Beruflich Dokumente
Kultur Dokumente
TAXPAYERS’ SUIT
A case where the act complained of
directly involves the illegal disbursement
of public funds derive from taxation
(Justice Melo, dissenting in Kilosbayan,
Inc vs Guingona, Jr.)
(3) Domestic- this arises when the taxes METHODS RESORTED TO BY A TAX TREATY IN
are imposed by the local or national ORDER TO ELIMINATE DOUBLE TAXATION
government (within the same state)
(4) International- refers to the FIRST METHOD: The tax treaty sets out
imposition of comparable taxes in the respective rights to tax by the state
two or more states on the same of source or situs and by the state of
taxpayer in respect of the same residence with regard to certain classes
subject matter and for identical of income or capital. In some cases, an
periods. exclusive right to tax is conferred in one
of the contracting states; however, for
REMEDIES OF DOUBLE TAXATION other items of income or capital, both
1. Tax Sparing Rule – same dividend states are given the right to tax although
earned by a NRFC within the Phil. is the amount of tax that may be imposed
reduced by imposing a lower rate of by the state of source is limited.
15% (in lieu of the 35%), on the SECOND METHOD: The state of source is
condition that the country to which given a full or limited right to tax
together with the state of residence. In Multiplied by rate
this case, the treaty makes it incumbent Income tax due
upon the state of residence to allow Less: foreign taxes paid
relief in order to avoid double taxation. Net income tax due
Exemption
Credit Method
Method
Focus is on the Focus is on the tax
income or capital
itself
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
a. Constitutional – immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. c. He who claims exemption should
b. Statutory – those which emanate prove by convincing proof that he
from legislation is exempted.
Examples of Statutory Exemptions d. Taxation is the rule; tax exemption
Sec. 27, NIRC is the exception.
Sec. 105 Tariff and Customs e. Tax exemption must be strictly
Code construed against the taxpayer and
Sec. 234 Local Government Code liberally in favor of the taxing
Special Laws, such as the authority.
Omnibus Investment Code of 1987 f. Tax exemptions are not presumed.
(EO 226), Philippine Overseas g. Constitutional grants of tax
Shipping Act (RA 1407 as amended), exemption are self-executing.
Fertilizer Industry Act (RA 3050, as h. Tax exemptions are personal.
amended), Mineral Resources
Development Decree of 1974 (PD 463 THE FOLLOWING PARTAKE THE NATURE OF
as amended), Cottage Industry Act TAX EXEMPTION
(RA 318, as amended) and 1. Deductions for income tax purposes
exemptions in “Housing for Low 2. Claims for refund
Income Group” (PD 1205, as 3. Tax amnesty
amended) 4. Condonation of unpaid tax liabilities
c. Contractual- agreed to by the NOTE: must be strictly construed
taxing authority in contracts against the taxpayer
lawfully entered into by them
under enabling laws WHEN EXEMPTIONS ARE CONSTRUED
d. Treaty LIBERALLY IN FAVOR OF GRANTEE
e. Licensing Ordinance 1. When the law so provides for such
2. As to form liberal construction.
(1) Express – expressly granted by 2. Exemptions from certain taxes,
organic or statute law granted under special circumstances
(2) Implied – when particular to special classes of persons.
persons, property or excises are 3. Exemptions in favor of the
deemed exempt as they fall government, its political subdivisions
outside the scope of the taxing or instrumentalities.
provision itself. 4. Exemptions to traditional
3. As to extent exemptees, such as those in favor of
(1) Total – absolute immunity religious and charitable institutions.
(2) Partial – one where a collection 5. If exemptions refer to the public
of a part of the tax is dispensed property
with
4. As to object Q: May a tax exemption be revoked?
A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
a. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.
parties based on material Reason: Relates to the circumstances
consideration of a mutual nature, of a particular accused and not the
which then becomes contractual and character of the acts charged in the
is covered by the non-impairment information.
clause of the Constitution.
b. Adherence to form- if the tax Tax amnesty Tax exemption
exemption is granted by the
Constitution, its revocation may be Immunity from all Immunity from civil
effected through Constitutional criminal, civil and liability only
amendment only administrative
liabilities arising
c. Where the tax exemption grant is in
from non payment
the form of a special law and not by of taxes
a general law even if the terms of
the general act are broad enough to Applies only to past Prospective
include the codes in the general law tax periods, hence application
unless there is manifest intent to retroactive
repeal or alter the special law application
(Province of Misamis Oriental vs
Cagayan Electric Power and Light
Co. Inc) DOCTRINE OF IMPRESCRIPTIBILTY
As a rule, taxes are imprescriptible
NATURE OF TAX AMNESTY as they are the lifeblood of the
1. General or intentional overlooking by government. However, tax statutes may
the state of its authority to impose provide for statute of limitations.
penalties on persons otherwise guilty The rules that have been adopted
of evasion or violation of a revenue are as follows:
or tax law. a.) National Internal Revenue Code
2. Partakes of an absolute forgiveness of The statute of limitation for
waiver of the government of its right assessment of tax if a return is filed is
to collect. within three (3) years from the last day
3. To give tax evaders, who wish to prescribed by law for the filling of the
relent and are willing to reform a return or if filed after the last day,
chance to do so. within three years from date of actual
filling. If no return is filed or the return
RULES ON TAX AMNESTY filed is false or fraudulent, the period to
1. Tax amnesty assess is within ten years from discovery
a) like tax exemption, it is never of the omission, fraud or falsity.
favored nor presumed The period to collect tax is within
b) construed strictly against the three years from date of assessment. In
taxpayer (must show complete the case, however, of omission to file or
compliance with the law) if the return filed is false or fraudulent,
the period to collect is within ten years
from discovery without need of an
assessment.
KINDS
1. SELF- ASSESSMENT- one in which the
tax is assessed by the taxpayer 4. The authority of the Commissioner
himself to assess taxes may be delegated,
2. DEFICIENCY ASSESSMENT- made by the except the power to make final
tax assessor himself whereby the assessments.
correct amount of the tax is 5. It must be directed to the right
determined after an examination or party.
investigation is conducted. The
liability is determined and assessed Authority of a Revenue Officer -
for the following reason: pursuant to a Letter of Authority issued
by the Regional Director
a. To examine taxpayers within b) refunds of internal
the jurisdiction of the district in revenue taxes, fees and charges
order to collect the correct c) penalties imposed in
amount of tax; relation thereto
b. To recommend the assessment of d) other matters arising
any deficiency tax due in the from this Code or other laws or
same manner that the said acts portions thereof administered by
could have been performed by the the BIR subject to the exclusive
Revenue Regional Director. appellate jurisdiction of the CTA
General Rule: income tax returns are (Sec. 4)
confidential.
Exception: inquiry into income tax II. SECTION 5 (power to obtain
returns may be authorized- information, summon, examine and take
testimony of persons)
1. inspection is authorized upon
written order of the President of the 3. For the Commissioner to
Philippines; ascertain:
2. inspection is authorized under (a) correctness of any return or in
Finance Regulations No. 33 of the making a return where none has
Secretary of Finance; been made
3. production of the tax return is (b) liability of any person for any
material evidence in a criminal case internal revenue tax or in
wherein the government is correcting such liability
interested in the result; or (c) tax compliance
4. production or inspection thereof is
authorized by the taxpayer himself. The Commissioner is authorized:
1. to Examine any relevant Book, paper,
Networth Method- inventory method of record or other data
income tax verification. 2. to Obtain any information (costs,
volume of production, receipts, sales,
Applies the accounting principle: gross income, etc), on a regular basis
assets – liabilities = networth from:
Condition for its use: i. any person other than the person
1. taxpayer’s books do not clearly under investigation or
reflect his income or the taxpayer ii. any office or officer of the
has no books, or if he has books, he national/local government, gov’t
refuses to produce them; agencies and instrumentalities
2. there is evidence of possible source (Bangko Sentral, gov’t owned and
or sources of income to account for controlled corporations) (e.g. LTO,
increases in networth; Register of Deeds)
3. there is a fixed starting point or 3. to Summon
opening networth; and i. the person liable for tax or
4. there must be proper adjustments to required to file a return or
conform with the income tax laws. ii. any officer or employee of such
person or
iii. any person having in his
POWERS AND DUTIES OF THE COMMISSIONER possession/custody/care
I. SECTION 4 (power to interpret tax law -- the books of accounts,
and decide tax cases) -- accounting records of entries
relating to the business of the
1. Interpret provisions of this Code and person liable for tax or any other
other tax laws subject to review of the person
Secretary of Finance -- to produce such books,
(Quasi-legislative) papers, records, and other data
2. Decide: (Quasi-judicial) and to give testimony
a) disputed assessment
4. to take the Testimony of the person i. fails to file a required return or
concerned, under oath as may be report at the time prescribed or
relevant to the inquiry ii. willfully or otherwise files a
5. to cause revenue officers and false or fraudulent return,
employees to make a Canvass of any The Commissioner shall Make or
revenue district or region Amend the return from
i. his own knowledge or
Nothing in Section 5 shall be ii. from such
construed as granting the Commissioner information as he can obtain
the authority to inquire into bank through testimony or otherwise
deposits other than as provided for which shall be prima facie
under sec. 6 (F) of the Code. correct and sufficient for all
legal purposes
III. SECTION 6 (power to make
assessments, prescribe additional 6.Inventory-taking, Surveillance,
requirements for tax administration Presumptive Gross Sales
and enforcement) A. Commissioner may, at any time
during the taxable year
4. Examination of returns and (a) order the inventory taking of
determination of tax due goods of any taxpayer or
A. After a return has been filed the (b) may place the business
Commissioner or his operations of any person
representative may authorize (natural/juridical) under
i. observation or Surveillance,
the Examination of any taxpayer if there is reason to
and believe that such is not
ii. declaring his correct income,
the Assessment of the correct sales or receipts for tax
amount of tax; purposes.
