rates:

Relatives. Schedular rate. 100,000 exempt

o
Brother and sister, whether full or half blood
o
Ancestor
o
Descendant
o
Relative by consanguinity in the collateral line within
the 4th degree (first cousin)
o
Spouse

Strangers. 30%
o
Persons who are not relatives
Gross gift. All property given to the donee by way of gift. Condonation of a
debt constitutes donation. Donations of common property, considered
separate donors to the extent of interest in such. Consequently, each files
separate donors tax return.
Exemptions from gross gift: Even if exempted, the donor must still file a tax
return for the transfers

Gifts on account of marriage. 10,000, each parent. Requisites:

o
Given on account of marriage
o
Before celebration or 1 year after
o
Donor is the parent
o
Donee is legitimate, recognized natural or legally
adopted child

Gifts in favor of the national government

Gifts in favor of an educational or charitable institution. Provided,

not more than 30% is used for administrative purposes
Splitting of donations. Dividing donations into different taxable periods so as
to take advantage of tax exemptions. Tax base is dependent on the
accumulated value of the donation and the number of donors, not donees.
BUSINESS TAXES
VALUE-ADDED TAX. Tax imposed on the gross selling price of goods,
properties or services or the lease of goods and properties in the course of
business. Indirect tax shifted to the purchaser or lessee
Output tax refers to the VAT on the sale or lease
Input tax refers to the VAT on the purchase or lease
VAT payable refers to the difference between output and input tax
Characteristics of VAT:

Tax on value added of a tax payer

Collected through tax credit method

Transparent form of sales tax

Broad-based tax on the consumption of goods, properties or

services within the Philippines

Indirect tax

The Philippines has adopted the tax-inclusive method. Unless

otherwise indicated, VAT is presumed included in the purchase
price.

There is no cascading in the VAT system. No tax pyramiding.

Instances where VAT is imposed without an actual sale or lease:

Importation of goods. VAT imposed on the importer-buyer

Issuance of VAT receipt for exempt sales. These goods should

normally be evidenced by non-VAT receipts. However, issuance of
VAT receipt makes the seller liable for VAT on the otherwise
exempt transaction.

Deemed sale. Situation where the seller is effectively the final

consumer. Reason: recapture the VAT that was claimed as input
tax.

Consumption, not in the course of business, of goods

originally intended for sale
o
Transfer to shareholders as dividends or creditors as
payment of debt
o
Consignment of goods, if actual sale is not made within
60 days
o
Cessation of business with respect to inventory of
taxable goods
Cross border doctrine. Otherwise known as the destination principle.
Destination of goods determines the transactions taxability. Export sales are
zero-rated, while imports are subject to VAT.
In the case of services, follow the situs-of-service principle. Place of
consumption is the place of performance.
Zero-rated transactions. Taxable transactions that do not result in any
output tax. However, the input tax may be claimed as a tax credit or refund.
Examples are:

Export sales by VAT-registered person

Foreign currency denominated sale

Sales to persons exempt under special law. See constructive zerorated

Types of zero-rated transactions:

Actual. Taxpayer sells to foreign buyers

Constructive. Taxpayer sells to PEZA or foreign territories which

are actually within the Philippines
Exempt transactions. Not subject to output tax nor allowed tax credit or
refund on input tax.
Taxable persons: Failure to register does not exculpate him from liability.

Undertakes taxable transactions in goods, properties or services

for consumption in the Philippines

Such transactions are entered into in the course of business

Amount of gross sales are over the threshold. Less than the
threshold option to use percentage tax of 3%

Importer of taxable goods

Elements to a taxable transaction:
Sale of goods:

Actual or deemed sale

In the course of business

Goods are for consumption in the Philippines

Not exempt by law

Sale of real property:

Seller executes a deed of conveyance

Property is within the Philippines

Seller is engaged in the real estate business

Real property is held primarily for sale or lease

Not exempt by law

Sale of services:

Performed in the course of business in the Philippines

For a valuable consideration received

Not exempt by law

Transitional input tax. Person may claim transitional input tax on his
beginning inventories:

Becomes liable for VAT for the first time. Ex: new legislation or
exceeding threshold

