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TAXATION II – Reviewer (Atty.

Bolivar Notes) The phrase 'in the course of trade or business' means the regular conduct or pursuit
of a commercial or an economic activity, including transactions incidental thereto,
by any person regardless of whether or not the person engaged therein is a
TITLE 4
nonstock, nonprofit private organization (irrespective of the disposition of its net
VALUE ADDED TAX income and whether or not it sells exclusively to members or their guests), or
government entity.
Chapter 1 – Imposition of Tax
The rule of regularity, to the contrary notwithstanding, services as defined in this
Why is this tax called “Value Added Tax”? Code rendered in the Philippines by nonresident foreign persons shall be considered
This tax is called VAT because the tax payable by the seller, etc. is based on the as being course of trade or business.
values added by him to the cost of goods or merchandise which he previously
purchased which he in turn sells to his customers. There values are the input tax
and gross profit.  [Mem!] Value-added tax is a percentage tax imposed at every stage of
the distribution process on the sale, barter, exchange, or lease of goods, or
A, a retailer purchased from B, a wholesaler, an equipment with a cost of Php properties and on the performance of service in the course of trade or
10,000.00 plus value added tax of Php 1,200.00 or at a total cost of Php 11,200.00. business, or on the importation of goods, whether for business or non-
A sold said equipment to C with a profit of 20% based on total cost. business purposes. It is essentially a tax on spending or consumption
levied on certain transactions such tax being payable by the seller,
1. How much is the selling price of the equipment to C? transferor, lessor or importer.

Total Cost Php 11,200.00  The tax is so-called because it is imposed on the value not previously
Profit (Php 11,200.00 x 20%) 2,240.00 subjected to the VAT, i.e., on the value added to the goods or services at
Selling price without VAT Php 13,440.00 each stage of the distribution chain.
VAT (Php 13,440.00 x 12%) 1,612.80
Selling price with VAT Php 15,052.80 o Certain sales of goods and/or services are either 0-rated or
exempted from the VAT
2. How much is the VAT payable by A?
o Any person whose sales or receipts are exempt under Section
Output Tax Php 1,612.80 109(1)(V) of the Tax Code from payment of VAT and who is not a
LESS: Input Tax 1,200.00 VAT-registered person shall pay percentage tax equivalent to 3%
VAT Payable Php 412.80
Values Added o Any individual engaged in business or businesses where the
(Php 1,200.00+ Php 2,240.00) Php 3,440.00 aggregate gross sales or receipts do not exceed Php 100,000.00
Tax Rate 12% during any 12-month period shall be considered principally for
VAT Payable Php 412.80 subsistence or livelihood and not in the course of trade or
business, and shall be exempt from the payment of VAT and from
any percentage tax
SEC. 105. Persons Liable. - Any person (natural or juridical) who, in the course of
trade or business, sells barters, exchanges, leases goods or properties, renders o The dissolution of the co-ownership and the partition of the
services, and any person who imports goods (whether in the course of trade or properties is not a sale of goods and services
business or not) shall be subject to the value-added tax (VAT) imposed in Sections
106 to 108 of this Code. o The allocation of condominium units to partners of a joint venture
or consortium formed for the purpose of undertaking construction
The value-added tax is an indirect tax and the amount of tax may be shifted or projects as a return on their contributions is not subject to:
passed on to the buyer (but the VAT is payable to the BIR by the seller, transferor
or lessor or by the person who renders the services or by the importer), transferee  Income tax, because it is merely a return of contribution
or lessee of the goods, properties or services. This rule shall likewise apply to and no income is realized
existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.  VAT because it is not a sale, barter or exchange of real
property done in the ordinary course of business

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 Documentary stamp tax, because the transfer is without
consideration o Purchases by non-stock non-profit organizations are likewise
subject to VAT where there is no-showing that they are exempt
o A sale of lot which is involuntary and only forced upon the seller from VAT.
by virtue of the exercise of the government‟s power of eminent
domain cannot be said to have been conducted in the course of o While VAT is an indirect tax and can be shifted to the lessee, the
the taxpayer‟s trade or business and, therefore, not subject to lessor may elect to absorb the tax himself. Thus, where a lease
VAT. agreement provides that all taxes, government fees and charges
due on the land subject of the lease are to be paid by the lessor,
 VAT is an indirect tax. As such, it can be shifted to the the latter cannot legally pass on the VAT to the lessee by including
purchasers/transferees, or lessees of goods, properties, and services. it in the rental payments. The lessor is considered to have agreed
to absorb the VAT.
 As a general rule, the VAT system, uses the destination principle as a
basis for the jurisdictional reach of the tax. Goods and services are taxed o The sale of goods (such as office equipment) and services to
only in the country where they are consumed. Thus, exports are 0-rated, government agency is not exempt from VAT. Hence, the VAT on
while imports are taxed. the security services rendered to a government agency may be
passed on to said agency since VAT is an indirect tax
 Some basic principles governing VAT
o A diplomatic agent shall be exempt from all dues and taxes,
o It is the end user of consumer goods or services which ultimately personal or real, national, regional, or municipal except indirect
shoulders the tax, as the liability therefore/thereon is passed on to taxes of a kind which are normally incorporated in the price of
the end users by the providers of these goods or services who, in goods or services. Accordingly, the tax exemption of an Embassy
turn, may credit their own VAT liability (or input VAT) from the or its diplomatic agents does not include exemption from the VAT.
VAT payments they receive from the final consumer (or output In other words, purchases of locally-produced automobiles by the
VAT). The final purchase by the end consumer represents the final Embassy shall be subject to both VAT and excise taxes under
link in a production chain that itself involves several transactions Sections 106(A) and 149, respectively, in relation to Section 128.
and several acts of consumption.
o The sale of services by stock transfer agents to stockbrokers
o The VAT system assures fiscal adequacy through the collection of through clearing houses is subject to VAT pursuant to Section
taxes on every level of consumption 108(A).

 Shifting of VAT o A foreign contractor, organized under the foreign laws, rendering
o [Impt!] The exemption of cooperatives from taxes under Articles services for the construction of the NPC Gas Turbine Plant Project
61 and 62 of the Cooperatives Code is limited only to taxes funded from a foreign loan agreement, is subject to VAT despite
directly payable to them. The VAT is an indirect tax payable by the the NPC is tax exempt under its charter and their contract
seller and not by the purchaser of the goods. Being an indirect stipulated that NPC will assume the responsibility for taxes due
tax, it can be added to the cost of goods purchased, not as tax but said foreign contractor. Such stipulation is binding only upon the
as additional cost which the purchaser has to pay to obtain the parties in their private capacities and the contractor‟s personal
goods purchased. Similarly, suppliers of goods and services to a liability to pay its taxes cannot be transferred to the NPC with
company which is a holder of a legislative franchise and subject to binding effect on the BIR.
a 3% franchise tax based on gross receipts, “in lieu of any and all
taxes on its franchise, rights, privileges, receipts, revenues and But, in case the loan agreement was made pursuant to the
profits and properties used,” can pass-on VAT to the latter on its Foreign Borrowings Act, the contractor may be exempted from
purchases of goods and services in pursuit of its franchise.
VAT if said agreement contains a proviso that a contractor shall be
Indirect taxes like VAT are not covered by the exemption.
 The cooperative or the corporation enjoying a franchise is exempt from taxes, including the VAT.
exempt from payment of taxes but if it mere purchase
goods or properties from a seller who is liable to pay VAT  Techniques of or in computing the value-added tax:
the cooperative or franchisee cannot claim exemption 1. Addition Method
from the VAT because it is not the taxpayer, rather, it is - Here, the tax is applied on the value added to the service which
the seller who is liable to pay the VAT. includes all payments made at each stage in the form of wages,
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salaries, rents, interests, profits and other inputs (such as 4. Taxable sale refers to the sale, barter, exchange, and/or lease of
materials); goods or properties including transactions “deemed sale” and the
- Applicable to sales of services and leases of properties performance of service for a consideration, all of which are subject to
tax.
2. Tax Credit Method
- The value-added tax rate is applied on the total sales price  Requisites for liability
without any deduction whatsoever; and from the tax arrived at, 1. There must be a sale, etc. in the Philippines
are deducted all previous tax payments on purchases made. In 2. The sale, etc. must be of taxable goods, properties, or services
other words, the tax is applied only to the value added by the 3. The sale, etc. must be made by a taxable person in the course or
taxpayer, that is, to the excess of his/its sales over his/its furtherance of his/its business
purchases from other business taxpayers. This is also known as
the “invoice method”.  Government entities and instrumentalities including government-owned or
- This is the most acceptable and common method which is controlled corporations, and non-stock, non-profit organizations are subject
applicable to sales of goods and other properties. to VAT if in the course of trade or business they sell, etc., goods or
properties, or render services, or whether for business or not, import goods
3. Cost-deduction or cost-subtraction method
- The value-added tax rate is applied on the difference between the  A non-stock, non-profit corporation or organization deriving income
gross selling price or gross value of the taxable article and the principally from contributions is exempt from VAT. However, if it engages
cost of raw materials utilized by the taxpayer which have been in any of the taxable activities stated in Section 105, it will become liable to
previously subject to tax. VAT. It is exempt only from direct taxes such as income tax, and this
- Applicable to sales of manufactured products exemption cannot be extended to indirect taxes like VAT. Thus, its
purchases of goods and services (as well as importation of goods) from
 The present VAT has only 2 rates: 0% and 12%. Zero-rated sales are VAT registered (or VAT-registerable) suppliers are subject to VAT.
considered taxable sales but subject to zero-rate.
 All sellers of goods, properties, and services whose aggregate gross annual
 Advantages of VAT sales or receipts exceed Php 1,919,500.00 (beginning January 1, 2012) will
1. It makes the sales tax system more equitable because: be covered by the VAT, unless such sales are specifically exempt.
(1) It is imposed only on the value added by the seller, etc.
thereby avoiding the cascading effect of the former sales tax SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
system
(2) It is generally applicable to all persons and transactions, (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every
thereby establishing a wider tax base and spreading the sale, barter or exchange of goods or properties, value-added tax equivalent to
ten percent (10%) of the gross selling price or gross value in money of the
burden of paying the tax
goods or properties sold, bartered or exchanged, such tax to be paid by the
(3) It is imposed at a uniform rate, thereby equalizing the tax seller or transferor. Provided, that the President, upon the recommendation of
burden the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
2. It has a built-in self-policing feature which will ensure proper collection value-added tax to twelve percent (12%), after any of the following
of the tax at all stages of distribution. conditions has been satisfied:
3. It is simple and consistent, having only 2 tax rates (0% and 12%).
4. It is easy to administer and to comply with, and expected to generate i. Value-added tax collection as a percentage of Gross Domestic
Product (GD) of the previous year exceeds two and four-fifth
large revenues.
percent (2 ⁄ %); or
ii. National government deficit as a percentage of GDP of the
 [Impt!] Definitions:
prevous year exceeds one and one-half percent (1½ %). (As
1. Person refers to any individual, trust, estate, partnership, corporation,
amended by RA No. 9337).
joint venture, cooperative or association
2. Taxable person refers to any person liable for the payment of value-
(1) The term 'goods or properties' shall mean all tangible and intangible
added tax, whether or not registered in accordance with Section 236.
objects which are capable of pecuniary estimation and shall include:
3. VAT-registered person refers to any person who is registered as a
VAT taxpayer under Section 236. His status as a VAT registered person
(a) Real properties held primarily for sale to customers or held for
shall continue until the cancellation of such registration.
lease in the ordinary course of trade or business;
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(b) The right or the privilege to use patent, copyright, design or (5) Those considered export sales under Executive Order NO.
model, plan, secret formula or process, goodwill, trademark, trade 226, otherwise known as the Omnibus Investment Code of
brand or other like property or right; 1987, and other special laws; and
(c) The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment; (6) The sale of goods, supplies, equipment and fuel to persons
(d) The right or the privilege to use motion picture films, tapes and engaged in international shipping or international air
discs; and transport operations. (As amended by RA No. 9337).
(e) Radio, television, satellite transmission and cable television time.
(b) Foreign Currency Denominated Sale. (or Foreign Exhange
The term 'gross selling price' means the total amount of money or its Denominated Sale or Internal Export) - The phrase 'foreign
equivalent which the purchaser pays or is obligated to pay to the seller in currency denominated sale' means sale to a nonresident of goods,
consideration of the sale, barter or exchange of the goods or properties, except those mentioned in Sections 149 and 150, assembled or
excluding (if the output tax is included the term is total selling price or manufactured in the Philippines for delivery to a resident in the
selling price with VAT) the value-added tax but including the input tax. Philippines, paid for in acceptable foreign currency and accounted
The excise tax, if any, on such goods or properties shall form part of the for in accordance with the rules and regulations of the Bangko
gross selling price. Sentral ng Pilipinas (BSP).