B. F The findings may be used
ailure to file a return shall not as basis for assessing the
prevent the commissioner from taxes and shall be deemed
authorizing the examination of prima facie correct.
any taxpayer;
* Any tax or deficiency tax so B. Commissioner may prescribe a
assessed shall be paid upon Minimum amount of gross
notice and demand from the receipts, sales and taxable base
Commissioner or his (taking into account the sales and
representative income of other persons engaged
* Any return, statement or in similar business):
declaration filed in any i. When a person has failed to
authorized office shall not be issue receipts as required by
withdrawn; but within three sec.113 (Invoice requirements
years from date of filing, the for VAT-registered persons)
same may be modified, and Sec. 237 (Issuance of
changed or amended; Receipts or Commercial
provided that no notice for Invoices) or
audit or investigation of such ii. When the books of accounts
return, has in the meantime, or records do not correctly
been actually served upon the reflect the declarations made
taxpayer. or required to be made in a
return,
5.Failure to submit required returns and Such minimum amount shall
other documents be considered correct.
If a person 7. Terminate taxable period
Commissioner shall declare the tax 10. Authority to Register tax agents
period of a taxpayer Terminated and (a) The Commissioner shall accredit
send notice to the taxpayer of such and Register, individuals and
decision with a request for immediate general professional partnerships
payment of the tax when it has come to and their rep. who prepare and
the knowledge of the Commissioner: file tax returns and other papers
a) that a taxpayer is retiring from or who appear before the BIR
business subject to tax or (b) The Commissioner shall create
b) is intending to leave the Phils. national and regional
or accreditation boards.
c) to remove his property
therefrom or Those who are denied
d) to hide or conceal his property accreditation may appeal the same
or to the Sec. Of Finance who shall
e) is performing any act tending to rule on the appeal within 60 days
obstruct the proceedings for from receipt of such appeal. Failure
the collection of tax to do so within the prescribed
period shall be deemed as approval
8. Prescribe Real Property Values for accreditation.
The Commissioner is authorized to:
a. Divide the Phils. into different 11. Authority to Prescribe Additional
zones or areas and Requirements
b. Determine the fair market value The Commissioner may prescribe
of real properties located in each the manner of compliance with any
zone or area documentary or procedural
Requirement for the submission or
For tax purposes, the value of preparation of financial statements
the property shall be whichever is accompanying tax returns.
higher of:
a) Fair market value as IV. SECTION 7 (Authority to Delegate
determined by the Power )
Commissioner; or 12. The Commissioner may delegate the
b) Fair market value as shown in powers vested in him to
the schedule of values of the - subordinate officials with rank
provincial and city assessors. equivalent to Division Chief or
higher, subject to
9. Authority to Inquire into Bank limitations/restrictions imposed
Deposit under the rules and regulations
Notwithstanding R.A. 1405 (Bank EXCEPT, (the following powers
Secrecy Law) the Commissioner is shall NOT be delegated)
authorized to inquire into the Bank a) power to Recommend the
deposits of: promulgation of rules and
(a) a decedent to determine his gross regulations by the Sec. of
estate Finance
(b) a taxpayer who has filed an b) power to Issue rulings of first
application to compromise impression or to Reverse, revoke
payment of tax liability by reason modify any existing rule of the
of financial incapacity BIR
c) power to Compromise or Abate
The taxpayer’s application for any tax liability
compromise shall not be considered
unless he waives in writing his
privilege under RA 1405 and other
general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
provided however that the ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
regional evaluation board may TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
compromise: THE PARTICIPATION OF THE SOLICITOR
1. assessments issued by GENERAL?
regional offices involving NO. The institution or
deficiency taxes of P500,000 commencement before a proper court of
or less and civil and criminal actions and
2. minor criminal violations as proceedings arising under the Tax
may be determined by the Reform Act which shall be conducted by
rules and regulations legal officers of the BIR is not in dispute.
3. discovered by regional and An appeal from such court, however, is
district officials not a matter of right. It is still the
Solicitor General who has the primary
Regional Evaluation Board is responsibility to appear for the
composed of: government in appellate proceedings.
i. Regional Director as Chairman (Commissioner vs. La Suerte Cigar and
ii. Asst. Regional Director Cigarette Factory, GR No. 144942, July
iii. Heads of the Legal, Assessment 4, 2002)
and Collection Div.
iv. Revenue District Officer having SOURCES OF REVENUE
jurisdiction over the taxpayer The following taxes, fees and
charges are deemed to be national
d) power to Assign or reassign internal revenue taxes. (Sec. 21, NIRC)
internal revenue officers to 1. Income tax
establishments where 2. Estate and donor's taxes
articles subject to excise tax 3. Value-added tax
are kept. 4. Other percentage taxes
5. Excise taxes
V. SECTIONS 8, 14, 15, 16, 17 (Other 6. Documentary stamp taxes
Powers) 7. Such other taxes as are or hereafter
13. Duty to ensure the provision and may be imposed and collected by
distribution of forms, receipts, the Bureau of Internal Revenue.
certificates, and appliances, and
the acknowledgment of payment of
taxes (Sec. 8)
WHEN CREDIT FOR TAXES MAY BE TAKEN NOTE: The taxpayer’s failure to record
The credit for taxes provided by in his books the alleged loss proves that
Section 30(C)(3) to (9) may ordinarily be the loss had not been suffered, hence,
taken either in the return for the year in not deductible. (City Lumber vs.
which the taxes accrued or on which the Domingo and Court of Tax Appeals, GR
taxes were paid, dependent upon No. L-18611, January 30, 1964)
whether the accounts of the taxpayer
CATEGORY AND TYPES OF LOSSES
are kept and his returns filed upon the
1. ORDINARY LOSSES
accrual basis or upon cash receipts and
a. Incurred in trade or business, or
disbursements basis.
practice of profession
Net operating loss carry-over
LIMITATIONS ON CREDIT FOR FOREIGN TAXES (NOLCO)
1) The amount of credit in respect to Refers to the excess of
the taxes paid or accrued to any allowable deductions over gross
country shall not exceed the same income of the business for any
proportion of the tax against which taxable year, which had not
such credit is taken, which the been previously offset as
taxpayer’s net income from sources deduction from gross income.
within such country taxable under Can be carried over as a
Title II (income Tax) bears to his deduction from gross income for
entire net income for the same the next 3 consecutive years
taxable year; and immediately following the year
2) The total amount of the credit shall of such loss.
not exceed the same proportion of For mines, other that oil and
the tax against which such credit is gas well, net operating loss
taken, which the taxpayer’s net incurred in any of the first ten
income from sources without the years of operation may be
Philippines taxable under Title II
carried over for the next 5 The excess over the net
years. book value immediately
before the casualty should
be capitalized, subject to
Requirements: depreciation over the
(1) The taxpayer was not remaining useful life of the
exempt from income tax in property.
the year of such net
operating loss; 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
(2) The loss was not incurred in ONLY TO THE EXTENT OF CAPITAL
a taxable year during the GAINS)
taxpayer was exempt from a. Losses from sale or exchange of
income tax; and capital assets
(3) There has been no b. Losses resulting from securities
substantial change in the becoming worthless and which
ownership of the business or are capital assets.
enterprise. c. Losses from short sales of
There is no substantial property.
change in the ownership of d. Losses due to failure to exercise
the business when: privilege or option to buy or sell
(a) not less than 75% in property.
nominal value of the
outstanding issued shares 3. SPECIAL KINDS OF LOSSES
is held by or on behalf of a. Wagering losses - deductible only to
the same persons; or the extent of gain or winnings. [Sec.
(b) not less than 75% of the 34 (D)(6)]; deemed to apply only to
paid up capital is held by individuals
or on behalf of the same b. Losses on wash sales of stocks - not
person. deductible because these are
considered to be artificial loss.