Registers as VAT-registered

Already VAT-registered, deals with VAT exempt goods or

properties which have become taxable under new legislation

TAX REMEDIES
Assess. To impose a tax. Determine the correct amount to be paid.
Legal and factual bases of the asssessment must be stated. Otherwise
assessment is void.
ASSESSMENT PROCESS
Starts with the self-assessment of the taxpayer via filing of his tax return and
payment of the entire tax due as shown thereon
Amended return. Taxpayer may amend return within 3 years from filing.
Except: when notice for audit or investigation has been served.
If the amendment is substantial, prescriptive period for assessment shall
start to run from the date of filing of amended return.
Best evidence obtainable rule. When taxpayer fails to file tax return within
the time fixed by law or when there is reason to believe that such report is
false, CIR may assess proper tax based on the best evidence obtainable.
Prima facie correct. Reason: public policy, regularity and lifeblood.
Burden of proof on the taxpayer contesting the assessment. Prove not only
that the CIR is wrong, but the taxpayer is right.
The government is never estopped by the errors of its agents from collecting
the correct amount of taxes
Net worth method. Assessment is based on the increase in taxpayers net
worth plus a reasonable allowance for living expenses and plus or minus
adjustments for other items within period.
Taxpayer files self-assessed tax return

BIR issues PAN

Taxpayer reply. 15
days from receipt PAN

BIR issues FAN and letter of demand

Taxpayer files protest. 30 days from receipt

Nature of protest:
Motion for
Reconsideration

Nature of protest:
Motion for
Reinvestigation

Submit additional
documents. 60
days from filing

Protest denied. Appeal CIR. 30 days from receipt

Final decision or 180 days

inaction. Appeal CTA
division. 30 days from
receipt or expiry of 180day period. Choose only
one (RCBC v. CIR [2007])

Final decision.
Appeal Secretary
of Finance. Does
not stop 30-day
period of appeal
to CTA

Decision CTA division. Motion for reconsideration en

banc. 15 days from receipt

Decision CTA en banc. Appeal SC. 15 days from receipt

Reconsideration v. Reinvestigation. Former refers to re-evaluation of an
assessment without need of additional evidence. Latter is on the basis of
newly discovered evidence.

Jeopardy assessment. Delinquency tax assessment without the benefit of a

complete and preliminary audit by an authorized revenue officer who has
reason to believe that the assessment and collection of a deficiency tax will
be jeopardized by delay because of the taxpayers failure to comply with the
audit and investigation requirements.
Assessment based on best evidence obtainable.
Prima facie correct. Reason: public policy, regularity and lifeblood.
Mandamus. CIR cannot be compelled by mandamus to issue assessment
Prescriptive period. Return is filed:

Before last day of filing, considered on last day of filing. 3 years

from last day of filing

Beyond last day of filing. 3 years from the date of actual filing
In case of failure to file or false or fraudulent return, 10 years after discovery
of fraud or omission. Failure to prove fraud can be fatal to the assessment, if
such is made beyond the regular 3-year prescriptive period
ADMINISTRATIVE REMEDIES OF GOVERNMENT
Distraint, levy and garnishment proceedings may be validly commenced by
the issuance of the warrant and service thereof to taxpayer.
Tax lien. Legal claim or charge on taxpayers property as security for payment
of tax. Resorted to when taxpayer neglects or refuses to pay after demand.
Tax liens are given preference over any other claim. Lifeblood
Distraint. The collection is enforced on personal property of the taxpayer.

Actual. Resorted to when taxpayer fails to pay his delinquent

obligation. Actual seizure of personal property

Constructive. Resorted to when there is no actual delinquency.

Requires:
o
Taxpayer retiring from taxable business
o
Intends to leave the Philippines
o
Removes his property from the Philippines or performs
other act tending to obstruct collection of tax due
Levy. The collection is enforced on real property of the taxpayer.
Garnishment. The collection is enforced on bank account of the taxpayer.
CIR authorized to issue warrant of garnishment pending protest with the BIR,
but not pending appeal with CTA. Reason: NIRC does not require CIR to rule
first on protest before he can collect assessed tax.
Sale of property. Public auction of assets collected via warrant of distraint.
Any excess is returned to the taxpayer. Failure to issue notice, voids auction
Forfeiture. Resorted to in case there is no bidder at public auction or if the
highest bid is insufficient to pay the obligation
Within 1 year from the forfeiture, taxpayer or anyone for him, may redeem
Compromise. CIR may compromise when:

Reasonable doubt as to validity of the claim. Minimum

compromise rate 40% basic tax

Financial position of taxpayer shows clear inability to pay.