(2) [Mem!] The following sales by VAT-registered persons shall be subject to (c) Sales to persons or entities whose exemption under special laws
zero percent (0%) rate (the purpose is to encourage export sales and or international agreements to which the Philippines is a signatory
foreign currency denominated sales and thereby increase foreign effectively subjects such sales to zero rate.
reserves):
(B) [Mem!] Transactions Deemed Sale. - The following transactions shall be
(a) Export Sales. - The term 'export sales' means: deemed sale:

(1) The sale and actual shipment of goods from the Philippines (1) Transfer, use or consumption not in the course of business (such
to a foreign country, irrespective of any shipping as donations to relief organizations in time of calamities) of goods
arrangement that may be agreed upon which may influence or properties originally intended for sale or for use in the course of
or determine the transfer of ownership of the goods so business;
exported and paid for in acceptable foreign currency or its (2) Distribution or transfer to:
equivalent in goods or services, and accounted for in (a) Shareholders or investors as share in the profits of the
accordance with the rules and regulations of the Bangko VAT-registered persons; or
Sentral ng Pilipinas (BSP); (b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60)
(2) Sale of raw materials and/or packaging materials to a days following the date such goods were consigned; and
nonresident buyer for delivery to a resident local export- (4) Retirement from or cessation of business, with respect to
oriented enterprise (impliedly the finished products together inventories of taxable goods existing as of such retirement or
with the packaging materials will ultimately be destined for cessation.
export) to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and (C) Changes in or Cessation of Status of a VAT-registered Person. - The tax
paid for in acceptable foreign currency and accounted for in imposed in Subsection (A) of this Section shall also apply to goods disposed of
accordance with the rules and regulations of the Bangko or existing as of a certain date if under circumstances to be prescribed in rules
Sentral ng Pilipinas (BSP); and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a VAT-
(3) Sale of raw materials and/or packaging materials to export- registered person changes or is terminated.
oriented enterprise whose export sales exceed seventy
percent (70%) of total annual production; (D) Sales Returns, Allowances and Sales Discounts. - The value of goods or
properties sold and subsequently returned or for which allowances were
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); granted by a VAT-registered person may be deducted from the gross sales or
receipts for the quarter in which a refund is made or a credit memorandum or
refund is issued. Sales discount granted and indicated in the invoice at the
time of sale and the grant of which does not depend upon the happening of a

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future event may be excluded from the gross sales within the same quarter it projects utilizing proceeds from said loans, this exemption
was given. privilege is extended only to the awardee of the contract (i.e. the
contractor) and not to suppliers of such contractors. Hence, the
(E) Authority of the Commissioner to Determine the Appropriate Tax Base. - The sale of steel pipes to a contractor of a government agency for a
Commissioner shall, by rules and regulations prescribed by the Secretary of waterworks project funded by the World Bank cannot be legally
Finance, determine the appropriate tax base incases where a transaction is considered VAT exempt nor zero-rated.
deemed a sale, barter or exchange of goods or properties under Subsection
(B) hereof, or where the gross selling price is unreasonably lower than the o Sales of locally manufactured or assembled goods for household
actual market value. and personal use to Filipinos abroad and other non-residents of
the Philippines as well as returning Overseas Filipinos under the
Internal Export Program of the Government paid for in convertible
 In computing the VAT payable (total output tax EXCEEDS total input tax
foreign currency and accounted for in accordance with the rules
during a particular period) or excess input VAT (total input tax EXCEEDS
and regulations of the BSP shall also be considered export sales.
total output tax during a particular period, this happens if purchases
exceeds sales during a particular period), the basis is the total output tax
during the period (month or quarter) less total allowable input tax during o Goods purchased from local suppliers and subsequently sold by
the same period. The allowable input tax includes a carry-over of the duty-free shops to returning Filipinos, balikbayans or other non-
excess input tax from the preceding period in addition to those derived residents, which are paid for in acceptable foreign currency can be
from current purchases. considered foreign currency denominated sales subject to 0%
VAT. Similarly, goods purchased from foreign suppliers and
 Export Sales – they are zero-rated if made by VAT-registered persons; if subsequently sold by duty-free shops also qualify for VAT zero-
the person is not registered, they are treated as exempt sales. rating pursuant to the “destination principle” which provides that
goods and services are taxed only in the country where they are
consumed. Thus, exports are zero-rated because the consumption
o Under Subsection (A,2,a,1) of Section 106, the sale of goods by X
is made outside the Philippines.
to Y, notwithstanding the fact, that Y is a foreign corporation, is
subject to the 12% VAT. Actual shipment of the goods from the
Philippines to a foreign country is a precondition of an export sale o Sales by a DC to its non-resident clients for delivery to Philippine
following the destination principle being adhered to by our VAT residents which are paid for in US currency through credit card
System. charging are considered as “foreign currency-denominated sales”
and are subject to 0% VAT rate. The unused excess input VAT
o Sales of raw materials and/or packing materials to an export- credits of the DC from its local purchases which are directly
oriented enterprise whose export sales exceed 70% of its total attributable or ratably apportioned to its zero-rated sales, can be
annual production are to be zero-rated provided the seller claimed for refund or tax credit pursuant to Section 112.
complies with other requirements, like registration with the Board
of Investments (BOI) and the Philippine Economic Zone Authority  Zero-rated sale of goods or properties – Such sale by a VAT-registered
(PEZA). It is the entirety or totality of the sales to such enterprise person is a taxable transaction for VAT purposes, but shall not result in any
that is to be zero-rated, not just the percentage of the sale in output tax. However, the input tax on purchases of goods, properties, or
proportion to the actual exports made by such enterprise. services related to such zero-rated sales shall be available as tax credit or
refund.
o While an ecozone is geographically within the Philippines, it is
deemed a separate customs, territory and is regarded in law as Examples of zero-rated sales:
foreign soil. Sales by suppliers from outside the borders of the  Goods sold directly to the Asian Development Bank shall not be
ecozone to this separate customs territory are deemed as exports subject to sales tax, and services rendered under contracts
and treated as export sales. entered into with the said bank shall not be subject to contractor‟s
tax. In this case, the sale of goods and services to Asian
Development Bank are effectively zero-rated (EO 161).
 Foreign currency denominated sales as foreign exchange
denominated sales or internal exports are zero-rated.
 The sale of gold to the Central Bank (now BSP) is considered
export sale; hence, the sale of gold tailings is subject to VAT of
o Moreover, although loan agreements between the government
0% pursuant to Section 106 (A,2,a,4) if the seller is a VAT-
and foreign creditors may provide for the exemption from taxes,
registered person; otherwise (the seller is NOT a VAT-registered
charges and other levies of local contractors and suppliers for
person such as when his gross receipts or gross sales during the
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preceeding year do not exceed Php 1,919,500.00), as exempt indicated in the invoice and the grant of which does not depend upon the
(from the 3% percentage tax), pursuant to Section 109 (O) happening of a future event (such as payment of the selling price at a
(Section 2, EO 581). specified future date).

 [Impt!] Effectively zero-rated sale of goods or properties (Section  Sale of real property – sale of real properties held primarily for sale to
106,A,2,c) – it refers to the local sale of goods and properties by a VAT- customers or held for lease and ultimately sold to a customer in the
registered person to a person or entity granted indirect tax exemption ordinary course of trade or business of the seller shall be subject to VAT.
under special laws or international agreement.
o Although not involving actual export, it is considered as o In the case of real properties on the instalment plan, the real
“constructive export”, such as sale to export-oriented enterprises, estate dealer shall be subject to VAT on the instalment payments
sale to persons engaged in international shipping or air transport (not on the total instalment price), including interests and
operations, foreign currency denominated sale, and sale to tax- penalties, actually and/or constructively received by the seller.
exempt persons or entities. Except export sale and foreign
currency denominated sale, other cases of zero-rating require o “Sale of real property on the instalment plan” means sale of real
prior application and approval by the BIR for effective zero-rating. property by a real estate dealer, the initial payments of which in
o Sales of Goods to international organizations and diplomats the year of sale do not exceed 25% of the gross selling price (if
which/who are tax-exempt under special laws or international initial payments exceed 25% the sale cannot be reported on the
agreements are effectively zero-rated instalment basis and the entire selling price shall be subject to
o The sale of goods and services to persons engaged in international VAT in the month of sale)
shipping are subject to VAT zero-rating only if the sale pertains to,
or is directly attributable to, the transport of goods and o “Sale of real property by a real estate dealer on deferred payment
passengers from a port in the Philippines directly to a foreign port. basis,” not on the instalment plan means sale of real property, the
Products such as projectors, printers, and photocopying machines initial payments of which in the year of sale exceeds 25% of the
do not pertain to, or are not directly attributable to, the transport gross selling price. The transaction shall be treated as cash sale
of goods and passengers from a part in the Philippines directly to which makes the entire selling price taxable in the month of sale
a foreign port. Hence, their sale of such goods even to persons (VAT is payable monthly within 20 days following the end of each
engaged in international shipping company is subject to 12% VAT. month EXCEPT the third month).