NOTE: The 3 year period shall
continue to run notwithstanding Wash sales – a sale or other
that the corporation paid its taxes disposition of stock or securities
under MCIT, or that the individual where substantially identical
availed the 10% OSD. securities are acquired or purchased
within 61-day period, beginning 30
See Annex S for illustration. days before the sale and ending 30
days after the sale. [Sec. 38]
b. Of property connected, with the
trade, business or profession, if General rule: Losses from wash sales
the loss arises from fires, are not deductible.
storms, shipwreck or other Exception: When the sale is made by
casualties, or from robbery, a dealer in stock or securities and
theft, or embezzlement. with respect to a transaction made in
(1) Total destruction the ordinary course of the business of
The replacement cost to such dealer, losses from such sale is
restore the property to its deductible.
normal operating condition, Elements of Wash Sales:
but in no case shall the (1) The sale or other disposition of
deductible loss be more than stock resulted to a loss;
the net book value of the (2) There was an acquisition or
property as a whole, contract or option for acquisition
immediately before of stock or securities within 30
casualty. days before the sale or 30 days
(2) Partial Destruction after the sale; and
(3) The stock or securities sold were
substantially the same as those E. BAD DEBTS
acquired within the 61-day
period. BAD DEBTS – shall refer to those debts
resulting from the worthlessness or
c. Abandonment losses uncollectibility, in whole or in part, of
in petroleum operation and producing amounts due the taxpayer by others,
well. arising from money lent or from
(1) In case a contract area where uncollectible amounts of income from
petroleum operations are goods sold or services rendered.
undertaken is partially or wholly
abandoned, all accumulated REQUISITES FOR DEDUCTIBILITY
exploration and development 1. Existing indebtedness due to the
expenditures pertaining thereto taxpayer which must be valid and
shall be allowed as a deduction. legally demandable;
(2) In case a producing well is 2. Connected with the taxpayer's
abandoned, the unamortized cost trade, business or practice of
thereof, as well as the profession;
undepreciated cost of equipment 3. Must not be sustained in a
directly used therein, shall be transaction entered into between
allowed as deduction in the year related parties;
the well, equipment or facility is 4. Actually ascertained to be worthless
abandoned. and uncollectible as of the end of
the taxable year.; and
d. Losses due to voluntary removal of 5. Actually charged off in the books of
building incident to renewal or accounts of the taxpayer as of the
replacements - deductible expense end of the taxable year.
from gross income.
EQUITABLE DOCTRINE OF TAX BENEFIT
e. Loss of useful value of capital A recovery of bad debts previously
assets due to charges in business deducted from gross income constitutes
conditions - deductible expense only taxable income if in the year the
to the extent of actual loss sustained account was written off, the deduction
(after adjustment for improvement, resulted in a tax benefit. (Tax Benefit
depreciation and salvage value) Rule)
Illustration:
f. Losses from sales or exchanges of Case A Case B Case C
property between related Net
taxpayers -losses of this nature is not income
(loss)
deductible but gains are taxable. before
write off
g. Losses of farmers - if incurred in the for bad P10,000 (P 9,000) P 5,000
operation of farm business, it is debts
Less:
deductible. Accounts
written off
h. Loss in shrinkage in value of stock – as bad
if the stock of the corporation becomes debts 3,000 2,000 6,000
Final Net
worthless, the cost or other basis may be Income
deducted by the owner in the taxable (Loss) P 7,000 (P11,000) (P1,000)
year in which the stock of its Bad debts
worthlessness is made. Any amount recovery
in a subse-
claimed as a loss on account of shrinkage quent year 3,000 2, 000 6, 000
in value of the stock through fluctuation TAXABLE
in the market or otherwise cannot be INCOME
deducted from gross income. upon the
bad debt
recovery P3,000 P -0- P5,000
METHODS OF DEPRECIATION
ASCERTAINMENT OF WORTHLESSNESS The term "reasonable allowance"
Proof of Two Facts: shall include (but not limited to) an
1. taxpayer did in fact ascertain the allowance computed in accordance,
debt to be worthless, in the year with the regulations prescribed by the
for which deduction is sought, Department of Finance, under any of the
2. that in so doing, he acted in good following methods.
faith. (Collector vs. Goodrich 1. Straight-line method
International Rubber, GR No. L- 2. Declining-balance method
22265, Dec. 22, 1967) 3. Sum of the years-digit method
Depends upon the particular facts and 4. Any other method which may be
the circumstances of the case. prescribed by the Department of
Good faith does not require that the Finance upon recommendation of
taxpayer be an “incorrigible optimist” the Commissioner of Internal
but on the other hand, he may not be Revenue.
unduly pessimistic.
METHODS OF DEPRECIATION
F. DEPRECIATION Kind Formula
1)Straight-line cost- salvage value
estimated life
DEPRECIATION – the gradual diminution in 2)Declining cost – depreciation x Rate
the service or useful value of tangible balance estimated life
property due from exhaustion, wear and 3)Sum of the years nth period x cost- salvage
tear and normal obsolescence. digits (SYD) SYD
The term also applies to
amortization of intangible assets, the Illustration: A machine is used in the
use of which in trade or business i s of manufacturing department of
limited duration. Corporation A, compute the depreciation
per annum with the following facts:
REQUISITES FOR DEDUCTIBILITY Cost = P15,000 Salvage
1. The allowance for depreciation Value= P5,000
must be reasonable.
2. It must be for property use or 1. Straight Line Method with estimated
employment in trade or business or life = 5 years
out of its not being used 15,000 – 5,000 = P2,000
temporarily during the year. 5 years
3. The allowance must be charged off
within the taxable, year. 2. Declining balance with rate of 200%
4. Schedule on the allowance must be Year 1: 15,000 – 0 x 200% = P6,000
attached to the return. 5
Year 2:15,000–6,000 x 200% =P3,600
PROPERTY HELD BY ONE PERSON FOR LIFE 5
WITH THE REMAINDER TO ANOTHER PERSON
The deduction shall be computed as 3. Sum of the years digits
if the life tenant was the absolute owner SYD for 5 years = 5+4+3+2+1 or 15
of the property and, as such the expense Year 1: 5/15 x (15,000 – 5,000)
shall accrue to him. = P3,333.33
Year 2: 4/15 x (15,000 – 5,000)
PROPERTY HELD IN TRUST = P2,666.67
Allowable deduction shall be
apportioned between the income AGREEMENT AS TO USEFUL LIFE ON WHICH
beneficiaries, and the trustees in DEPRECIATION RATE IS BASED
accordance with the pertinent provisions The Bureau of Internal Revenue and
of the instrument creating or in the the taxpayer may agree in writing on the
absence of such provisions, on the basis useful life of the property to be
of the trust income allowable to each. depreciated. The agreed rate may be
modified if justified by facts or
circumstances. The change shall not be TO WHOM ALLOWED
effective before the taxable year on Only mining entities owning
which notice in writing by certified mail economic interest in mineral deposits.
or registered mail is served by the party Economic interest means interest in
initiating. minerals in place investment therein or
SPECIAL TYPES OF DEPRECIATION secured by operating or contract
1. Petroleum Operations agreement for which income is derived,
Depreciation of all properties and return of capital expected, from the
directly related to production of extraction of mineral.
petroleum shall be allowed Mere economic or pecuniary
under straight-line (SL) or advantage to be derived by production
declining balance (DB) method by one who has no capital investment in
May shift from DB to SL method the mineral deposit does not amount to
Useful life: 10 years or shorter economic interest.
life as allowed by the
Commissioner FEATURES
Useful life of property not 1. Intangible Exploration and
directly related to production: 5 development drilling cost in
years under straight line method petroleum exploration shall be
2. Mining Operations treated either as:
Depreciation on all properties in a. revenue expenditures; or
mining operations other than b. capital expenditures
petroleum operations at the 2. The total amount deductible for
normal rate if expected life is exploration and development
less than 10 years. expenditures shall not exceed 50% of
If expected life is more than 10 net income from mining operation.
years, depreciation shall be any The excess shall be carried forward
number of years between 5 to the succeeding year until fully
years and the expected life. deducted.
3) Recipient is an 3) Recipient is an
accredited non- accredited
government domestic REQUISITES FOR DEDUCTIBILITY
organization, corporation or 1. The contribution or gift must be
organized/ operated for association
(purposes): organized/operate actually paid.
d for (purposes): 2. It must be given to the organizations
specified in the code.
3. The net income of the institution
must not inure to the benefit of any
private stockholder or individual.
VALUATION
Charitable contribution of property
other than money shall be based on the
acquisition cost of said property.