Minimum compromise rate 10% basic tax
Taxpayers offer to compromise requires him to waive his bank secrecy right
Payment of withholding tax cannot be compromised. Withholding is not a
tax, but a mere method of collecting tax
All criminal violations may be compromised. Except:

Already filed in court

Involving fraud
Abatement. CIR may cancel the tax liability when:

Unjust or excessive assessment

Costs do not justify collection of the amount due

Penalties and fines. Compromise penalty is the amount paid to compromise
a tax violation, which may be subject to criminal prosecution. Compromise is
the amount paid to settle taxpayers civil liability for tax. Both require mutual
agreement between CIR and taxpayer.
Suspension of business operations

JUDICIAL REMEDIES OF GOVERNMENT

No injunction rule. No lower court may grant an injunction for collection of
taxes. 218 NIRC
Civil action. Initiated by the government only the liability becomes
delinquent and collectible, within 5 years from the date of assessment.
Collection enforced by:

Filing a civil case for collection of sum of money in proper court

Filing answer to petition for review filed by taxpayer with CTA

Delinquency arises when:

Self-assessed tax is not paid within the date prescribed by law

Final assessment is not timely protested

Non-compliance with conditions for approval of protest

Failure to file timely appeal with CTA

Criminal action. Crimes punishable by NIRC:

Tax evasion

Failure to file return, fraudulent return, pay tax, withhold and

remit tax, or refund excess tax withheld
Important principles on criminal action:

No criminal action without approval of CIR

Criminal cases are brought in the name of the government

Grant of motion to dismiss is based on judges personal conviction

Acquittal does not necessarily result in exoneration of civil liability

Judgment shall not only impose penalty, but also order payment
Assessment is not necessary before criminal action can be filed
A criminal action may be filed during pendency of protest. Requires:

Violator knowingly and willfully filed the fraudulent return

Intent to evade tax

Final determination of tax due

Civil penalties. Generic term referring to surcharges, penalties, deficiency
and delinquency interests, and compromise penalties
Surcharge. 25%. Following instances:

Failure to file return on the date prescribed. Late return

Filing of return in the wrong venue

Failure to pay deficiency tax on date prescribed

Failure to pay tax in the amount shown in the return

Fraud penalty. 50%. Prima facie fraudulent when difference exceeds 30%
A return may not necessarily be fraudulent where it appears that it was not
prepared by the taxpayer but his accountant
Deficiency interest v. delinquency interest. Former is interest due on amount
not paid before date prescribed. Latter is interest due for failure to pay:

Amount due on any return required to be filed

Amount due for which no return is required

Civil penalty thereon on due date appearing in the notice and

demand of the CIR
Compromise penalty. Amount paid to compromise a criminal violation
REMEDIES OF TAXPAYERS
Taxpayer may be assessed only once per year
Before payment:

Protest

Appeal
After payment: Claim for tax refund or tax credit
The filing of the CIR of civil case for collection constitutes denial of protest
Appeal to the CTA gives the court exclusive jurisdiction over the case. Hence,
cases filed in the lower courts should be dismissed
Prescription must be raised at the administrative level. Waiver of
prescription is strictly construed against the government.
Extension of prescriptive period. Taxpayer and CIR may execute written
waiver extending period BIR assessment and collection

Waiver is ineffective if executed beyond prescriptive period

Filing of bond is tantamount to written waiver

Waivers may only extend, not reduce, the prescriptive period

Waivers must be signed by both taxpayer and CIR or hi duly

authorized representative

Amount and kind of tax, date of acceptance by BIR, and date of

receipt by taxpayer must be indicated

Interruption of prescriptive period. Running of the period is only suspended:

CIR is prohibited from making assessment or beginning distraint

and levy proceedings. Ex: pendency of appeal with CTA

Motion for reinvestigation is granted

Taxpayer cannot be located

Warrant of distraint and levy is served, but no property could be

located

Taxpayer is out of the Philippines

Tax refund v. Tax credit. Former takes place when there is actual
reimbursement. Latter takes place upon issuance of tax credit certificate,
which is applied to any sum due and collected from taxpayer.
An action for refund or credit may be maintained whether or not taxpayer
has paid under protest. 299 NIRC
Choice of one is irrevocable for the taxable period
Withholding tax agent may claim refund. Reason: agent is also personally
liable for withholding tax. Hence, such person should be regarded as a partyin-interest to a suit for refund
Requirements:

Written claim by the taxpayer to the CIR

Categorical demand for reimbursement

Prescriptive period. 2 years from payment, regardless of supervening cause
Prescriptive period applies to both administrative and judicial levels
LOCAL GOVERNMENT CODE
LOCAL BUSINESS TAXES
Each local government has the power to create its own sources of revenue
and levy taxes subject to limitations Congress may provide. Such taxes accrue
exclusively to the LGU. Article X, 1987 Constitution
Power vested with local legislative bodies (Sanggunian)
Local taxes must not be unjust, excessive, oppressive, confiscatory or
contrary to declared national economic policy. Cannot be imposed without a
public hearing prior to the enactment of the ordinance
Common limitations:

Income tax, except on financial institutions

Documentary stamp tax

Taxes on acquisitions provided in NIRC

Customs duties provided in Customs Code

Impositions on goods passing through jurisdiction LGU

Tax on agricultural and aquatic products sold by marginal farmers

or fishermen

Tax on business enterprises certified by Board of Investment

Excuse taxes on articles enumerated under NIRC and on

petroleum products

Percentage tax or VAT

Common carriers tax

Taxes on premiums for reinsurance

Taxes for issuance of driving licenses or permits, except tricycles

Taxes on exported local products

Taxes on Countryside, BMBE and cooperatives

Taxes on the national government and its instrumentalities

Taxes by province:

Tax on transfer of real property

Tax on printing and publication

Franchise tax

Tax on quarry resources

Professional tax

Amusement tax

Tax for delivery truck or van

Taxes by municipalities and cities:

Manufacturers and other processors of articles of commerce

Dealers in articles of commerce

Exporters, manufacturers and processors of essential

commodities

Retailers

Contractors

Banks and financial institutions

Peddlers

Any business not otherwise specified

Taxes by barangays

Tax on stores with fixed establishments, gross sales 50,000 or less

in cities, 30,000 in municipalities

Fees and charges on:

o
Use of barangay-owned properties
o
Commercial breeding of fighting cocks, cockfights and
cockpits
o
Admission fee for places of recreation
o
Outdoor advertisements
o
Barangay clearance
Accrual: Generally on January 1. However, may be paid in quarterly
installments. Surcharges and interest may apply
Review of tax ordinances:

Within 3 days after approval. City Sanggunian >> Provincial

Within 10 days after enactment. Barangay >> City

Receiving Sanggunian review within 30 days of receipt. Inaction = approval
Prescriptive periods:

Assessment. 5 years from due date

Fraud. 10 years from discovery

Collection. 5 years from assessment

Steps to challenge validity of tax ordinance:

Appeal to Secretary of Justice within 30 days from effectivity

Decision by SoJ within 60 days from receipt

Appeal to court of competent jurisdiction within 30 days from

receipt of decision or lapse of 60-day period
Assessment procedure

Local treasurer assess taxes within periods provided

Local treasurer issues notice of assessment

Taxpayer pays under protest

Taxpayer files protest within 60 days from receipt of notice

Local treasurer decides within 60 days from protest

Taxpayer appeals to court of competent jurisdiction within 30

days from receipt of the decision or lapse of 60-day period
REAL PROPERTY TAX
National, not local tax. However, proceeds accrue to the LGU where property
is situated. Payable on January 1
For assessment purposes, actual use refers to the principal utilization of
the property by the person in possession. Thus, even if user is not the owner,
he may be subject to real property tax
Components:

Annual ad valorem tax. 1% province. 2% Metro Manila

Special levies:
o
Special education fund. 1%
o
Tax on idle lands. 5%
o
Special levy or assessment. Owner contributes to the
cost of local improvements shouldered by the
government but inure to his benefit. Not to exceed
60% of the cost of the improvement
Properties exempt from real property tax:

Government-owned properties

Properties used for charitable or religious purposes

Machineries and equipment used by energy and water GOCCs

Cooperative-owned properties

Machineries and equipment for environmental protection

Assessment of land value:

Local assessor makes appraisal based on fair market value

Local assessor classifies property based on actual use

Local assessor fixes assessed value

Local assessor gives notice of assessment to owner

Owner-taxpayer protest assessment within 60 days from receipt

to Local Board of Assessment Appeals

LBAA decision within 120 days from protest

Taxpayer appeals within 30 days from receipt to Central Board of

Assessment Appeals

Taxpayer appeals to CA

Taxpayer appeals to SC
Assessment/collection of real property tax:

Local assessor submits assessment roll to local treasurer

Local treasurer informs public of due date

Local treasurer assesses and collects

Taxpayer pays under protest

Taxpayer files written protest with local treasurer

Local treasurer decides within 60 days

Taxpayer appeals to LBAA 60 days from receipt of decision or

lapse of the 60-day period

LBAA decides within 120 days

Taxpayer appeals to CBAA

Taxpayer appeals to CA

Taxpayer appeals to SC