 The VAT is based on the gross selling price of the goods sold. The trade
o “Initial payments” means payment or payments which the seller
practice of giving goods (product samples which are considered
receives before or upon execution of the instrument of sale and
promotional and advertising expenses) free to customers in order to
payments which he expects or is scheduled to receive in cash or
promote sales efforts in the course of trade or business is not considered a
property (other than evidence of indebtedness of the purchaser)
transaction deemed sale and not subject to VAT.
during the year when the sale or disposition of the real property
was made. It covers any downpayment made and includes all
 In the case of the sale, barter or exchange of real property subject to VAT,
payments actually or constructively received during the year of
gross selling price shall mean the consideration stated in the sales
sale, the aggregate of which determines the limit set by law.
document or the fair market value, whichever is higher. If the VAT is not
billed separately in the document of sale, the selling price or the
consideration stated therein shall be deemed to be inclusive of VAT. o “Real estate dealer” includes any person engaged in the
o If the VAT is not billed separately the selling price shall be deemed business of buying, developing, selling exchanging real properties
to be inclusive of VAT. The VAT is determined or computed by as principal and holding himself out as a full or part-time dealer in
real estate.
dividing the selling price by 112% and then by multiplying the
quotient by 12%.
Example: SEC. 107. Value-Added Tax on Importation of Goods. -
If the selling price is Php 1,120,000.00 the VAT is
computed or determined as follows:
(A) In General. - There shall be levied, assessed and collected on every
Php 1,120,000.00 112% x 12% = Php 120,000.00
importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining tariff
 Allowable deductions from gross selling price – they include the and customs duties, plus customs duties (ad valorem or face value), excise
selling price of goods or properties returned and not resold; bona fide or taxes, if any, and other charges (such as wharfage dues), such tax (VAT) to
regular sales discounts given at the time of sale and are expressly be paid by the importer to the collector of customs prior to the release of such
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goods from customs custody: Provided, That where the customs duties  Importer refers to any person who brings goods into the Philippines,
(specific) are determined on the basis of the quantity or volume of the goods, whether or not made in the course of his trade or business. It includes
the value-added tax shall be based on the landed cost (invoice amount, etc.) non-exempt persons or entities who acquire tax-free imported goods from
plus excise taxes, if any and other charges: Provided, further, That the exempt persons, entities or agencies.
President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent  Cases when tax applicable
(12%), after any of the following conditions has been satisfied: o Importations are subject to VAT, whether donated or purchased.
Such being the case, importation of articles consigned to
(i) Value-added tax collection as a percentage of Gross Domestic charitable, religious, cultural or social welfare corporations or
Product (GDP) of the previous year exceeds two and four-fifth institutions, e.g., church bells and spares consigned to a parish
percent (2 4/5%); or church, are not exempt but are subject to VAT pursuant to Section
107. This, however, does not apply to transactions where the
(ii) National government deficit as a percentage of GDP of the recipient is granted special exemption privileges, i.e., exemption
previous year exceeds one and one-half percent (1 1/2%). from indirect taxes like VAT, under its charter or provided for
under the Constitution (such as NSNPEI).
(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax free
importation of goods into the Philippines by persons (such as diplomatic o A non-profit organization is exempt only from income tax on
officials), entities (such as non-stock non-profit educational institution) or income received by it as a social welfare organization under
agencies (government agencies such as AFP) exempt from tax where such Section 30(G), and is not exempt from other taxes. As such,
goods are subsequently sold, transferred or exchanged in the Philippines to imported relief goods and equipment received as donation from
non-exempt persons or entities, the purchasers, transferees or recipients shall abroad by such organization are subject to VAT pursuant to
be considered the importers thereof, who shall be liable for any internal Section 107.
revenue tax (VAT and excise tax, if any) on such importation. The tax due on
such importation shall constitute a lien on the goods superior to all charges or o Equipment of a foreign contractor which is brought into the
liens on the goods, irrespective of the possessor thereof. Philippines to be used in discovering and locating oil and
petroleum basins in the Philippines is subject to compensating tax
 “Advance Sales Tax” now VAT (now VAT) despite the fact that the same will be re-exported after
the work.
 The rationale for imposing compensating tax (now VAT) applies likewise
to the VAT on importation of goods for non-business use. o Imported cotton is subject to VAT pursuant to Section 107. If the
imported cotton is processed into textile by textile mills and
o The VAT on importation is a tax on the privilege of importing subsequently sold to garment manufacturers, the sale is also
goods. It shall be paid by the importer to the collector of customs subject to VAT in the same manner as the sale of textile
prior to the release of the imported goods from customs custody. manufactured out of locally-produced cotton.
 The VAT on importation of cotton is considered input tax
 Rate and base of tax on importation of goods – the 12% VAT is deductible from the VAT on the sale of the textile to the
based: garment factories.
o On the total value by the Bureau of Customs in determining tariff
and customs duties (ad valorem) which value shall include (a) o Sale of goods consummated (sale) outside the territorial
dutiable value in pesos of the goods or articles, (b) the customs jurisdiction of the Philippines between a Philippine supplier and
duties, (c) excise taxes, if any, and (d) other charges (e.g. Philippine buyer is not subject (because only sales made in the
wharfage dues, brokerage fees, etc.) or Philippines are subject to VAT) to VAT. However, as importer of
the goods, the Philippine buyer is subject to VAT on the
o On the landed cost plus excise tax where the customs duties importation of the goods.
(specific) are determined on the basis of the quantity or volume of
the imported goods. [Mem!] Landed cost consists of the invoice  Cases when tax not applicable – no VAT is payable on importation of
amount, customs duties, freight, insurance and other charges. If goods which are specifically exempted under Section 109(1).
the goods imported are subject to excise tax, the excise tax shall o Imported articles which are merely to replace those returned by
form part of the tax base. reason of their defective quality, are no longer subject to the
advance sales tax (now VAT). The advance sales tax (now VAT)
paid on the original importation can be applied against the tax due
7
on the replacement shipment, provided that no additional amount Territory; therefore, shipment or delivery of imported goods
is expended for the importation of the replacement and that the thereto is not subject to VAT. In addition, since the ICBW leases
replacement shipment is the same kind of articles as those re- space only to companies selling exclusively to customers located
exported to the foreign supplier. in PEZA-registered Ecozones and industrial parks, the importation
of products and/or supplies that are merely consigned and stored
o Exported merchandise which were shipped back to the Philippines in an ICBW is not subject to VAT, since by the very nature of the
on account of rejection by port authorities in the port of consignment into the ICBW, there articles are not intended to
destination or by the buyers abroad are not subject to the VAT enter Customs Territory.
because the shipment back to the Philippines does not constitute
importation. o Importations through a customs-bonded manufacturing
warehouse of raw materials and spare parts used in the
o Where the imported goods (such as newly invented equipment) manufacture/assembly of export are not subject to VAT. The
are for viewing and display only and the same shall be shipped out customs-bonded manufacturing warehouse is removed from the
of the Philippines after the exhibition is over, the importation is jurisdiction of the Philippine customs territory; thus, the raw
exempt from VAT. However, the exhibitor is required to put a materials and/or spare parts are deemed not to have entered the
bond equivalent to the value of the imported goods which shall customs territory and, therefore, are never introduced into
answer for VAT and excise tax, if any, in the event of failure to Philippine commerce. Hence, imported articles brought into the
ship back the goods after the exhibition. bonded manufacturing warehouse which are used as raw materials
for finished products that are eventually exported are exempt
 Only the VAT, and not any other kind of import duties and charges paid on from VAT.
imported raw materials, can be claimed as input tax credit against output
tax liabilities. o Importation by a domestic corporation of raw materials through
its customs-bonded warehouse is not subject to VAT because said
 [BAR!] [Mem!] When importation begins and ends – importation begins importation is still beyond the taxing authority of the Philippine
when the carrying vessel or aircraft coming from a foreign country enters Government. The withdrawal by the corporations from its
the jurisdiction of the Philippines with intention to unload therein. registered customs-bonded warehouse of goods which are being
Importation is deemed terminated upon payment of the duties, taxes and held in trust on behalf of its foreign company principals for
other charges due upon the articles, or secured to be paid, at a port of delivery to the latter‟s ultimate buyers is not considered a sales
entry and the legal permit for withdrawal shall have been granted. transaction. If, however, the foreign company principal of said
corporation sells the goods to customers located in the customs
o [VIP!] Under the concept of bonded manufacturing warehouse territory, i.e., outside the ECOZONES, the same is subject to VAT.
(considered by law to be beyond the jurisdiction of the Bureau of
Customs), the importation of articles brought to such warehouse
for processing and re-exportation is not yet complete; hence, no SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
tax (the articles are NOT subject to customs duties and VAT) Properties. –
consequence results as long as the imported article remains
therein within the prescribed (by the Bureau of Customs) period of (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-
time. Where the processing is not done within the prescribed added tax equivalent to ten percent (10%) of gross receipts derived from the
period in said warehouse, then the processing is said to be done in sale or exchange of services, including the use or lease of properties:
the so-called “customs territory” (territory within the Provided, That the President, upon the recommendation of the Secretary of
ecozones). Since the importation in such case is deemed Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
complete, the same shall be subject to VAT pursuant to Section twelve percent (12%), after any of the following conditions has been
107(A), which provides that the tax shall be paid prior to (or satisfied:
upon) release from customs custody.
(i) Value-added tax collection as a percentage of Gross Domestic
o Customs-bonded manufacturing warehouse is removed from Product (GDP) of the previous year exceeds two and four-fifth
the jurisdiction of the Philippine Customs Territory; hence, percent (2 4/5%); or
payment of internal revenue taxes shall be made only upon
withdrawal or removal directly from customs custody. Similarly, (ii) National government deficit as a percentage of GDP of the
the Industry Specific Bonded Warehouse (IC[might stand for previous year exceeds one and one-half percent (1 1/2%).
customs]BW) is considered removed from Philippine Customs
8
The phrase 'sale or exchange of services' means the performance (6) The supply of technicai advice, assistance or services
of all kinds of services in the Philippines for others for a fee, rendered in connection with technical management or
remuneration or consideration, including those performed or rendered administration of any scientific, industrial or commercial
by construction and service contractors; stock, real estate, undertaking, venture, project or scheme;
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors (7) The lease of motion picture films, films, tapes and discs; and
of cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; proprietors, operators or (8) The lease or the use of or the right to use radio, television,
keepers of hotels, motels, rest-houses, pension houses, inns, resorts; satellite transmission and cable television time.
proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; Lease of properties shall be subject to the tax herein imposed
lending investors; transportation contractors on their transport of irrespective of the place where the contract of lease or licensing
goods or cargoes, including persons who transport goods or cargoes agreement was executed if the property is leased or used in the
for hire and other domestic common carriers by land relative to their Philippines.
transport of goods or cargoes; common carriers by air and sea relative
to their transport of passengers, goods or cargoes from one place in The term 'gross receipts' means the total amount of money or its
the Philippines to another place in the Philippines; sales of electricity equivalent representing the contract price, compensation, service fee,
by generation companies, transmission, and distribution companies; rental or royalty, including the amount charged for materials supplied
services of franchise grantees of electric utilities, telephone and with the services and deposits and advanced payments actually or
telegraph, radio and television broadcasting and all other franchise constructively received during the taxable quarter for the services
grantees except (NOT subject to VAT) those under Section 119 of this performed or to be performed for another person, excluding value-
Code; and (subject to VAT) non-life insurance companies (except their added tax (output tax).
crop insurances (NOT subject to VAT)), including surety, fidelity,
indemnity and bonding companies; and similar services regardless of (B) Transactions Subject to Zero Percent (0%) Rate. - The following services
whether or not the performance thereof calls for the exercise or use of performed in the Philippines by VAT-registered persons shall be subject to
the physical or mental faculties. The phrase 'sale or exchange of zero percent (0%) rate:
services' shall likewise include:
(1) [The processing or manufacturing or repacking is done in the
(1) The lease or the use of or the right or privilege to use any Philippines] Processing, manufacturing or repacking of goods for
copyright, patent, design or model plan, secret formula or other persons doing business outside the Philippines which goods
process, goodwill, trademark, trade brand or other like are subsequently exported, where the services are paid for in
property or right; acceptable foreign currency (if paid in Philippine currency, the
services are subject to 12% VAT even if the finished products are
(2) The lease or the use of, or the right to use of any industrial, exported) and accounted for in accordance with the rules and
commercial or, scientific equipment; regulations of the Bangko Sentral ng Pilipinas (BSP);

(3) The supply of scientific, technical, industrial or commercial (2) Services other than (the services are rendered in the Philippines
knowledge or information; such as shipping or transport or warehousing services) those
mentioned in the preceding paragraph rendered to a person
(4) The supply of any assistance that is ancillary and subsidiary engaged in business conducted outside the Philippines or to a
to and is furnished as a means of enabling the application or nonresident person not engaged in business who is outside the
enjoyment of any such property, or right as is mentioned in Philippines when the services are performed, the consideration for
subparagraph (2) or any such knowledge or information as which is paid for in acceptable foreign currency and accounted for
is mentioned in subparagraph (3); in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(5) The supply of services by a nonresident person or his
employee in connection with the use of property or rights (3) Services rendered to persons or entities whose exemption under
belonging to, or the installation or operation of any brand, special laws or international agreements to which the Philippines is
machinery or other apparatus purchased from such a signatory effectively subjects the supply of such services to zero
nonresident person; percent (0%) rate;