I. RESEARCH AND DEVELOPMENT REQUISITES FOR DEDUCTIBILITY
(R&D) 1. The employer must have established
a pension or retirement plan to
TAX TREATMENT provide for the payment of
Either as: reasonable pensions to his
1. Revenue Expenditures employees;
Requisites: 2. The pension plan is reasonable and
a. Paid or incurred during actuarially sound;
the taxable year 3. It must be funded by the employer;
b. Ordinary and necessary 4. The amount contributed must be no
expenses in connection with longer subject to the control and
trade business or profession disposition of the employer;
c. Not chargeable to 5. The payment has not yet been
capital account allowed as a deduction; and
2. Deferred Expenses 6. The deduction is apportioned in
Requisites: equal parts over a period of 10
a. Paid or incurred in consecutive years beginning with the
connection with trade, business, year in which the transfer or
or profession payment is made.
b. Not treated as expense
c. Chargeable to capital SUMMARY OF RULES ON RETIREMENT BENEFITS
account but not chargeable to PLAN / PENSION TRUST
property subject to depreciation 1. Exempt from Income Tax –
or depletion. employees’ trust under Sec. 60(B)
2. Exclusion from Gross Income –
Amount deductible: amount received by the employee
Amount ratably distributed over from the fund upon compliance of
a period of 60 months beginning with certain conditions under Sec. 32(B)
the month taxpayer realized (6)
benefits from such expenditures. 3. Deduction from Gross Income –
A. Amounts contributed by the
EXCLUSION FROM RESEARCH AND employer during the taxable
DEVELOPMENT EXPENDITURES year into the pension plan to
1. Any expenditure for the acquisition cover the pension liability
or improvement of land or for the accruing during the year –
improvement of property to be used considered as ordinary and
in connection with research and necessary expenses under Sec.
development subject to depreciation 34(A)(1)
and depletion. B. 1/10 of the reasonable amount
2. Any expenditure paid or incurred for paid by the employer to cover
the purpose of ascertaining the pension liability applicable to
existence, location, extent or the years prior to the taxable
quality of any deposit of ore or other year, or so paid to place the
mineral including oil or gas. trust in a sound financial basis –
deductible under Sec. 34(J)
J. PENSION TRUST CONTRIBUTIONS
K. PREMIUM PAYMENTS
PENSION TRUST CONTRIBUTIONS – a ON HEALTH AND/OR
deduction applicable only to the HOSPITALIZATION INSURANCE
employer on account of its contribution
to a private pension plan for the benefit DEFINITION: It is an amount of premium
of its employee. This deduction is purely on health and/or hospitalization paid by
business in character. an individual taxpayer (head of family or
married), for himself and members of his
family during the taxable year.
REQUISITES FOR DEDUCTIBILITY 4. Premiums paid on any life insurance
1. Insurance must have actually been policy covering the life of any officer
taken or employee, or of any person
2. The amount of premium deductible financially interested in any trade or
does not exceed P2,400 per family business carried on by the taxpayer,
or P200 per month during the individual or corporate, when the
taxable ear. taxpayer is directly or indirectly a
3. That said family has a gross income beneficiary under such policy. [Sec.
of not more than P250,000 for the 36]
taxable year. 5. Losses from sales or exchanges of
4. In case of married individual, only property between related
the spouse claiming additional taxpayers. [S ec. 36]
exemption shall be entitled to this -
deduction. TRANSACTIONS BETWEEN RELATED PARTIES
1. Between members of the family;
WHO MAY AVAIL OF THE DEDUCTION “Family” includes only the
1. Individual taxpayers earning purely brothers, sisters (whether by the
compensation income during the whole or half blood), spouse,
year. ancestors, and lineal
2. Individual taxpayer earning business descendants of the taxpayer.
income or in practice of his 2. Except in the case of distributions in
profession whether availing of liquidation:
itemized or optional standard a. between an individual and a
deductions during the year. corporation more than 50% in
3. Individual taxpayer earning both value of the outstanding stock of
compensation, and business or which is owned, directly or
practice of profession during the indirectly, by or for such
year. individual;
b. between two corporations more
NON-DEDUCTIBLE EXPENSES than 50% in value of the
outstanding stock of each of
REASONS FOR NON-DEDUCTIBILITY which is owned, directly or
1. Personal expenses indirectly, by or for the same
2. Capital expenditures individual, if either one of such
3. Items not normally subject to corporations, with respect to the
income tax and therefore are not taxable year of the corporation
deductible. preceding the date of the sale of
4. Items taken advantage of by the exchange was a personal holding
taxpayer to avoid payment of company or a foreign personal
income tax. holding company; or
3. Between the grantor and a fiduciary
SPECIFIC ITEMS (SECTION 36) of any trust;
1. Personal, living or family expenses; 4. Between the fiduciary of a trust and
2. Amount paid out for new buildings or the fiduciary of another trust if the
for permanent improvements, or same person is a grantor with
betterment made to increase the respect to each trust;
value of any property or estate, 5. Between a fiduciary of a trust and a
Except that intangible drilling beneficiary of such trust.
and development cost incurred in
petroleum operations are TAX CONSEQUENCES
deductible; The following are not deductible:
3. Amount expended in restoring 1. Interest expense [Sec. 34 (B)(2)]
property or in making good the 2. Bad debts [Sec. 34 (E)(1)]
exhaustion thereof for which an 3. Losses from sales or exchanges of
allowance has been made; property [Sec 36 (B)]
(2) OPTIONAL CORPORATE 1. Whenever such corporation has zero
INCOME TAX or negative taxable income; or
SECTION 27 (A) 2. Whenever the amount of
MCIT is greater than the normal
APPLIES TO: income tax due from such
1. Domestic corporations (DC) corporation determined under
2. Resident foreign corporations (RFC) Section 27[A].
INDIVIDUALS EXEMPT FROM FILING INCOME TAX SUBSTITUTED FILING OF INCOME TAX RETURNS
RETURN BY EMPLOYEES RECEIVING PURELY
COMPENSATION INCOME. [SECTION 4, RR 3-
1. Individual whose gross income does 2002; RMC 01-03]
not exceed total personal and
additional exemptions; Requisites:
2. Individual with respect to pure 1. The employee receives purely
compensation income derived from compensation income (regardless of
sources within the Philippines, the amount) during the taxable year.
income tax on which has been 2. The employee receives the income
correctly withheld; only from one employer during the
3. Individual whose sole income has taxable year.
been subjected to final withholding 3. The amount of tax due from the
income tax; employee at the end of the year
4. Individual who is exempt from equals the amount of tax withheld
income tax. by the employer.
4. The employee's spouse also complies applicable shall be MANDATORY. [Sec 5
with all three (3) conditions stated RR 3-2002)
above.
5. The employer files the annual
information return (BIR Form No.
1604-CF) REQUIREMENT OF BANKS FOR SUBMISSION OF
6. The employer issues BIR Form 2316 AN ITR FOR LOAN O R CREDIT CARD
(Oct 2002 ENCS) version to each APPLICATIONS
employee
Banks may require the submission of
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED BIR Form No. 1700 (for employees not
FILING (STILL REQUIRED TO FILE) entitled to substituted filing of ITR).
However, for employees entitled to
1. Individuals deriving compensation substituted filing of ITR, the submission
from two or more employers of the Joint Certification will suffice.
concurrently or successively during
the taxable year. JOINT CERTIFICATION - It is a sworn
2. Employees deriving compensation statement made by the employer and
income, regardless of the amount, employee, which serve the following
whether from a single or several purposes:
employers during the calendar year, 1. It contains the employee's consent
the income tax of which has not that BIR Form No. 1604CF may be
been withheld correctly (i.e. tax due considered his substituted return, in
is not equal to the tax withheld) lieu of BIR Form No. 1700, which the
resulting to collectible or refundable employee no longer filed.
return. 2. It contains the employer's
3. Employees whose monthly gross certification that he has reported
compensation income does not the employee's income to the BIR
exceed P5,000 or the statutory and that he has remitted the taxes
minimum wage, whichever is higher, on the employee's income, as
and opted for non-withholding of tax indicated in BIR Form No. 1604-CF.
on said income. 3. It serves as proof of financial
4. Individuals deriving other non- capacity in case the employee
business, non-profession-related decides to apply for a bank loan or a
income in addition to compensation credit-card, or for any other
income not otherwise subject to purpose, as if he had in fact filed a
final tax. BIR Form No. 1700.
5. Individuals receiving purely
compensation income from a single INDIVIDUALS REQUIRED TO FILE AN
employer although the income tax of INFORMATION RETURN
which has been correctly withheld,
but whose spouse falls under 1 to 4 Individuals not required to file an
above. income tax return may nevertheless be
6. Non-resident aliens engaged in trade required to file an information return
or business in the Philippines pursuant to rules and, regulations
deriving purely compensation prescribed by the Secretary of Finance
income, or compensation income upon recommendation of the
and other non-business, non- Commissioner.
profession-related income.
PLACE OF FILING
NOTE: Non-filing of ITR, for employees
who are qualified for the substituted 1. Legal residence - authorized agent
filing shall be OPTIONAL for the taxable bank; Revenue District Officer;
year 2001, the returns for which shall be Collection agent or duly authorized
filed on or before April 15, 2002. treasurer
Thereafter, substituted filing where 2. Principal place of business
3. With the Office of the Commissioner UNMARRIED MINOR
Time For Filing (Pay as you file system) parent shall be included in the
return of the parent, except:
April 15 – for those earning sole a. when donor’s tax has been paid
compensation income or solely business, on such property, or
practice of profession or combination of b. when transfer of such property is
business and compensation. exempt from donor’s tax
Exception:
Where such compensation
income of an individual:
1. Does not exceed the statutory obligor may be required/permitted
minimum wages; or to pay or to retain therefrom.
2. Five thousand (P5,000) monthly
(P60,000 a year) Obligor shall deduct and withhold a
whichever is higher. tax = 30% of the interest and other
payments whether interest or other
ELEMENTS OF WITHHOLDING ON payments are payable annually or at
COMPENSATION a shorter period; whether bonds,
1. There must be an employer- securities, obligations had been/will
employee relationship be issued/ marketed and the
2. There must be payment of interest and other payments paid
compensation or wages for services within and without the Philippines if
rendered the interest or other payment is
3. There must be a payroll period. payable to a non-resident alien or a
COMPENSATION EXEMPTED citizen or resident of the Philippines
Income of Recipient [Sec. 58 (d)]
1. Remunerations received as an
incident of employment Income which any creditable tax is
2. Remunerations paid for agriculture required to be withheld at source
labor shall be included in the return of its
3. Remunerations paid for domestic recipient.
services The excess of the amount of tax
4. Remunerations for casual not in the withheld over the tax due on his
course of an employer's trade or return shall be refunded to him,
business. subject to Section 204 (abatement,
5. Compensation for services of a refund/credit taxes).
citizen, resident of the Philippines, If amount withheld at source is less
for a foreign government or an than the tax due on his return, the
international organization difference is paid in accordance with
6. Damages Section 56 (payment and assessment
7. Life insurance of income tax).
8. Amount received by the insured as All taxes withheld shall be
return of premium considered as trust funds and
9. Compensation for injuries and maintained in a separate account
sickness and not commingled with any other
10. Income exempt under treaty funds of the withholding agent.
11. Thirteenth (13th) month pay and
other benefits
12. GSIS; SSS; Philhealth and other B. TRANSFER TAXES
contributions,
TRANSFER TAX INCOME TAX
Tax-Free Covenant BOND [Sec. 57(C)]
Tax on transfer of Tax on income
COVENANT BONDS – bonds, mortgages, property.
deeds of trust and other similar
obligations of domestic/resident foreign Rates are lower Rates are higher
corporation, which contain a --5% to 20% - -- 5% to 32%
contract/provision by which the obligor estate tax
agrees; -- 2% to 15 % or
1. to pay any portion of the tax 30% - donor’s
tax
imposed upon the obligee;
2. to reimburse the obligee for any Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the
(1) ESTATE TAXES The statute in force at the time of
death of the decedent shall govern
DEFINITION: an excise tax on the right of estate taxation.
transmitting property at the time of
death and on the privilege that a person Intangible personal properties with a
is given in controlling to a certain extent situs in the Phil. (Sec. 104, 1997
the disposition of his property to take NIRC)
effect upon death.
1. Franchise which must be exercised
in the Philippines;
Estate Tax Formula 2. Shares, obligations or bonds issued
by any corporation or sociedad
Gross Estate (Sec. 85) anonima organized or constituted in
Less: (1) Deductions (Sec. 86) the Philippines in accordance with
(2)Net share of the SS in the CPP its laws;
Net Taxable Estate 3. Shares, obligations or bonds issued
Multiply by: Tax rate (Sec. 84) by any foreign corporation eighty-
five per centum (85%) of the
Estate Tax due
business of which is located in the
Less: Tax Credit [if any] (Sec. 86[E] or
Philippines;
110[B]
4. Shares, obligations or bonds issued
Estate Tax Due, if any by any foreign corporation, if such
shares, obligations or bonds have
acquired a business situs in the
GROSS ESTATE Philippines;
5. Shares or rights in any partnership,
A decedent’s gross estate includes business or industry established in
(Sec. 85) the Philippines.
II
Service of Warrant of Distraint
(Sec. 208) III
Posting of Notice
(Sec. 209, NIRC)
With respect to:
1. Personal property – Notice specifying the time and place
(a) upon the owner of the goods, of sale and the articles distrained. The
chattels, or other personal posting shall be made in not less than
property; or two (2) public places in the city or muni-
(b) upon the person from whose cipality where the distraint is made.
possession such properties are One place for posting of such notice is at
taken. the Office of the Mayor of such city or
2. Stocks and other securities municipality.
(a) upon the taxpayer; and
(b) upon the president, manager,
treasurer or other responsible
officer of the corporation,
company or association which IV
issued the said stock and Sale of Property Distrained
securities.
3. Bank accounts shall be garnished by
serving a warrant of distraint –
(a) upon the taxpayer; and The taxpayer’s property may be placed
(b) upon the president, manager, under constructive distraint when he
treasurer, or other responsible
officer of the bank. 1. is retiring from any business subject
Note: Upon receipt of the warrant of to tax;
distraint, the bank shall turn over to the 2. is intending to –
Commissioner so much of the bank a. leave the Philippines,
accounts as may be sufficient to satisfy b. remove his property therefrom,
the claim of the government. c. hide or conceal his property,
3. is performing any act tending to REQUISITES FOR THE EXERCISE OF THE REMEDY
obstruct the proceeding for OF LEVY
collecting the tax due or which may
be due from him (Sec. 223, 1997 Same as in the remedy of distraint.
NIRC).
The lien shall not be valid against NOTE: Judicial action may be resorted
any mortgagee, purchaser, or judgment to even before assessment although
creditor until notice of such lien shall be impractical, as stated in Sec. 203, 1997
filed by the Commissioner of Internal NIRC, “… and no proceeding in court
Revenue in the Office of the Register of without assessment for the collection of
Deeds of the province or city where the such taxes shall be begun after the
property of the taxpayer is situated or expiration of such (3year) period.”
located (Sec. 219, 1997 NIRC). It should be noted that no civil
or criminal action for the recovery of
taxes shall be filed in court without the
When does it Attach? approval of the Commissioner.
DEFINITION: For tax remedy purposes, Defenses which are precluded by final
these are actions instituted by the and executory assessments
government to collect internal revenue
taxes. It includes filing by the 1. Invalidity or illegality of the
government with the probate court assessment; and
claims against the deceased taxpayer. 2. Prescription of the government’s
right to assess.
When resorted to?
(6) CRIMINAL ACTIONS
1. When a tax is assessed but the
assessment becomes final and The judgment in the criminal case
unappealable because the taxpayer shall not only impose the penalty but
fails to file an administrative shall also order the payment of taxes
protest with the CIR within 30 days subject of the criminal case as finally
from receipt; or decided by the Commissioner (Sec. 205,
2. When a protest against assessment is NIRC).
filed and a decision of the CIR was
rendered but the said decision Where to file
becomes final, executory, and
demandable for failure of the
1. Court of Tax Appeals – on criminal In case of insolvency on the part of
offenses arising from violations of the taxpayer, subsidiary imprisonment
the NIRC or TCC and other laws cannot be imposed as regards the tax
administered by the BIR and the which he is sentenced to pay.
BOC, where the principal amount of However, it may be imposed in cases
taxes and fees, exclusive of charges of failure to pay the fine imposed. (Sec.
and penalties claimed is One million 280, 1997 NIRC)
pesos and above.
2. Regional Trial Court, Municipal
Trial Court, Metropolitan Trial
Court – on criminal offenses arising
from violations of the NIRC or TCC
and other laws administered by the CRIMINAL ACTION MAY BE FILED
BIR and the BOC, where the principal DURING THE PENDENCY OF AN
amount of taxes and fees, exclusive ADMINISTRATIVE PROTEST IN THE BIR
of charges and penalties claimed is
less than One million pesos or where It is not a requirement for the
there is no specified amount filing thereof that there be a precise
claimed. (Sec. 7, RA No. 9282) computation and assessment of the tax,
since what is involved in the criminal
IMPORTANT CONSIDERATIONS action is not the collection of tax but a
criminal prosecution for the violation
1. No criminal action shall be of the NIRC. Provided, however, that
begun without the approval of the there is a prima facie showing of a
Commissioner. (Sec. 220, 1997 NIRC) willful attempt to evade taxes. (See
2. It shall be brought in the Ungab vs. Cusi, GR Nos. L-41919-24, May
name of the Government and shall 30, 1980 in relation to Commissioner vs.
be conducted by the legal officers of Court of Appeals, GR No. 119322, June
the BIR. 4, 1996)
2. INTEREST
- 20% per annum or such higher rate
as may be prescribed by the rules
and regulations
c. Levied for public purposes
d. Shall not be unjust, excessive,
III. LOCAL TAXATION oppressive, or confiscatory
e. Shall not be contrary to law,
POWERS AND LIMITATIONS public policy, national
economic policy, or in restraint
NATURE AND SOURCE OF LOCAL of trade
TAXING POWER (SEE. SEC 5, ART. X, f. Collection of local taxes and
1987 CONSTITUTION AND SEC. 129, other impositions shall not be
LGC) let to any person
g. The revenues collected under
The Local Government Unit has the the Code shall inure solely to
power: the benefit of, and subject to
a. to create its own sources of disposition by, the LGU levying
revenue and the tax or other imposition
b. to levy taxes, fees and charges. unless otherwise specifically
provided therein
Congress cannot enact laws h. Each LGU shall, as far as
depriving LGU from exercising such practicable, evolve a
power to tax but it may set guidelines progressive system of taxation.
and limitations for the exercise.
Such taxes, fees, and charges Local Taxing Authority (Sec. 132, lgc)
shall accrue exclusively to the local Shall be exercised by the Sanggunian
government units. of the LGU concerned through an
appropriate ordinance.