9
(4) Services rendered to persons engaged in international shipping or well as those who rent or lease movie houses on a flat rental basis
international air transport operations, including leases of property for exhibition of their films are subject to VAT.
for use thereof;
o A U.S. company that established a Philippine branch to render
(5) Services performed by subcontractors and/or contractors in engineering and marketing support consultancy services should be
processing, converting, or manufacturing goods for an enterprise subject to 30% corporate income tax as a resident foreign
whose export sales exceed seventy percent (70%) of total annual corporation and also subject to VAT.
production;
o One engaged in the business of door-to-door delivery service to
(6) Transport of passengers and cargo by air or sea vessels from the the Philippines is subject to VAT under Section 108(A). any fees or
Philippines to a foreign country; and charges paid for services performed outside the Philippines, say,
fees for the transport or carriage of goods from foreign port bound
(7) Sale of power or fuel generated through renewable sources of for the Philippines shall not form part of the taxable receipts.
energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging
o The business of leasing a space on public utility vehicles for the
energy sources using technologies such as fuel cells and hydrogen
purpose of putting up advertising boards, which are then sublet or
fuels.
offered to the general public for a fee, involves a sale of service.
Hence, companies engaged in said business activity is subject to
 Service – “the art of doing something useful for a person or company for a VAT pursuant to Sections 105 and 108.
fee” or “useful labor or work rendered by one person to another.” A person
is subject to VAT only if he renders service “in the course of trade or o To be liable for VAT under Subsection (A), the service must be
business.” This implies that the rendering of service is done regularly and done or rendered in the Philippines. Hence, the commission paid
continuity, and not just occasionally. for selling abroad real property located in the Philippines is not
subject to VAT.
o Since the VAT has replaced, among others, the contractor‟s and
broker‟s taxes effective January 1, 1988, the buying and selling of o Production of live concerts which involves rendering of amusement
TV airtime constitutes the rendition of services to others for a services is not subject to VAT, since the jurisdiction to impose
consideration subject to VAT. The sale of a specific TV airtime amusement tax on gross receipts from admission to places of
contemplates the use by the contractor-buyer of television amusement shall be exercised by the provinces and cities, to the
broadcast facilities of the station owner and/or availment of the exclusion of the national or municipal government. However, other
services of the latter wherein the consideration is measured by the revenues or receipts from the conduct of live or televised
length of time allowed to the buyer to use TV broadcast facilities. concerts, other than admission receipts, which are in the nature of
revenues or receipt s from advertising services rendered, such as
o A customs broker who transports goods of customers from the payments received from sponsors of the live/televised concert
customs premises to their place of establishment for a fee is whose products are advertised in the course of such concert, shall
subject to 12% VAT on the gross receipts he derives from the sale be subject to VAT pursuant to Section 108.
of his services. However, he is no longer subject to the 3%
common carriers tax imposed by Section 117.
Moreover, gross receipts from management of local talent involve
sales of services; hence, are also subject to VAT under Section
o A domestic corporation engaged in physical fitness program and
maintains physical fitness equipment and facilities, and gives 108.
instruction to each member on how to use the different equipment
and facilities to attain physical fitness, and for such services and o Placement fees, charged by recruitment agencies from applicants
facilities receives monthly membership fees and one-time or would-be contract workers are part of gross receipts from the
entrance fee, is not subject to the VAT imposed by Section 108(A) “sale of services” as defined in Section 108. Generally, even if the
as such activities do not constitute sale of services but it is subject placement fees are paid for by the prospective employers on
to income tax under Section 27(A). behalf of the applicants, the sale of services by the placement
agencies are still subject to VAT.
o Film producers/owners/importers who share their gross sales on a
percentage basis with owners or operators of movie houses as o Tollway operators are subject to VAT. The sale of services of
franchises grantees except those excluded under Section 119 is
10
subject to VAT toll services being rendered by tollway operators It the fees are paid to a director who is not an employee of the
do not render the exceptions specified under Section 119. corporation (i.e. whose duties are confined to the attendance of
and participation in the meetings of the board), such fees fall
o Shipping services performed within the Philippines by VAT- under Section 32(A)(2) of the Tax Code under the caption “Gross
registered lease shipping companies for a non-resident foreign income derived from the conduct of trade or business or exercise
corporation, where the services are paid for in acceptable foreign of a profession.” Such director falls under the category of seller of
currency are automatically subject to VAT at 0% rate under services liable to pay 12% VAT on his gross income pursuant to
Section 108 (B,2) Section 108 or to the 3% percentage tax composed under Section
116 should he fail to meet the VAT threshold of Php 1,919,500.00
o Similarly VAT-registered freight forwarders whose services are beginning January 1, 2012.
rendered to clients outside the Philippines and paid for in
acceptable foreign currency and accounted for in accordance with o Membership dues, seminar fees and funds collected by a non-
BSP rules and regulations are zero-rated pursuant to Section stock, non-profit corporation, organized for the exclusive benefit
108(B,2). of its members held in trust by the said corporation for the
exclusive use and benefit of its members, are exempt from
income tax, withholding tax, and VAT. The corporation merely acts
o The current administrative position of the BIR on the issue of
as a collecting agent in receiving the membership dues, fees, and
whether or not condominium corporations are subject to income
funds, and such funds are used solely for the payment of the
tax and VAT remains as follows:
association‟s common administrative expenses.
 Condominium dues and assessments are not taxable o Monies received by a corporation (X Corp) primarily engaged in
income of the condominium corporations, but are funds real estate (Mall developer/owner) from its mall tenants as
held by them in trust for their unit owners or members; payments for common usage and service area expenses such as
electricity, water, repairs and maintenance, which expenses are
 Condominium corporations are not subject to VAT when billed by the utility and service providers to the X Corp. which
they collect association dues from unit owners pursuant initially advances the payment and then issues a billing statement
to their corporate purpose as trustees of the fund; and to its tenants to charge the above expenses at cost in a pro-rate
basis, are not subject to VAT. By its very nature, reimbursement
 Membership dues, fees and assessment collected by of expenses is not income. The amounts received by a corporation
condominium corporations and homeowners associations in trust for another do not form part of gross taxable receipts even
are not considered payments for the sale of services. for VAT purposes.
Condominium corporations clearly collect funds in trust
for unit owners, members and occupants to be disbursed  The VAT on rental and/or royalties payable to non-resident foreign
for maintenance and utilities expenses. Unless the corporations or owners for the sale of services and use or lease of
condominium corporation engages in activities for profit, properties in the Philippines shall be based on the contract price agreed
it is not subject to VAT. upon the licensor and the licensee. The licensee shall be responsible for the
payment of VAT on such rentals and/or royalties on behalf of the non-
 Collections of a condominium association which are used resident foreign corporation or owner by filing a separate VAT
for administrative expenses in implementing its corporate declaration/return for this purpose.
purposes are not subject to income tax, withholding tax,
and VAT considering that the association does not sell, Non-resident lessor/owner refers to any person, natural or juridical, an
barter, exchange, lease goods or property, and neither alien or a citizen who establishes to the satisfaction of the Commissioner
does it render service for a fee but merely implements the fact of his physical presence abroad with a definite intention to reside
the administration of the required services to collect the therein, and who owns/leases properties, real or personal, whether
association dues from the unit owners pursuant to its tangible or intangible, located in the Philippines.
corporate purposes as “trustee” for the fund thereof.
 Gross receipts in the case of hotel and restaurant operators, includes,
o Director‟s fees are taxable, for income tax purposes, as among others, charges for rooms, laundry and valet services, food and
compensation income when the recipient director is an employee beverages consumption, corkage, handling charges for providing
(e.g., President sitting as a member of the board) of the telephone, telex, cable or fax services, cake shop sales, lease to
corporation which pays the same. concessionaries, compensation and other service fees.

11
 Rev. Memo. Cir. No. 39-07 clarifies the income tax and VAT treatment of
 Gross receipts for purposes of franchise grantees subject to VAT refer to agency fees/gross receipts of security agencies, including the withholding
the total amount of money or its equivalent representing the contract of taxes thereon.
price, compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services and deposits applied for o On the part of the security agency – For VAT purposes, the
payment for services rendered and advance payments actually or taxable gross receipts of the Security Agency pertains to the
constructively received during the taxable period for the services amount actually or constructively received by it constituting its
performed or to be performed for another person, excluding VAT. gross income. Since only the amount covering the Agency Fee
represents its gross income, then that portion alone of the
 Non-life insurance companies except on Crop Insurances including surety, Contract Price, when actually or constructively received, will
fidelity, indemnity and bonding companies are now subject to VAT on gross constitute the Security Agency‟s taxable gross receipts. This
premiums means that the amount received by the Security Agency which is
segregated, earmarked or set aside for the salaries of the security
o They are no longer liable to the payment of the 5% premium tax guards will not form part of its gross receipts but should be
under Section 123 of the Tax Code. Premiums on crop, life, health recognized as a liability. Accordingly, the 12% output tax will only
and accident insurance policies are not subject to VAT. be computed on the Agency Fee which shall in turn be the input
tax of its Client.
o Health and accident insurance partakes of the nature of a life Example:
insurance, and thus, premiums received in relation thereto,  Debit:
regardless of whether they are received by a life or non-life Cash Php 17,931.77
insurance company, shall be subject to the premium tax (5%), Prepaid income tax
and not to 12% VAT, therefore, shall not form part of its gross (2% EWT on agency fee) 68.23
receipts for VAT purposes.  Credit:
Service Income (agency fee) Php 3,411.54
Output Tax (on agency fee) 409.38
o Non-life insurance premiums are subject to VAT except on Crop
Due to security guards 14,179.08
Insurances.
o On the part of the client – Only the portion of the payment
o The VAT due from the foreign reinsurance company is to be representing the Agency Fee (Php 3,411.54), if covered by a VAT
withheld by the local insurance company and to be remitted to the Official Receipt, will entitle the VAT-registered Client to a claim of
BIR by filing the Monthly Remittance Return of Value-Added Tax input tax credit. This means that the amount of output tax (Php
Withheld. 409.38) paid to the Security Agency is the amount to input tax
available to the client. The client cannot claim an input tax on the
o Commissions whether life or non-life, of insurance agents and/or salary portion of the expense because it pertains to services
brokers are subject to VAT. exempt from VAT. Section 109(1) specifically exempts from VAT
services rendered by individuals pursuant to an employer-
 Gross receipts from non-life insurance companies shall mean total employee relationship.
premiums collected, whether paid in money, notes, credits or any
substitute for money.  Constructive receipt of payment – it occurs when the money
consideration or its equivalent for the articles or property sold, exchanged
 Pre-need companies are corporations registered with the SEC and or leased, or services rendered has already been placed under the control
authorized/licensed to sell or offer for sale pre-need plans, whether a of the seller/transferor/lessor of the article or property or person who
single plan or multi-plan. They are engaged in business as seller of services rendered the services without any restriction by the payor.
providing services to plan holders by managing the funds provided by them
and making payments at the time of need or maturity of the contract.  VAT on contractors – it is a privilege tax on the sale of services or labor.
It is an indirect tax and whether or not the contractor or employer is
As service providers, the compensation for their service is the premiums or exempt from internal revenue taxes is immaterial. The services may be
payments received from the plan holders. actual or technical, physical or mental. It is directly collectible from the
contractee.

12
 Test of being a contractor – the true test would seem to be that he Example:
renders services in the course of an independent occupation representing Corporation X is engaged in construction business and a
the will of his employer (the person who employs the services of the government agency hired the said corporation to construct a
contractor) only as to the result of his work and not as to means and building at a contract price of Php 100M without VAT of 12%. The
methods by which it is accomplished. gross amount collectible by Corporation X is Php 112M which
includes 12% VAT on Php 100M or Php 12M. Corporation X hired a
o In a case, X corporation rendered technical services through its subcontractor for labor in the amount of Php 20M without VAT.
“work engineers” to PNB, DBP and SSS in the construction of their The amount collectible by the subcontractor from Corporation X is
buildings. The “work engineers” acted as overseers of X Php 20M + Php 2.4M representing VAT of 12% on Php 20M.
corporation, rendering their professional services as employees of Corporation X purchased construction materials at a total cost of
X. The contractor‟s tax (now VAT) imposed on X is a tax on its Php 54.5M which includes VAT of Php 4.5M. The government
business and privilege of selling the services of those employees agency will withhold 1% on the Php 100M representing
themselves. withholding tax on the income of Corporation X and 5%
withholding tax for VAT or Php 5M. Corporation X‟s liability to the
o A lawyer acted as conservator of an insurance company in distress BIR is computed as follows:
is neither an employee of the Insurance Commission who
appointed him nor of the insurance company which paid for his Output Tax Php 12,000,000.00
services but an independent contractor whose professional LESS: Input Tax
judgment is being relied upon during the period that the company (Php 2.4M + Php 4.5M) 6,900,000.00
is under conservatorship. VAT payable to the BIR Php 5,100,000.00
LESS: Withholding tax on VAT 5,000,000.00
 It has been administratively ruled that a partnership of licensed VAT still due 100,000.00
professional engineers and architects rendering professional services by
preparing plans and specifications for a particular project without actually  Broker refers to one whose occupation is to bring parties together to
undertaking the actual construction is not subject to VAT of 12% and is not bargain or to bargain for them in matters of trade, commerce or
considered a contractor for purposes of the contractor‟s percentage tax navigation. He is strictly a middleman and for some purposes, the agent of
(now VAT) under Section (108,2) of the Tax Code. But a firm engaged in both parties. It is immaterial whether the fee paid to him is a fixed, regular
performing professional and management services to its managed amount or not, or whether the act performed by him can be performed by
companies is engaged in the sale of its services to them and is subject to the principal.
VAT of 12%.
o The management of a subdivision may be regarded as a part of
 VAT liabilities of contractors of government projects – the following the real estate broker‟s business. Hence, not only the sales
clarifications are made in connection with the VAT liabilities of a contractor commission on the sales of subdivision lots but also the fees
of a government contract or project: received for planning, supervising and managing other people‟s
lands and for collecting payments are subject to the real estate
o Only the 1% expanded withholding tax on gross collections net of broker‟s percentage tax (now VAT).
VAT is automatically deducted in contract awarded by any
government entity; o Fish brokers who sell fish and other marine and fresh water
products brought or shipped by traders, producers or shippers
o Gross receipts of the main contractor is subject to VAT but he from different provinces to public markets in Divisoria, Malabon
shall be allowed credits for payments (input tax) to the and the Navotas Fish Port Complex on wholesale basis to the
subcontractors and the gross receipts of the subcontractor from highest bidders and in return charge 5% commission based on the
the main contractor shall be subject to 12% output tax. amount of sales of the fish and other products sold which are
basically owned or produced by the traders, producers or
shippers, are commercial brokers, subject to the VAT under
o Note: Under Section 114(C), the Government or any of its political
Section 108(A).
subdivisions is required to deduct or withhold a VAT at the rate of
5% of the gross payment for the purchase of goods and services.
o The income derived from the hauling and handling of merchandise
by a customs broker with the use of trucks for hire is income from
the rendering of a forwarding service and not from a common