Nature of the Taxing Power
a. Not inherent; Power to prescribe Penalties for Tax
b. Exercised only if delegated to Violations and Limitations thereon
them by law or Constitution; (Sec. 516, lgc)
c. Not absolute; subject to 1. The Sanggunian is authorized to
limitations provided for by law. prescribe fines or other penalties
for violations of tax ordinances.
Under the present constitutional a. in no case shall fines be less
rule, “where there is neither a grant nor than P1,000 nor more than
a prohibition by statute, the tax power P5,000
must be deemed to exist although b. nor shall the imprisonment be
Congress may provide statutory less than one (1) month nor
limitations and guidelines. The basic more than six (6) month.
rationale for the current rule is to 2. Such fine or other penalty shall be
safeguard the viability and self- imposed at the discretion of the
sufficiency of local government units by court.
directly granting them general and broad 3. The Sangguniang Barangay may
tax powers.” (Manila Electric Co. vs. prescribe a fine of not less than
Province of Laguna, G.R. No. 131359) P100 nor more than P1,000.
Aspects of Local Taxing Power Power to Adjust Local Tax Rate (Sec.
a. local taxation 191, lgc)
b. real property taxation Adjustment of the tax rates as
prescribed herein should not be oftener
Fundamental Principles governing than once every five (5) years, and in no
Local Taxation (Sec. 130, lgc) case shall such adjustment exceed ten
a. Shall be uniform in each local percent (10%) of the rates fixed under
sub-unit the LGC.
b. Shall be equitable and based as
much as possible on the Power to Grant Local Tax Exemptions
taxpayer’s ability to pay (Sec. 192, lgc)
Local government units may, months as may be provided in
through ordinances duly approved, the ordinance.
grant tax exemptions, incentives or E. In the case of shared revenues,
reliefs under such terms and conditions, the exemption or relief shall only
as they may deem necessary. extend to the LGU granting such
exemption or relief.
Tax Exemptions Existing Before the 2. On the grant of tax incentives:
Effectivity of the LGC has been a. The same shall be granted only
Abolished (Sec. 193, lgc) to new investments in the
Unless otherwise provided in this locality and the ordinance shall
Code, tax exemptions or incentives prescribe the terms and
granted to, or presently enjoyed by all conditions therefore.
persons, whether natural or juridical, b. The grant shall be for a definite
including government-owned or period of not exceeding 1
controlled corporations are hereby calendar year.
withdrawn upon the effectively of the c. The grant shall be by ordinance
LGC passed prior to the 1 st day of
except the following: January of any year.
8. local water districts, d. Any grant to a type or kind of
9. cooperatives duly registered under business shall apply to all
R.A. No. 6938, non-stock and non- businesses similarly situated.
profit hospitals and
10. educational institutions. LEVYING OF LOCAL TAXES (LOCAL TAX
ORDINANCE)
The power to grant tax exemptions, Requisites:
tax incentives and tax reliefs shall not 1. The procedure applicable to local
apply to regulatory fees which are government ordinances in general
levied under the police power of the should be observed (Sec. 187, LGC)
LGU. 2. Procedural details (Secs. 54, 55, and
Tax exemptions shall be conferred 59, LGC):
through the issuance of a non- a. necessity of a quorum
transferable tax exemption certificate. b. submission for approval by the
local chief executive
Guidelines for the Granting of Tax c. he matter of veto and overriding
Exemptions, Tax Incentives and Tax the same
Reliefs (Art. 282[b], Rules and d. the publication and affectivity
Regulations Implementing the Lgc) 3. Public hearings are required before
any local tax ordinance is enacted
1. On the grant of tax exemptions or (Sec.187, LGC)
tax reliefs: 4. Within 10 days after their approval,
a. the same may be granted in publication in full for 3 consecutive
cases of natural calamities, civil days in a newspaper of general
disturbance, general failure of circulation. In absence of such
crops, or adverse economic newspaper in the province, city or
conditions such as substantial municipality, then the ordinances
decrease in prices of agricultural may be posted in at least 2
or agri-based products. conspicuous and publicly accessible
b. The grant shall be through an places (Sec. 189, LGC)
ordinance.
c. Any exemption or relief granted Residual Taxing Powers of the Local
to a type or kind of business shall government units (Sec. 186, lgc)
apply to all business similarly To levy taxes, fees or charges on any
situated. base or subject NOT:
D. The same shall take effect only 1. Specifically enumerated in LGC
during the next calendar year for 2. Taxed under the provisions of
a period not exceeding 12 the NIRC, as amended, and
3. Other applicable laws COMMON LIMITATIONS ON LOCAL
TAXING POWER (SEC. 133, LGC)
Conditions: Local government units cannot levy:
1. That the taxes, fees, or charges shall 1. Income tax, except on banks and
not be unjust, excessive, oppressive, other financial institutions;
confiscatory or contrary to declared 2. Documentary stamp tax;
national policy 3. Estate tax, inheritance, gifts,
legacies and other acquisitions
2. The ordinance levying such taxes, mortis causa except as
fees or charges shall not be enacted otherwise provided
without any prior public hearing 4. Customs duties, registration fees
conducted for the purpose. of vessels and wharfage on
wharves, tonnage dues and all
LIMITATIONS OF THE RESIDUAL POWER other kinds of customs fees,
1. Constitutional limitations on charges and dues except
taxing power wharfage on wharves
2. Common limitations prescribed constructed and maintained by
in Sec. 133 of the LGC the local government unit
3. Fundamental principles concerned;
governing the exercise of the 5. Taxes, fees, charges and other
taxing power of the LGUs impositions upon goods carried
prescribed under Sec. 130 of into or out of, or passing
the LGC through, the territorial
4. The ordinance levying such jurisdictions of local government
residual taxes shall not be units in the guise of charges for
enacted without any prior wharfage, tolls for bridges or
public hearing conducted for otherwise.
the purpose and 6. Taxes, fees or charges on
5. The principle of preemption. agricultural and aquatic products
when sold by marginal farmers
Principle of Preemption or or fishermen;
Exclusionary doctrine 7. Taxes on business enterprises
Where the National Government certified by the Board of
elects to tax a particular area, it Investments as pioneer or
impliedly withholds from the local non-pioneer for a period of 6
government the delegated power to tax and 4 years, respectively, from
the same field. This doctrine principally the date of registration;
rests on the intention of the Congress. 8. Excise taxes on articles
enumerated under the NIRC, as
Excluded impositions (pursuant to the amended, and taxes, fees or
doctrine of preemption): charges on petroleum products;
a. Taxes which are levied under the 9. Percentage or value-added tax
NIRC, unless otherwise provided (VAT) on sales, barters or
by LGC of 1991; exchanges or similar transactions
b. Taxes, fees, etc. which are on goods or services except as
imposed under the Tariffs and otherwise provided herein;
Customs Code; 10. Taxes on the gross receipts of
c. Taxes, fees, etc., the imposition transportation contractors and
of which contravenes existing persons engaged in the
governmental policies or which transportation of passengers or
violates the fundamental freight by hire and common
principles of taxation; carriers by air, land or water,
d. Taxes, fees and other charges except as provided in the Code;
imposed under special law. 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.
CLASSIFICATION OF COMMON
LIMITATIONS
1. Taxes which are levied under the
NIRC unless otherwise provided by
the LGC
Numbers 1, 2, 3, 8, 9, 10
2. Taxes, fees, etc. which are imposed
under the Tariffs and Customs Code
Number 4
3. Taxes, fees and charges where the
imposition of which contravenes
existing governmental policies or
which are violative of the
fundamental principles of taxation
Numbers 5, 6, 7, 11, 13, 14, 15
4. Taxes, fees, and charges imposed
under special laws.
Number 12
TAXES AND OTHER IMPOSITIONS THAT THE b. The tax on a business must be paid by
LOCAL GOVERNMENT MAY LEVY the person conducting the same.
c. In cases where a person conducts or
(A)PROVINCES operates 2 or more of the businesses mentioned
(SECS. 134-141, LGC) in Section 143 of LGC
1. Tax on Transfer of Real Property - which are subject to the same rate of
2. Tax on Business of Printing and tax, the tax shall be computed on the combined
Publication total gross sales or receipts of the said 2 or
3. Franchise Tax more related businesses.
4. Tax on Sand, Gravel and other Quarry - which are subject to different rates of
Resources extracted from Public Land tax, the gross sales or receipts of each business
5. Professional Tax shall be separately reported for the purpose of
6. Amusement Tax computing the tax due from each business.
7. Annual Fixed Tax for every Delivery
Truck or Van of Manufacturers or Producers, See Annex K for the rates and details.
Wholesalers of, Dealers, or Retailers in, certain
products (C)CITIES
(SEC. 151, LGC)
See Annex J for the rates and details.
The city may levy the taxes, fees, and
MUNICIPALITIES charges which the province or municipality may
(SEC. 143, LGC) impose.