13
carrier. Therefore, such income is subject to VAT to be reported  A person (such as copra, flour and animal feed millers) engaged in milling
together with the income as a customs broker. for others (except palay into rice, corn into corn grits, and sugarcane into
raw sugar) is subject to value-added tax on sale of services.
 Dealer in securities refers to a merchant of stock and other securities,
whether an individual, partnership, or a corporation, with an established o If the miller is paid in cash for his services, the VAT shall be based
place of business and regularly reselling to customers at a profit. This on his gross receipts for the month or quarter.
excess or mark-up represents remuneration for his labor as a middleman in
bringing together buyer and seller and in performing the usual services of o If he receives a share of the milled products instead of cash, the
retailer or wholesaler of goods. VAT shall be based on the actual market value of his share in the
milled products.
A subsequent ruling held that a corporation, holder of investment
certificates that sells the same to prospective buyers in the ordinary course o Sale by the owner or the miller of his share in the milled products
of business, is a dealer in securities and is subject to VAT on sale of (except rice, corn grits and raw sugar) is subject to VAT.
services because the term “dealers in securities” means “a person who
buys and sells securities for his/her own account in the ordinary course of
 [VIP!] All receipt from service, hire or operating lease of transportation
business.”
equipment not subject to percentage tax on domestic common carriers and
keepers of garages imposed under Section 117 are subject to VAT.
 Lending investor/pawnshop
[Domestic Common Carriers by land and keepers of garages are NOT
“lending investor” is defined under the former provision of the Tax Code as
subject to VAT]
one “who make(s) a practice of lending money for themselves (the source
of funds lent to borrowers is the Capital Investment of the lending
o Common carriers refer to persons, corporations, firms or
investor) or others (the source of additional funds is from 3rd persons) at
associations engaged in the business of carrying or transporting
interest.
passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public, and shall
o On the issue of whether pawnshop (considered lending investors
include transportation contractors.
under Section 108A, 2nd paragraph) are liable to pay VAT, the
Supreme Court, in First Planters Pawnshop, Inc. vs. Comm. held
o Domestic common carriers by land with respect to their gross
that since a pawnshop is non-bank financial intermediary, it is
receipts from the transport of passengers, including operators of
subject to VAT.
taxicabs, utility cars for rent or hire driven by the lessees (rent-a-
car companies) and tourist buses, used for the transport of
Note: The imposition of VAT on banks, etc. was deferred for tax
passengers are subject to the percentage tax (3%) imposed under
years 1996-2002. With no further deferments by law, the levy was
Section 117 and not to VAT.
finally made effective beginning January 1, 2003.

o A bank depositor is not a lending investor. While bank deposits o Domestic common carriers by air and sea are subject to VAT on
are in the nature of loans, this does not make the depositor a their gross receipts from their transport of passengers, goods or
lending investor since the act of opening and maintaining a cargoes from one place in the Philippines to another place in the
deposit with a bank cannot be considered a business. Philippines.
[International common carriers by air and sea are subject to VAT
o Lending investor includes all persons, other than banks, non- but at 0% rate on their gross receipts from their transport of
bank financial intermediaries, finance companies, and other passengers, goods or cargoes from the Philippines to a foreign
financial intermediaries not performing quasi-banking functions, country (Section 108, B, 6)]
who make a practice of lending money for themselves or others at
interest.  Warehousing service means rendering personal services of a
warehouseman such as:
 Services of franchise grantees of telephone and telegraph, radio and/or
television broadcasting, toll road operations, and all other franchise o Engaging in the business of receiving and storing goods of others
grantees except gas and water utilities shall be subject to VAT in lieu of for compensation or profit
franchise tax. [The person rendering services as warehouseman stores the
goods NOT in his own warehouse BUT in another‟s warehouse]

14
o Receiving foods and merchandise to be stored in his warehouse of goods and capital within, into and exported out of the said
for hire (for rent) Freeport Zones, as well as the implementation of tax incentives
and duty-free importations of raw materials, goods and capital
 Sale of electricity by generation, transmission, and distribution companies equipment shall be ensured. Being separate customs territories,
is subject to VAT on their gross receipts which refer to the following: the exportation (does not mean that the goods are shipped to a
foreign country, rather they are shipped to other parts of the
o Total amount charged by generation companies (such as Philippine territory known as “Customs Territory”) or removal of
geothermal plant in tiwi) for the sale of electricity and related goods from the said Freeport Zones to the other parts of the
ancillary services Philippine territory shall be subject to customs duties and taxes
under the Customs and Tariff Code, the Tax Code of and other
o Total amount charged by transmission companies (such as relevant tax laws of the Philippines.
National Power Corporation) for transmission of electricity and
related ancillary services These Freeport Zones therefore, by legal fiction, are regarded as
foreign territories. This legal fiction is necessary to give
o Total amount charged by distribution companies and electric meaningful effect to the policies of the special law creating the
cooperatives for distribution and supply of electricity, and related said Freeport Zone.
electric service
o [READ EXAMPLES in NIRC II BOOK PAGE 93-98]
 The performance of certain services to be qualified for 0-rating must
somehow translate to the export of goods or activities, in general. This is  [Impt!] Tax treatment of shifted VAT – VAT, being an indirect tax, is
consistent with the Destination Principle or Cross-Border Doctrine of passed-on or shifted by the service-provider to the service-recipient or
the VAT System which is being observed in our jurisdiction, i.e., exports shifted by the seller to the buyer of goods.
are exempt while imports are taxable. (on application of the destination
principle) o If the service-recipient or the buyer of goods is a taxpayer
engaged in trade, business/calling or profession liable to VAT on
 Effectively zero-rated sale of services – it refers to the local sale of sale of goods or services or the so-called output VAT, the shifted
services by a VAT-registered person to a person or entity granted indirect VAT on purchases in the course of trade or business is considered
tax exemption (such as NSNPEI) or international agreement. They are as an input VAT which can be claimed as tax credit against (or
limited to local sales to persons or entities that enjoy tax exemptions from deduction from) the output VAT in arriving at the VAT payable
indirect taxes under Subsection (B), Nos. 3,4, and 5. (output tax EXCEEDS input tax such as when all the goods
purchased were eventually sold) or excess input tax (input tax
 Destination Principle or Cross Border Doctrine – our VAT Law adheres EXCEEDS output tax)
to the “Destination Principle” or the “Cross Border Doctrine,” as basis for
the coverage of VAT whereby imports are subject to VAT and exports are o On the other hand, if the service-recipient (or buyer of goods) is a
free of the tax. 0-rated transactions generally refer to the export sale of taxpayer engaged in trade, business/calling or profession not
goods and supply of services. The tax rate is set at 0. When applied to the liable to VAT (such as when the annual gross receipts do not
tax base, such rate results in no tax chargeable against the purchase. The EXCEED Php 1,919,500.00), the shifted VAT on the purchases in
seller charges no output tax but can claim a refund of a tax credit the course of trade or business shall be treated as part of
certificate for the VAT previously charged by suppliers to the seller or purchases or expenses (VAT is NOT an income tax but a business
exporter. tax, hence, may be treated as an allowable deduction)

 [Impt!] Customs territory means “the national territory of the Philippines [The taxpayer cannot treat the input tax both as part of purchases
outside of the proclaimed boundaries of the ECOZONES (or Freeport zones) and as an expense, otherwise, it will result to double deduction]
except those areas specifically declared by other laws and/or presidential
proclamations to have the status of special economic zones and/or free o If the service-recipient or buyer of goods is not engaged in trade,
ports.” Ecozones, by fiction of law, are considered foreign territories. business/calling or profession, or if the purchase is done not in the
course of trade or business, the passed-on or shifted VAT shall
o Pursuant to Section 12 and 15 of RA No. 7227, as amended by RA form part of the cost or expense he incurred for personal use or
9400, the foregoing Freeport Zones shall be operated and consumption and, therefore, not deductible in computing any kind
managed as separate customs territories (they are beyond the of tax.
jurisdiction of the Bureau of Customs). The free flow or movement
15
 [VIP!] The GPP shall be treated as a separate and distinct taxable person produced or imported, used in the manufacture of finished feeds (except
from the individual partners composing the partnership. For VAT purposes, specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
all gross receipts from the sales of services rendered by the partners for and other animals generally considered as pets);
and in the name of the partnership shall be entirely taxable against the
partnership. (C) Importation of personal and household effects belonging to the residents
of the Philippines returning from abroad and nonresident citizens coming
[GPP is NOT a taxable entity for purposes of income tax but it is a taxable to resettle in the Philippines: Provided, That such goods are exempt
entity for purposes of VAT] from customs duties under the Tariff and Customs Code of the
Philippines;
However, the sales of service made by any of the partners thereof, in his
personal and individual capacity, shall not be attributed to the partnership, [If the personal and household effects are subject to customs duties they
but shall be taxable against such partner in his individual capacity. are also subject to 12% VAT]

 For VAT purposes, the GPP is treated as a separate and distinct taxable (D) Importation of professional instruments and implements, wearing
person from the individual partners composing the partnership. As such, in apparel, domestic animals, and personal and household effects (except
determining whether or not a professional is subject to VAT using the Php any vehicle, vessel, aircraft, machinery, other goods for use in the
550,000.00 (now Php 1,919,500.00 beginning January 1, 2012) VAT manufacture and merchandise of any kind in commercial quantity)
threshold, his recipient of the net share in the net income of GPP of which belonging to persons (non-resident aliens in the case of personal and
he is a partner should not be considered. household effects) coming to settle in the Philippines, for their own use
and not for sale, barter or exchange, accompanying such persons, or
Example: arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner, that such
L, a lawyer, received Php 300,000.00 as his share in the net income of the persons are actually coming to settle in the Philippines and that the
GPP of which he is partner. In addition thereto, gross receipts he derived change of residence is bona fide;
from his personal and individual practice not attributable to the partnership
amounted to Php 400,000.00 (E) Services subject to percentage tax under Title V;

In this case, the Php 300,000.00 L derived from the GPP shall not be (F) Services by agricultural contract growers and milling for others of palay
considered in computing the Php 1,919,500.00 VAT threshold. Neither shall into rice, corn into grits and sugar cane into raw sugar;
it be subjected again to VAT or percentage tax. Therefore, having derived
gross receipts amounting only to Php 400,000.00. L is not subject to VAT (G) Medical, dental, hospital and veterinary services except those rendered
but instead subject to percentage tax at the rate of 3%. by professionals;

(H) Educational services rendered by private educational institutions, duly


[VVIP!] SEC. 109. Exempt Transactions. - (1) Subject to the provisions of
accredited by the Department of Education (DEPED), the Commission on
subsection (2) hereof, the following transactions shall be exempt from the value-
Higher Education (CHED), the Technical Education And Skills
added tax:
Development Authority (TESDA) and those rendered by government
educational institutions;
(A) Sale or importation of agricultural and marine food products in their
original state, livestock and poultry of a kind generally used as, or
(I) Services rendered by individuals pursuant to an employer-employee
yielding or producing foods for human consumption; and breeding stock
relationship;
and genetic materials therefor.
(J) Services rendered by regional or area headquarters established in the
Products classified under this paragraph shall be considered in their
Philippines by multinational corporations which act as supervisory,
original state even if they have undergone the simple processes of
communications and coordinating centers for their affiliates, subsidiaries
preparation or preservation for the market, such as freezing, drying,
or branches in the Asia-Pacific Region and do not earn or derive income
salting, broiling, roasting, smoking or stripping. Polished and/or husked
from the Philippines;
rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra
shall be considered in their original state;
(K) Transactions which are exempt under international agreements to which
the Philippines is a signatory or under special laws, except those under
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,
Presidential Decree No. 529;
prawn, livestock and poultry feeds, including ingredients, whether locally
16
(S) Sale, importation or lease of passenger or cargo vessels and aircraft,
(L) Sales by agricultural cooperatives duly registered with the Cooperative including engine, equipment and spare parts thereof for domestic or
Development Authority to their members as well as sale of their produce, international transport operations;
whether in its original state or processed form, to non-members; their
importation of direct farm inputs, machineries and equipment, including (T) Importation of fuel, goods and supplies by persons engaged in
spare parts thereof, to be used directly and exclusively in the production international shipping or air transport operations;
and/or processing of their produce;
(U) Services of banks, non-bank financial intermediaries performing quasi-
(M) Gross receipts from lending activities by credit or multi-purpose banking functions, and other non-bank financial intermediaries; and
cooperatives duly registered with the Cooperative Development
Authority; (V) Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly annual sales and/or receipts do not exceed the amount of One million five
registered with the Cooperative Development Authority: Provided, That hundred thousand pesos (P1,500,000) Php 1,919,500.00 beginning
the share capital contribution of each member does not exceed Fifteen January 1, 2012: Provided, That not later than January 31, 2009 and
thousand pesos (P15,000) and regardless of the aggregate capital and every three (3) years thereafter, the amount herein stated shall be
net surplus ratably distributed among the members; adjusted to its present value using the Consumer Price Index as published
by the National Statistics Office (NSO);
(O) Export sales by persons who are not VAT-registered;
[Sale or lease of goods or properties or the performance of services NOT
[Export Sales by VAT registered persons are Zero-rated (Section 106, A, mentioned in paragraphs A-U are subject to VAT of 12% but if the gross
2, a, 1)] annual sales or receipt do not exceed Php 1,919,500.00 said sale or lease or
performance of services is exempt from VAT]
(P) Sale of real properties not primarily held for sale to customers (Capital
Asset regardless of the value) or held for lease in the ordinary course of (2) A VAT-registered person (he/it wants to be subject to 12% VAT so that he/it
trade or business, or real property utilized for low-cost and socialized can deduct his input tax from his/its output tax) may elect that Subsection (1)
housing as defined by Republic Act No. 7279, otherwise known as the not apply to his/its sale of goods or properties or services: Provided, That an
Regardless Urban Development and Housing Act of 1992, and other related laws, election made under this Subsection shall be irrevocable for a period of three
of its residential lot valued at One million five hundred thousand pesos (3) years from the quarter the election was made.
classification (P1,500,000) Php 1,919,500.00 beginning January 1, 2012 and below,
residential house and lot, and other residential dwellings (such as
 Exemption means that the sale of goods or properties and/or services and
condominium units) valued at Two million five hundred thousand pesos
the use or lease of properties are not subject to VAT (output tax) and the
(P2,500,000) Php 3,199,200.00 beginning January 1, 2012 and below:
seller, etc. is not entitled to claim tax credit on VAT (input tax) previously
Provided, That not later than January 31, 2009 and every three (3) years
paid (the input tax may be treated either as part of purchases in the case
thereafter, the amounts herein stated shall be adjusted to their present
of goods or as an expense in the case of services).
values using the Consumer Price Index, as published by the National
Statistics Office (NSO);
 Exempt transaction – one involving goods, properties or services which,
by their nature, are specifically listed in and expressly exempted from VAT
(Q) Lease of a residential unit with a monthly rental not exceeding Ten
under the Tax Code, without regard to the tax status of the party in the
thousand pesos (P10,000) Php 12,800.00 beginning January 1, 2012
transaction.
Provided, That not later than January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall be adjusted to its present
value using the Consumer Price Index as published by the National  The person making the exempt sale of goods, properties or services shall
Statistics Office (NSO); not bill any output tax to his customers or clients because the said
transaction is not subject to VAT
(R) Sale, importation, printing or publication of books and any newspaper,
magazine, review or bulletin which appears at regular intervals with fixed  Food products – agricultural and marine food products in their original
prices for subscription and sale and which is not devoted principally to the state, the sale or importation of which is exempt from VAT under Section
publication of paid advertisements; 109 (1, A) refer only to those intended for human consumption.

17
o The term agricultural products is not limited to vegetables and o Hence, the importation of horses (thoroughbred broadmares) for
substances directly resulting from the tillage of the soil but breeding purposes to be used in sports or games which cannot be
includes everything which serves to satisfy human needs which is classified as livestock, is not exempt from VAT
grown upon the land whether it pertains to the vegetable kingdom
or to the animal kingdom. Hence, a person engaged in the o Coffee beans are agricultural food products in their original state;
business of raising poultry and swine is not subject to VAT. hence, the sale and subsequent sale thereof is not only exempt
from VAT pursuant to Section 109(1, A) but the seller is likewise
o Livestock and poultry refer to live animals of a kind generally exempt from registering as a VAT taxpayer. However, when the
used as, or yielding or producing food for human consumption. seller opts to register as such pursuant to Section 109(2) and
Livestock shall include cows, bulls and calves, pigs, sheep, goats Section 236 (I), his local sales become subject to VAT, while his
and rabbits. export sales are 0-rated under Section 106(A,1). On the other
hand, if the coffee bean trader is not VAT-registered, the sale,
o Poultry includes fowls, ducks, geese and turkey. Livestock or subsequent sale, or export of the coffee beans are exempt in
poultry does not include fighting cocks, race horses, zoo animals accordance with Section 109(1,A).
and other animals generally considered as pets.
o Ordinary salt is considered agricultural product in its original state.
o Marine food products include fish and crustaceans, such as but Accordingly, the importation of marine solar salt is exempt from
not limited to eels, trout, lobsters, shrimps, prawns, oysters, VAT pursuant to Subsection (1,A). Iodized salt is no longer in its
mussels and clams original state as it has already been enriched with iodine

o Meat, fruit, fish, vegetables and other agricultural and marine food o The process of making century eggs is a simple process to prepare
products, shall be considered in their original state even if they or preserve the same for the market. It is similar to the making of
have undergone the simple processes of preparation or “balut, penoy” and salted eggs. Accordingly, the importation of
preservation for the market, such as freezing, drying, salting, century eggs is exempt from the 12% VAT pursuant to Section
broiling, roasting, smoking or stripping, including those using 109(1,A).
advanced technological means of packaging, such as shrink
wrapping in plastics, vacuum packing, tetra-pack and other similar o The following processed food products which are packed in bulk
packaging methods. plastic bags and sold for resale or further processing are no longer
in their original state as contemplated in Section 109(1,A):
o Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra shall be considered as  Dried fruits
agricultural food products in their original state.  Dried and ground fruits and tubers
 Fruits preserved in syrup
o Raw cane sugar refers to the crystallized or solidified juice (or  Herbal products which have undergone drying,
moulded or hardened molasses) of sugarcane through a milling pulverizing and encapsulation or tea bagging as they are
process, short of the process of being refined, without any not among the simple methods of freezing, etc.
addition of chemicals resulting in muscado (or brown sugar
produced without additives) or granulated sugar. It does not o In all cases of importation of VAT-exempt goods, the same shall
include refined sugar, molasses (thick brownish syrups obtained not be released from customs custody unless a duly approved
as a by-product in the manufacture of sugar) and bagasse Authority to Release Imported Goods (ATRIG) is secured from the
(crushed and dried remains of sugarcane after most of the juice Revenue District Office of the place where the port of entry is
has been extracted [bagaso]). The sale of refined sugar is subject located.
to the VAT imposed by Section 106(A) as it is not included among
the products under the definition of “raw cane sugar” exempt from  The milling for others of palay into rice, corn into grits, and sugar cane into
VAT. raw sugar by owners of corn mills, “conos,” “kiskisan,” threshers or sugar
centrals or mills is exempt from VAT. The total receipts of the miller
o Specialty feeds refer to non-agricultural feeds or food for race whether paid in cash or in kind is exempted from VAT. Agricultural contract
horses, fighting cocks, aquarium fish, zoo animals and other growers refer to those persons producing for others poultry, livestock or
animals generally considered as pets. other agricultural and marine food products in their original state.

18
o The services of agricultural contract growers involve growing of will be treated as derived from the exercise of profession and,
poultry, livestock or other agricultural and marine food products therefore subject to VAT.
into marketable poultry, livestock or other agricultural and marine
food products. o Laboratory services are also exempted. If the hospital or clinic
operates a pharmacy or drug store, the sale of drugs and
There are agricultural contract growers which offer toll (or medicines (to out-patients and other customers), if it exceeds Php
charge) processing/toll dressing/toll manufacturing as a packaged 1,919,500.00 beginning January 1, 2012 during a 12-month
service to its contract growing. Toll processing/toll dressing/toll period is subject to VAT.
manufacturing involves procedures such as weighing, killing,
dressing, scalding, cut-ups and packaging. In this case, the o Hospital and medical services rendered by Ospital Ng Maynila are
contract growing and toll processing/toll dressing/toll not subject to VAT pursuant to Section 109(1,G). The exemption,
manufacturing services by agricultural contract growers are however, applies only to taxes for which it is directly liable and
exempt from VAT. does not apply to taxes which are being passed on to it by its
suppliers. Consequently, as regards purchases of goods and
Rev. Memo. Cir. No. 97-2010 classifies the VAT exemption of services by the hospital, the VAT thereon paid by the supplier to
services by agricultural contract growers. Under the circular the his own supplier can be passed on to said hospital (this means
toll processing services confirmed as VAT-exempt pertain only to that the supplier of goods and services to the hospital can pass on
services to clients from which growing of animals as contracted. the 12% VAT on said goods and services even if the hospital itself
As such, preparing and packaging hogs/chicken ready for delivery, is exempt from VAT) and ultimately be considered as added cost
after producing or growing them, falls within the purview of of goods and services procured, for the VAT at this stage is merely
agricultural contract growing. However, if such an activity is done an indirect tax.
independently of growing poultry, livestock or other agricultural
and marine food products, such activity is subject to VAT because Example:
this is a service not covered by agricultural contract growing.
Thus, toll processing/toll dressing/toll manufacturing services 1. Drug company A, a VAT-taxpayer, sold medical and hospital
performed independently from growing poultry, livestock or other supplies to Hospital B worth Php 100,000.00 exclusive of VAT.
agricultural and marine food products are subject to VAT. Drug Company A can pass on the 12% VAT or can bill Hospital
B the total amount of Php 112,000.00 even if Hospital B is
 [VVIP!] Medical, dental, hospital and veterinary services other than those exempt from VAT on Medical and Hospital Services income
rendered by professionals (subject to VAT) are exempt (the hospital and received from its patients.
clinic which rendered medical, dental, hospital and veterinary services)
from VAT. Thus, in cases where the payment received by the hospital or The hospital is exempt only to taxes which it is directly liable
clinic also includes the professional fee of the medical doctor, the and it is NOT exempt from indirect taxes such as VAT.
professional fee when paid to the doctor constitutes his gross receipts
inclusive of VAT which must be receipted by him using a VAT-Official 2. Doctor C, a medical professional practitioner/VAT-taxpayer,
receipt. rendered professional services to a patient of Hospital B at an
agreed professional fee of Php 50,000.00 exclusive of VAT.
o In the case of an OB-Gyne for example, who also owns a Doctor C can pass on to Hospital B the 12% VAT or he can bill
maternity clinic, how will the payments of patients treated or Hospital B the total amount of Php 56,000.00.
confined therein be treated for VAT purposes?
o The term medical services has been defined to include various
Since payments received may consist of the professional fees of items of services like general treatment, physical examination,
the OB-Gyne, laboratory fees, charges for use of medical supplies consultation, medication, dressing, suturing surgical operation,
and facilities, only that portion of payment not pertaining to the and all that pertain to or deal with the healing art of the science of
professional fees of the OB-Gyne is exempt from VAT. For this medicine.
purpose, in receiving such payments, professional fees on the
services rendered by OB-Gyne must be issued a VAT-official o [VIP!] The maintenance and operation of a pharmacy or drugstore
receipt while those appertinent to laboratory fees, use of medical by a hospital is a necessary and essential service or facility
facilities and supplies must be receipted using a Non-VAT Official rendered by any hospital for its patients. In the legal sense, a
Receipt specifically detailing the nature of the billed fees and hospital is an institution devoted primarily to the operation of
charges attributable to the clinic; otherwise, the total amount facilities for the diagnosis, treatment and care of individuals