The tax rates that the city may levy may
1. Municipal Taxes- taxes on the businesses of exceed the maximum rates allowed for the
the following: province or municipality by not more than
a. On manufacturers, assemblers, 50% except the rates of professional and
repackers, processors, brewers, distillers, amusement taxes.
rectifiers, and compounders of liquors, distilled
spirits, and wines or manufacturers of any (D) BARANGAYS
article of commerce of whatever kind or (SEC. 152, LGC)
b. On wholesalers, distributors, or
dealers in any article of commerce of whatever Barangays may levy the following taxes, fees,
kind or and charges which shall accrue exclusively to
c. On exporters, and on manufacturers, them:
millers, producers, wholesalers, distributors,
dealers or retailers of essential commodities
d. On retailers a. Taxes – On stores or retailers with
e. On contractors and other independent fixed business establishments with the gross
f. On banks and other financial sales or receipts for the preceding calendar
g. On peddlers engaged in the sale of any year of P50,000 or less (for barangays in the
merchandise or article of commerce cities) and P30,000 or less (for barangays in
h. On any business, not otherwise municipalities)
specified in the preceding paragraphs, which b. Rate = not exceeding 1% of such gross
the sanggunian concerned may deem proper to sales or receipts.
tax. c. Service Fees or Charges – For services
rendered in connection with the regulation or
2. Municipal non-revenue fees and charges the use of barangay-owned properties or
The municipality may impose and service facilities such as palay, copra or
collect such reasonable fees and charges on tobacco dryers
business and occupation except professional d. Barangay Clearance – No city or
taxes reserved for provinces. (Sec. 147. LGC) municipality may issue any license or
permit fee for any business or activity
Rates of Tax within the Metropolitan Manila unless a clearance is first obtained
Area (sec. 144, lgc) from the barangay where such
business or activity is located or
- Not to exceed by 50% the maximum conducted.
rates prescribed in the preceding Section. e. Other Fees and Charges – The
barangay may levy reasonable fees
Payment of Business Taxes and charges:
a. It shall be payable for every separate 1. On Commercial breeding of
or distinct establishment or place where fighting cocks, cockfights and
business subject to the tax is conducted and cockpits;
one line of business does not become exempt by 2. On places of Recreation which
being conducted with some other business for charge admission fees; and
which such tax has been paid. 3. On Billboards, signboards, neon
signs and outdoor advertisements.
SITUS OF LOCAL TAXATION 5. 70% of recorded sales in the
principal office: city or municipality
A. Situs According to the Cases where the FPPP is located
With respect to excise tax, the pro rata if FPPP are located in
tax is upon the performance of an act, different municipalities or cities
enjoyment of a privilege or the engaging in proportion to their respective
in an occupation. The power to levy such volumes of production.
tax is not dependent on the domicile of 6. If plantation is located in some other
the taxpayer, but on the place in which place than where the factory is
the act is performed or the occupation is located, the foregoing 70% shall be
engaged in; not upon the location of the subdivided as follows:
office, but the place where the sale is 60% to the city or municipality
perfected. (Allied Thread Co., Inc. v. where the factory is located
City Mayor of Manila, L-40296) 40% to the city or municipality
where the plantation is located.
With respect to sale, it is the
place of the consummation of the sale, COMMON REVENUE-RAISING POWERS
associated with the delivery of the OF LGUs (SEC. 153 TO 155)
things which are the subject matter of 1. Service fees and charges for services
the contract that determines the situs of rendered
the contract for purposes of taxation, 2. Public Utility Charges for the
and not merely the place of the operation of public utilities owned,
perfection of the contract. (Shell Co., operated and maintained by LGUs
Inc. v. Municipality of Sipocot, within their jurisdiction.
Camarines Sur 105 Phil 1263) 3. Toll fees or charges for the use of
any public road, pier or wharf,
B. Situs According to Sec. 150, LGC waterway, bridge, ferry or
telecommunication system funded
Branch or sales office – a fixed place in and constructed by the local
the locality which conducts the government unit concerned
operation of the business as an extension Exceptions:
of the principal office a. Officers and enlisted men of the
AFP and PNP;
Principal office- the head or the main b. Post office personnel delivering
office of the business; the city or the mail; and
municipality specifically mentioned in c. Physically handicapped and
the Articles of Incorporation or official disabled citizens who are
registration papers as being the official sixty-five (65) years or older.
address of said principal office shall be (Sec. 152, LGC)
considered the situs thereof.
When public safety and welfare so
1. Place of sale (with branch or sales requires, the sanggunian concerned may
outlet therein): discontinue the collection of the tolls,
Municipality or city where the and thereafter the said facility shall be
branch or outlet is located. free and open for public use.
2. Place of sale (no branch or sales
outlet): COMMUNITY TAX
Municipality or city of principal Cities or municipalities may levy a
office (not in the place of sale) community tax.
3. If manufacturer, assembler,
contractor, producer, or exporter A.Individuals Liable (Sec. 157)
(MACPE) with factory, project office, a. every inhabitant of the
plant or plantation (FPPP) Philippines;
4. 30% of recorded sales in the principal b. eighteen (18) years of age or
office: city or municipality where over;
the principal office is located
c. under any of the following the gross receipts or earnings of said
instances: corporation.
d. who has been regularly
employed on a wage or salary THE FOLLOWING ARE EXEMPT FROM
basis for at least thirty (30) THE COMMUNITY TAX (SEC. 159)
consecutive working days 1. Diplomatic and consular
during any calendar year; or representatives; and
e. who is engaged in business or 2. Transient visitors when their stay in
occupation; or the Philippines does not exceed
f. who owns real property with three (3) months.
an aggregate assessed value
of P1,000 or more; or PLACE OF PAYMENT: place of residence
g. who is required by law to file of the individual, or in the place where
an income tax return the principal office of the juridical
entity is located.
Tax Rate = P5.00 and an annual
additional tax of P1.00 for every TIME OF PAYMENT: accrues on the 1st
P1,000 of income regardless of day of January of each year which shall
whether from business, exercise of be paid not later than the last day of
profession or from property which in February of each year.
no case shall exceed P5,000.
In case of husband and wife, PENALTIES FOR DELINQUENCY: an
the additional tax herein imposed interest of 24% per annum from the due
shall be based upon the total date until it is paid shall be added to the
property owned by them and the amount due.
total gross receipts or earnings
derived by them. A community tax certificate may
also be issued to any person or
B. Juridical Persons (Sec. 158) corporation not subject to the
Every corporation no matter how community tax upon payment of P1.00
created or organized, whether (Sec. 162, LGC).
domestic or resident foreign,
engaged in or doing business in the Presentation of Community Tax
Philippines shall pay an annual Certificate on Certain Occasions – (Sec.
community tax. 163)
A. Individual
Tax Rate = P500 and an annual 1. When an individual subject to
additional tax which in no case shall the community tax
exceed P10,000 in accordance with the acknowledges any document
following schedule: before a notary public;
1. For every P5,000 worth of real 2. takes the oath of office upon
property owned by it during the election or appointment to
preceding year based on the any position in the
valuation used for the payment government service;
of the real property tax - P2.00; 3. receives any license,
and certificate or permit from any
2. For every P5,000 of gross public authority; pays any tax
receipts or earnings derived by or fee;
it from its business in the 4. receives any money from any
Philippines during the preceding public fund;
year - P2.00. 5. transacts other official
business; or
The dividends received by a 6. receives any salary or wage
corporation shall, for the purpose of the from any person or
additional tax, be considered as part of corporation.
The presentation of the community tax Time of Payment – (Sec. 167, LGC)
certificate shall not be required in Unless otherwise provided shall
connection with the registration of a be paid within the first twenty (20)
voter. days of January or of each
subsequent quarter as the case may
B. Corporation be.
1. receives any license, certificate May, for a justifiable reason or
or permit from any public cause, be extended without
authority; surcharges or penalties, but only for
2. pays any tax or fee; a period not exceeding six (6)
3. receives money from public months.
funds; or
4. transacts other official business. Surcharges and Penalties on Unpaid
The city of municipal treasurer Taxes, Fees or Charges – (Sec. 168,
deputizes the barangay treasurer to LGC)
collect the community tax in their Surcharge not exceeding 25% of
respective jurisdictions. (Sec. 164, LCG) the amount of taxes, fees or charges
including surcharges, until such
The proceeds of the community tax amount is fully paid.
actually and directly collected by the But in no case shall the total
city or municipal treasurer shall accrue interest on the unpaid amount or
entirely to the general fund of the city or portion thereof exceed thirty-six
municipality concerned. (36) months.
Proceeds of the community tax
Interests on Other Unpaid Revenues –
collected through the barangay
(Sec. 169, LGC)
treasurers shall be apportioned as
An interest thereon at the rate
follows:
not exceeding 2% per month from the
50% accrues to the general fund date it is due until it is paid, but in no
of the city or municipality case shall the total interest on the
concerned; and unpaid amount or portion thereof
50% accrues to the barangay exceed thirty-six (36) months.
where the tax is collected.
Collection of Local Revenues by the
Collection Of Local Taxes Treasurer – (Sec. 170 LGC)
All local taxes, fees and charges
Tax Period and Manner of Payment – shall be collected by the provincial, city,
(Sec. 165, LGC) municipal or barangay treasurer, or their
Unless otherwise provided, the duly authorized deputies.
tax period shall be the calendar The provincial, city or municipal
year. treasurer may designate the barangay
Such taxes, fees, and charges treasurer or his deputy to collect local
may be paid in quarterly taxes, fees or charges.
installments. In case a bond is required for the
purpose, the provincial, city or
Accrual of Tax – (Sec. 166, LGC) municipal government shall pay the
Unless otherwise provided, shall premiums thereon in addition to the
accrue on the first day of January of premiums of the bond that may be
each year. required under the Code.
However, new taxes, fees or
charges, or changes in the rates
thereof, shall accrue on the first
day of the quarter next following
the effectivity of the ordinance
imposing such new levies or rates.
LOCAL TAX REMEDIES local taxes are involved. But it cannot
negate the procedural rules and
UNDER THE LGC requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989)
1. TAX REMEDIES OF THE
LOCAL GOVERNMENT UNITS (LGUs)
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT
Civil Remedies Of The Local AND COLLECTION
Government Units (LGU) To Effect OF LOCAL TAXES
Collection Of Taxes PRESCRIPTIVE PERIODS OF ASSESSMENT
(1) Local Government’s Lien – Local 1. Local taxes, fees, or charges – five
taxes, fees, charges and other (5) years from the date they became
revenues constitute a lien, superior due. (Sec. 194, LGC).
to all liens, charges or 2. When there is fraud or intent to
encumbrances in favor of any evade the payment of taxes, fees
person, enforceable by any or charges – ten (10) years from
appropriate administrative or discovery of the fraud or intent to
judicial action. evade the payment (Sec. 194, LGC).
(2) Civil Remedies PRESCRIPTIVE PERIOD OF COLLECTION
Local taxes, fees, or charges
(a) by administrative action through may be collected within five (5) years
distraint of personal property from the date of assessment by
and by levy upon real property administrative or judicial action. No
such action shall be instituted after the
(b) by judicial action expiration of such period (Sec. 194,
LGC).
GROUNDS FOR THE SUSPENSION OF
Either of these remedies or all may THE RUNNING OF THE PRESCRIPTIVE
be pursued concurrently or PERIODS
simultaneously at the discretion of the a. The treasurer is legally
LGU concerned. prevented from the assessment
or collection of the tax;
JURISDICTION OF COURTS OVER LOCAL b. The taxpayer requests for a
TAXATION CASES reinvestigation and executes a
waiver in writing before the
a. With the amendment brought by expiration of the period within
RA No. 9282, the Court of Tax which to assess or collect; and
Appeals now has appellate c. The taxpayer is out of the
jurisdiction over local taxation country or otherwise cannot be
cases decided by the Regional located (Sec. 194, LGC).
Trial Court in the exercise of its
appellate or original jurisdiction. 2. TAX REMEDIES OF
b. Regular judicial courts are not THE TAXPAYER
prohibited from enjoining the
collection of local taxes, subject Remedies Of The Taxpayer In Local
to Rule 58 (Preliminary Taxation
Injunction) of the Rules of Court.
A.ADMINISTRATIVE
Note: Unlike the NIRC, the Local Tax Before assessment
Code does not contain any specific a. Appeal – any question on
provision prohibiting courts from constitutionality or legality of tax
enjoining the collection of local taxes. ordinance within 30 days from
Such statutory lapse or intent may have
allowed preliminary injunction where
effectivity thereof to Secretary of
Justice (Sec. 187 LGC)
b. Declaratory relief whenever
applicable.
After assessment
a. Protest – within 60 days from receipt
of assessment (Sec. 195 LGC).
Payment under protest is not
necessary.
B. JUDICIAL
1. Court action
within 30 days after receipt of
decision or lapse of 60 days of
Secretary of Justice’s inaction
(Sec. 187 LGC)
within 30 days from receipt
when protest of assessment is
denied (Sec. 195 LGC)
if no action is taken by the
treasurer in refund cases and the
two year period is about to lapse
(Sec. 195 LGC)
if remedies available does not
provide plain, speedy and
adequate remedy.
2. Action for declaratory relief
3. Injunction – if irreparable damage
would be caused to the taxpayer and
no adequate remedy is available.
assessed value
IV. REAL PROPERTY 2. City not exceeding 2%
TAXATION
3. Municipality not exceeding 2%.
within Metro
Definitions: Manila
REAL PROPERTY TAXATION – A direct
tax on ownership of lands and
buildings or other improvements FUNDAMENTAL PRINCIPLES GOVERNING
thereon payable regardless of REAL PROPERTY TAXATION (SEC. 198,
whether the property is used or LGC)
not, although the value may vary 1. Real property shall be appraised at
in accordance with such factor. its current and Fair market value;
Under the LGC, it covers 2. Real property shall be classified for
the administration, appraisal, assessment purposes on the basis of
assessment, levy and collection actual Use.
of Real Property Tax, i.e. tax on 3. Real property shall be assessed on
land and building and other the basis of Uniform classification
structures and improvements on within each LGU
it, including machineries. 4. The appraisal, assessment, levy and
collection of RP Tax shall not be let
REAL PROPERTY – subject to the to any Private person
definition given by Art. 415 of 5. The appraisal and assessment of real
the Civil Code. property shall be Equitable.
within 30 days
within 15 days
SUPREME COURT
B. JUDICIAL
1. Court Action – appeal of CBAA’s
decision to Court of Tax Appeals en
banc.
2. Suit assailing validity of tax;
recovery of refund of taxes paid
(Sec. 64 PD 464).
3. Suit to declare invalidity of tax due
to irregularity in assessment and
collection (Sec. 64 PD 464)
4. Suit assailing the validity of tax sale
(Sec. 83 PD 464) (Sec. 267 LGC)
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
EXEMPT TRANSACTIONS (SECTION 109): 7. Section 109(z) provides that the sale
1. In Section 109(a) and (c), food and or lease of goods or performances of
non-food products are VAT-exempt services other than those mentioned
as long as these products are in its in the preceding paragraphs are VAT
original state. The simple process of exempt if the Gross Annual Receipts
preparation or preservation for the do not exceed P550,000.00.
market such as freezing, drying, However, the limitation of
salting, broiling, roasting, smoking, P550,000.00 does apply for those
or stripping does not remove the transactions from Section 109(a) to
product from its category of being in (y), except (x) because Revenue
its original state. Regulations No. 6-97 imposes a
However, even if the products were P550,000.00 limitation.
no longer in its original state, it can
still be VAT-exempt under Section In cases of tax-free importation of
109(r), if sold by agricultural goods into the Philippines by
cooperatives duly registered by persons, entities or agencies exempt
Cooperative Development Authority. from tax where such goods are
2. Under Section 109(m), private subsequently sold, transferred or
educational institutions are exempt exchanged in the Philippines to non-
exempt persons or entities, the person in the course of his trade or
purchasers, transferees or recipients business on importation of goods or local
shall be considered the importers purchase of goods or services, including
thereof, who shall be liable for any lease or use of property, from a VAT-
internal revenue tax on such registered person. It shall also include
importation. The tax due on such the transitional input tax determined in
importation shall constitute a lien on accordance with Section 111 of the
the goods superior to all charges or NIRC.
liens on the goods, irrespective of
the possessor thereof. "OUTPUT TAX" means the value-added
tax due on the sale or lease of taxable
TRANSACTIONS DEEMED SALE: goods or properties or services by any
person registered or required to register
The following transactions shall be under Section 236 of the NIRC.
deemed sale therefore making them
covered by VAT: If at the end of any taxable quarter
the output tax exceeds the input
(1) Transfer, use or consumption not in tax, the excess shall be paid by the
the course of business of goods or VAT-registered person. If the input
properties originally intended for sale or tax exceeds the output tax, the
for use in the course of business; excess shall be carried over to the
(2) Distribution or transfer to: succeeding quarter or quarters. Any
(a) Shareholders or investors as input tax attributable to the
share in the profits of the VAT-registered purchase of capital goods or to zero-
persons; or rated sales by a VAT-registered
(b) Creditors in payment of debt; person may at his option be
(3) Consignment of goods if actual sale is refunded or credited against other
not made within sixty (60) days following internal revenue taxes, subject to
the date such goods were consigned; and the provisions of Section 112.
(4) Retirement from or cessation of
business, with respect to inventories of
taxable goods existing as of such OPTIONS OF A TAXPAYER AS PROVIDED
retirement or cessation. IN SECTION 112:
1. to claim for tax credit; or
How to determine the VAT: The tax 2. to claim for refund
shall be computed by multiplying the
total amount indicated in the invoice by The claim, which must be in writing,
one-eleventh (1/11). for both cases, must be filed within 2
years after the close of the taxable
Example: the total amount indicated in quarter when the sales were made for:
the invoice is P110. P110/11 = P10. P10 a) the issuance of a tax credit
is the amount of VAT. certificate; b) refund of creditable input
tax due or paid attributable to such
TAX CREDIT AND REFUND sales.