19
suffering from illness. A person who resorts to the hospital for pursuant to Section 109(1, H). However, this exemption does not
medical treatment can reasonably expect that the hospital would extend to its other activities involving sale of goods (such as Sale
make available to its patients immediate and prompt access not of Food and Drinks made by the school canteen) and services are
only to the services of doctors, nurses, and allied medical subject to VAT.
personnel, but also to necessary laboratory services as well as
medicines, drugs and pharmaceutical items which are Likewise, importation of books, films, slides, and other educational
indispensable aids in practically any form of medical treatment materials and equipment such as computers to be actually,
and care of patients. Accordingly, the sale of drugs or medicine directly, and exclusively used for educational purposes by NSNPEI
and pharmaceutical items to in-patients of hospital should be shall be exempt from VAT and customs duties, provided the
exempt from VAT since they are considered part of hospital guidelines under Department Order No. 137-87 in addition to the
services. However, the sale of medicines by hospitals to out- usual import requirements are observed.
patients and other customers are not part of hospital services
and are this subject to VAT. o The purchase of school supplies by said institutions (other than
NSNPEI) and their purchase of materials for repair of their
o A drug testing clinic is exempt from VAT as far as medical services buildings are subject to VAT imposed under Section 106. Such tax
are concerned, but the professional fees received by the medical may legitimately be passed on to customers like educational
technologist who performs the service and issues the result of the (other than NSNPEI) institutions
test to clients, are subject to VAT. But if the services of the
medical technologist are rendered under an employer-employee [If the educational institution is a proprietary institution the
relationship all remuneration received on account thereof, whether importation shall be subject to customs duties and VAT]
these be in the form of salaries, wages, emoluments, honoraria or
fees, are considered as compensation income exempt from the  If an account executive is an employee of a company, there being an
imposition of VAT pursuant to Section 109(I) of the Tax Code but employer-employee relationship, his commission income shall be exempted
subject to withholding tax on salaries of said employee pursuant from VAT pursuant to Section 109 (1, I). However, the employer shall
to Section 79 of the NIRC. deduct and withhold the withholding tax on wages.

o A company operating a laboratory and diagnostic center is VAT- If there is no employer-employee relationship, he shall be subject to VAT
exempt from its sale of medical, dental, and health services to the as a seller of service in the course of his business or practice of profession,
public through its medical personnel and facilities as it is regarded pursuant to Section 108(A). Moreover, he shall not be subject to the
as an entity rendering nonprofessional services, but is indirectly expanded withholding tax because VAT is not covered by the Expanded
liable to VAT passed on to it by its supplier‟s of goods and Withholding Tax Regulations.
services. Said suppliers are not exempt from VAT. If the
diagnostic services will be done by independent professionals, the  [VIP!] Revenues from port services, as an independent line of business, are
services will be subject to VAT and the persons directly liable to understood to include revenues from berthing (or mooring; berth is a
VAT are the independent professionals (not employees of the place at a wharf or port or pier where a ship or vessel can lie at anchor),
company). terminalling, lease of service equipment at the port and warehousing
services, such activities being mainly connected with, if not incidental to or
o The act of making available medicines to in-patients must be as a necessary consequence of, port service business. The same are,
considered an indispensable part of “hospital services” and, accordingly, indivisible; hence, may not be detached and treated as
therefore, exempt from VAT. Conversely, the pharmacy sales to revenues arising from different independent line of businesses.
out-patients and other customers are subject to VAT.
Thus, berthing fees and receipts from warehousing services may not be
 Educational services exempted refer to academic, technical or vocational considered revenues from distinct, separate and independent lines of
education provided by private educational institutions duly accredited by businesses with the end in view of treating them as lease of real property.
the DepED, CHED, TESDA and those rendered by government educational Rather, the same are all classified as gross receipts from port services
institutions. It does not include seminars, in-service trainings, review business, which involves sale of services other than the real estate leasing
classes and other similar services rendered by persons (such as Bar or and accordingly, subject to VAT pursuant to Section 108.
Board Reviewers) who are not accredited by the DepEd.
 A contract with an owner/operator of cold storage facilities is not a lease of
o Educational services rendered by private educational institutions real property but, rather, a warehousing contract. As such, the warehouse
duly accredited by the DepEd and the CHED are exempt from VAT operator is subject to VAT pursuant to Section 108.

20
does not exceed Php 1,919,500.00 in which case the same shall be subject
Warehousing business is not considered leasing of real property and the to 3% percentage tax. (Section 116)
warehouseman‟s compensation for his warehousing services cannot be
considered rentals from lease of real property. Instead, a warehouseman‟s Lease of Residential Units
services consist of receiving and storing goods and merchandise for others,
for a fee and his gross receipts from the sales of such services are subject If the monthly rental per unit does not exceed Php 12,800.00, the lease is
to VAT in accordance with Section 108. not subject to VAT regardless of the total rentals during the year, that is,
even if it exceeds Php 1,919,500.00. Whether the annual rentals exceed
 Export by persons who are not VAT-registered are exempt; if by VAT- Php 1,919,500.00 or not they are not subject to 12% VAT nor to the 3%
registered persons, they are subject to 0%. (Sec. 106 [A,2,a,1]) percentage tax.

 [VVIP!] [BAR!] Sales of real properties are exempt from VAT, if such Why is it that when the annual rentals do not exceed Php 1,919,500.00
properties are: they are not subject to 3% percentage tax?
ANS: It is because if the monthly rental per unit does not exceed Php
o Not primarily (capital asset) held for sale to customers or for lease 12,800.00 the transaction or lease is covered by Section 109 (1,Q)
in the ordinary course of trade or business and transactions covered by Section 109 (1,A-U) are not subject to
3% percentage tax even if the annual sales or receipts do not exceed
o Utilized for low-cost housing Php 1,919,500.00.

o Utilized for socialized housing If the monthly rental per unit exceeds Php 12,800.00, the lease is not
subject to VAT if the total rentals received during the year does not exceed
Php 1,919,500.00 in which case the total rentals is subject to 3%
o Residential lot valued at Php 1,919,500.00 and below, or
percentage tax. If the total rentals for the year exceed Php 1,919,500.00 it
residential house and lot and other residential dwellings (such as
is subject to 12% VAT. In other words, the lease is subject to VAT if the
condominium unit) valued at Php 3,199,200.00 and below
monthly rental per unit exceeds Php 12,800.00 and the total rentals for
the year exceeds Php 1,919,500.00.
If two or more adjacent residential lots are sold or disposed of by
the same seller (Rev. Reg. No. 3-2012) in favour of one buyer, for In cases where a lessor has several residential unit for lease, some are
the purpose of utilizing the lots as one residential lot, the sale leased out for a monthly rental per unit of not exceeding Php 12,800.00
shall be exempt from VAT only if the aggregate value of the lots while others are leased out for more than Php 12,800.00 per unit, his tax
does not exceed Php 1,919,500.00. Adjacent residential lots, liability will be as follows:
although covered by separate titles and/or separate tax
declarations, when sold or disposed of to one and the same buyer, o The gross receipts from rentals not exceeding Php 12,800.00 per
whether covered by one or separated Deed of Conveyance, shall month per unit shall be exempt from VAT regardless of the
be presumed as a sale of one residential lot. aggregate annual gross receipts.
[If the residential lot is valued at more than Php 1,919,500.00 or o The gross receipts from rentals exceeding Php 12,800.00 per
if the value of residential house and lot and other residential month per unit shall be subject to VAT if the aggregate annual
dwellings is more than Php 3,199,200.00 the sale thereof is gross receipts from said units only (not including the gross
subject to 12% VAT] receipts from units leased for not more than Php 12,800.00)
exceeds Php 1,919,500.00, otherwise, the gross receipts will be
o The assignment by way of dacion en page of lots and all subject to the 3% tax.
improvements which are not primarily held for sale (capital asset)
to customers or lease in the ordinary course of trade or business  The term residential units refers to apartments,
is exempt (but it is subject to 6% CGT) from VAT pursuant to houses, and lots for residential purposes, and buildings,
Section 109(1, P). or parts or units thereof used solely as dwelling places
(e.g., dormitories, rooms, and bed spaces) excepts
 [Mem] [BAR!] Lease of residential units is exempt if the monthly rental per motels, motel rooms, hotels and hotel rooms, lodging
unit does not exceed Php 12,800.00 regardless (whether the total rentals houses, inns and pension houses.
for the year exceeds Php 1,919,500.00 or not) of the amount of aggregate
rentals received by the lessor during the year; or it (monthly rental per
unit) exceeds Php 12,800.00, but the aggregate rentals during the year
21
 Section 116 which imposes a percentage tax at the rate class album. Such being the case, a printer of an annual school
of 3% is imposed only on transactions covered by yearbook is exempt from VAT.
Section 109(1,V); hence, it excludes from its coverage
other VAT-exempt transactions mentioned in Section The importation and distribution of comics is VAT-exempt.
109(1), (A to U), such as item (Q) pertaining to the lease
of residential units with monthly rent not exceeding Php o Book – a printed non-periodical publication of at least 48 pages
12,800.00, even if the annual gross receipts therefrom (exclusive of cover pages), published in the country and made
exceeds Php 1,919,500.00 for the reason that the same available to the public. Textbook – a book which is an exposition
has been explicitly excluded from the scope of Section of generally accepted principles in one subject, intended primarily
109(1,V) by the insertion of the phrase “other than the as a basis for instruction in a classroom or pupil-book-teacher
transactions mentioned in the preceding paragraphs.” situation. Manual – is a book that is conveniently handled,
especially handbook.
o This differs from the lease transaction being described under
Section 109(1,V) on which the percentage tax is imposed. An Based on these definitions, textbooks and teachers‟ manuals may
application (or example) of Section 109(1,V) would be the lease of be legally treated as books and, therefore, exempt from VAT.
a 2-unit residential apartment for Php 50,000.00 a month per unit
(this is no longer covered by Section 109 (1,Q), hence, this is o Under the Electronic Commerce Act documents, messages or
subject to 12% VAT but since the total annual rentals is (Php information which are electronically written, capable of being sent,
50,000.00 x 2 x12) Php1.2M which does not exceed Php received, recorded, stored, downloaded, transmitted, retrieved,
1,919,500.00 the total rentals is exempt from VAT but the same is and reduced into printed form may be considered as equivalent to
subject to 3% percentage tax under Section 116). In this print media. Accordingly, the sale of online journal, E-books and
particular case, while the transaction is generally considered as online academic library resources which appear at regular
one on which VAT is imposed because the rental payment exceeds intervals with a fixed price, either for subscription or sale, and are
Php 12,800.00, it is nevertheless subject to percentage tax not principally devoted for the publication of paid advertisements,
because the gross annual receipts derived therefrom is below the is exempt from VAT.
Php 1,919,500.00 threshold limit.
 Those with annual gross sales and/or receipts not exceeding the amount of
o The lease of 2 residential apartment buildings with a monthly Php 1,919,500.00 are considered small business enterprises under Section
rental not exceeding Php 12,800.00 per unit by a non-VAT 116.
registered taxpayer is exempt from VAT (because the monthly
rental does not exceed Php 12,800.00 per unit per month) and the o Commissions on the sale of real property earned by individual
3% percentage tax (because this is covered by Section 109, 1, Q agents (real estate brokers or salesman) who are not employees
all transactions covered by Section 109, 1, A-U are not subject to of real estate companies are subject to VAT if such commissions
percentage tax of 3% even if the total annual receipts is Php per 12-month period exceed Php 1,919,500.00. However, it is not
1,919,500.00 or less) regardless of the total amount of rentals subject to withholding of VAT. On the other hand, commissions
received by the lessor during the year. not exceeding Php 1,919,500.00 are subject to the 3% tax
prescribed in Section 116.
[The only transactions that will be subject to 3% percentage tax
are those not covered by Section 109,1,A-U when the total annual  Distinctions between 0-rating and exemption – Both are 2 different
receipts does not exceed Php 1,919,500.00] ways by which transactions subject to the VAT are given preferential
treatment.
 [Impt!] Gross receipts from the lease of commercial units are subject to
12% VAT (even if the monthly rental stall or unit does not exceed Php o Under the first, the transaction is completely free of VAT. On the
12,800.00) under Section 105 if they exceed the threshold amount of Php other hand, the second only removes the VAT at the exempt stage
1,919,500.00 if they do not exceed Php 1,919,500.00 they are subject to (the transaction is covered by Section 109,1,A,2b).
percentage tax of 3%.
o A VAT-payer who is subject to 0 rate of tax can claim and enjoy a
 Sale, etc. of books, etc. credit or refund for the input tax invoiced to him on his purchases.
The same privilege is not given to exempt taxpayers. In view of
these differences, the total taxes payable by the exempt taxpayer
o The word “books” as used in Subsection (1,R) is a general term
may increase rather than decrease this is the reason why a VAT-
and embraces all kinds of books, including a school or college
22
registered person may elect that his transactions be subject to SEC. 110. Tax Credits. -
12% VAT even if said transactions are covered by Section 109,1. (A) Creditable Input Tax. –
(1) Any input tax evidenced by a VAT invoice or official receipt issued in
The person making the exempt transaction shall not separately bill accordance with Section 113 hereof on the following transactions shall be
any output tax to his customers because the said transaction is creditable against the output tax:
not subject to VAT. On the other hand, a VAT-registered
purchaser of goods or services which are exempt from VAT on the (a) Purchase or importation of goods:
sale of said goods and services is not entitled (he cannot deduct (i) For sale; or
the input tax because he has no output tax and he cannot even (ii) For conversion (such as raw materials) into or intended to form
claim for tax refund or tax credit of the input tax unlike in the case part of a finished product for sale including packaging
of 0-rated seller) to any input tax on such purchase. materials; or
(iii) For use as supplies (such as factory supplies or office supplies)
 Effectively 0-rated transactions cover local sale of goods, properties, and in the course of business; or
services to purchasers (such as NSNPEI and International Organizations (iv) For use as materials (such as supplies to be used in Hotels,
such as WHO) enjoying exemption from indirect taxes under special laws Motels, etc.) supplied in the sale of service; or
and international agreements. (v) For use in trade or business for which deduction for
depreciation (such as machinery and equipment, furniture and
In an effectively 0-rated transaction, the VAT-registered seller of goods or fixtures, etc.) or amortization (such as patent, trademark,
services is required to file an application and secure approval for 0-rating, goodwill, copyright, franchise, etc.) is allowed under this Code.
whereas in an automatically 0-rated transaction, the VAT-registered seller
need not file an application for 0-rating. (b) Purchase of services on which a value-added tax has actually been
paid.
 Importations of certain articles by a foreign Embassy, or its personnel, are
exempt from the VAT in accordance with Article 36(1) of the Vienna (2) The input tax on domestic purchase or importation of goods or properties
Convention. by a VAT-registered person shall be creditable:

 RHQs established in the Philippines by multinational companies are exempt (a) To the purchaser upon consummation of sale and the input tax on
from the VAT. In addition, the sale or lease of goods and property and the importation of goods or properties; and shall be creditable
rendition of services to RHQs are subject to 0% VAT rate. ROHQs are
subject to VAT as provided under the Tax Code. (b) To the importer upon payment of the value-added tax prior to the
release of the goods from the custody of the Bureau of Customs.
An alien executive of the RHQ or ROHQ shall enjoy tax and duty free Provided, That the input tax on goods (depreciable assets)
purchased locally or imported in a calendar month for use in trade
importation of personal and household effects as provided for under
or business for which deduction for depreciation is allowed under
Section 105(h) of the Tariff and Customs Code and Section 109(1,D) of the this Code, shall be spread evenly over the month (VAT returns is
Tax Code, provided, such effects shall arrive in the Philippines within 90 filed quarterly but the VAT is payable monthly [Section 114,A]) of
days before or after conversion of the alien executive‟s category to multiple acquisition and the fifty-nine (59) succeeding months if the
entry visa issued under Executive Order No. 226. aggregate acquisition cost for such goods (depreciable assets),
excluding the VAT component thereof, exceeds One million pesos
 Sale to senior citizens – Senior citizens or those resident citizens at least (P1,000,000): Provided, however, That if the estimated useful
60 years old are entitled to 20% discount on their purchase of basic life of the capital good (depreciable assets) is less than five (5)
essential goods and services. With the passage of RA No. 9994, otherwise years, as used for depreciation purposes, then the input VAT shall
known as “Expanded Senior Citizens Act of 2010,” exempting their be spread over such a shorter period: Provided, finally, that in
purchases from VAT, they now enjoy the full 20% discount. the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or licensee
NOTE: Input VAT for 0-rated sales may be refunded or applied against the upon payment of the compensation, rental, royalty or fee.
output VAT of sellers on their gross sales/receipts. The law, however,
declares the transaction (purchase by senior citizen) as VAT-exempt sale. (3) A VAT-registered person who is also engaged in transactions not subject
to the value-added tax shall be allowed tax credit as follows:

23
(a) Total input tax which, can be directly attributed to transactions
subject to value-added tax; and The claim for tax credit referred to in the foregoing paragraph shall include
not only those filed with the Bureau of Internal Revenue but also those filed
(b) A ratable portion (on the basis of volume of sales or gross sales with other government agencies, such as the Board of Investments and the
or receipts) of any input tax (such as input tax on the purchase of a Bureau of Customs.
delivery truck which is used to deliver goods sold some are subject
to VAT and the others are exempt) which cannot be directly
 Input tax includes taxes which can be directly attributed to transactions
attributed to either activity (transactions subject to VAT and
subject to the VAT plus a ratable portion of any input tax which cannot be
transactions exempt from VAT).
directly attributed to either the taxable or exempt activity.

Example: [VIP!] NOTE: Refund of input tax on capital goods (depreciable assets) is
The VAT-registered person purchased a delivery truck at a cost of no longer allowed because refund of input tax applies only to 0-rated sales
Php 2,000,000.00 plus VAT of Php 240,000.00. The truck is used it does not even apply to sales exempt from VAT
to deliver goods sold some are subject to VAT and the others are
exempt from VAT. The useful life of the truck is 10 years, hence,  Creditable Input Tax – Section 110 considers a duly executed VAT
the input tax of Php 240,000.00 can be spread over 5 years at invoice or official receipt as sufficient evidence to support a claim for input
Php 48,000.00 per year. During the first year of the acquisition of credit tax. The input tax on the following transactions shall be creditable
the truck, the gross sales subject to VAT amount to Php against the output tax:
2,000,000.00 while gross sales which are exempt amount to Php
1,000,000.00. The input tax which can be deducted from the 1. Purchase or importation of goods
output tax is (Php 48,000.00 x 2/3) Php 32,000.00 while the 2. Purchase of real properties for which a VAT has actually been paid
remaining (Php 48,000.00 x 1/3) Php 16,000.00 cannot be 3. Purchase of services for which a VAT has actually been paid
deducted as input tax but can be considered as an expense. 4. Transactions “deemed sale” (such as consigned goods NOT sold
within 60 days)
5. Transitional input tax
[Mem!] The term 'input tax' means the value-added tax due from or
6. Presumptive input tax
paid by a VAT-registered person in the course of his trade or business
on importation of goods or local purchase of goods or services, including
The unutilized input taxes which a VAT taxpayer has accumulated over the
lease or use of property, from a VAT-registered person (except in the
years are available as a deduction from the output taxes payable for the
case of importation of goods where the exporter or seller is obviously
current year.
NOT a VAT-registered person). It shall also include the transitional
input tax determined in accordance with Section 111 of this Code.
Input tax attributable to VAT-exempt transactions cannot be credited
against output tax but should be treated as part of cost (in the case of
[Mem!] The term 'output tax' means the value-added tax due on the
input tax on goods purchased) or expense (in case of input tax on
sale or lease of taxable goods or properties or services by any person
services; an allowable deduction in the form of taxes from gross profit to
registered or required to register under Section 236 of this Code.
arrive at net income)
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the
 60-month period amortization – “Subsection (A)(2)(b) prescribes a 60-
output tax exceeds the input tax, the excess shall be paid by the VAT-
month period within which to amortize the creditable input tax on purchase
registered person to the BIR. If the input tax exceeds the output tax, the
or importation of capital goods (or depreciable assets) with acquisition cost
excess shall be carried over to the succeeding quarter or quarters: Provided,
exceeding Php 1,000,000.00, exclusive of the VAT component. Such
however, That any input tax attributable to zero-rated sales by a VAT-
spreading out only poses a delay in the crediting of the input tax. Again,
registered person may at his option be refunded or credited against other
for whatever is the purpose of the 60-month amortization, this involves
internal revenue taxes, subject to the provisions of Section 112.
executive economic policy and legislative wisdom in which the Court cannot
intervene”
(C) Determination of Creditable Input Tax. - The sum of the excess input tax
carried over from the preceeding month or quarter and the input tax
 Capital goods or properties refer to goods or properties with estimated
creditable to a VAT-registered person during the taxable month or quarter
useful life longer than 1 year and which are treated as depreciable assets
shall be reduced by the amount of claim for refund or tax credit for value-
under Section 34(F) of the Tax Code, used directly or indirectly in the
added tax and other adjustments, such as purchase returns or allowances and
production or sale of taxable goods or services.
input tax attributable to exempt sale.

24
The aggregate acquisition cost of depreciable assets in any calendar month  [Impt!] In computing the VAT payable to the BIR, three possible scenarios
refers to the total price, excluding the VAT, agreed upon for one or more may arise:
assets acquired and not on the payments actually made during the
calendar month. Thus, an asset acquired on installment for an acquisition First, if at the end of a taxable quarter the output taxes charged by the
cost of more than Php 1,000,000.00, excluding the VAT, will be subject to seller to his customers or buyers are equal to the input taxes that he paid
the amortization of input tax despite the fact that the monthly and passed on by the suppliers, then no payment is required;
payments/instalments may not exceed Php 1,000,000.00.
Second, when the output taxes exceed the input taxes, the person shall
 [Impt!] The amortization of the input tax is required only if the purchased be liable for the excess, which has to be paid to the BIR; and
or imported goods or properties to be used in business are subject to
depreciation in their present state. If the said goods or properties are not Third, if the input taxes exceed the output taxes, the excess shall be
depreciable per se, but will only be used as materials in the construction or carried over to the succeeding quarter or quarters. Should the input taxes
assembly of a depreciable asset, the input tax on the said goods or relate to 0-rated transactions, any excess over the output taxes shall
properties is not required to be amortized. For input taxes to be amortized instead be refunded to the taxpayer or credited against other internal
all of the following conditions must be present: revenue taxes, at the taxpayer‟s option.

1. Input tax is paid on the purchase and/or importation of goods or  Formula for computing VAT
properties
2. Aggregate acquisition cost (excluding VAT) of the goods for the Output tax on sale, etc., of goods/properties/services
month exceeds Php 1,000,000.00; and Less: Input tax on purchases, etc., and/or importation
3. Goods purchased or imported refer to an existing or finished = VAT payable
depreciable asset at the time of acquisition
The VAT payable is the excess of output tax over allowable input tax. In
 [Impt!] Excess input taxes may be carried over to the succeeding quarter the case of importation, it is the VAT due on such importation.
or quarters. If the input tax is attributable to the purchase of capital goods
or to (see Page 129, last paragraph and Page 134, first paragraph) 0-rated Thus (figures assumed)
sales, it may be refunded or credited (the BIR will issue certificate of tax (1) Sales (domestic) Php 550,000.00
credit) at the option of the VAT-registered person against his liability for Output tax (12%) Php 066,000.00
other internal revenue taxes. LESS: Input tax on purchases
and/or importation
 If a VAT-registered person is engaged in VAT-subject and VAT-exempt Raw materials Php 180,000.00
transactions, the tax credits allowable will be computed under an Supplies 040,000.00
apportionment formula (on the basis of volume of sales) Capital goods 060,000.00
Services 50,000.00
 Note that in the definition of input tax, the payment by the VAT-registered Total Php 330,000.00
must be in the course of trade or business, implying that if the importation Input tax (12%) 39,600.00
of goods is not in the course of trade or business (such as if the imported VAT payable Php 26,400.00
goods are for personal consumption of the importer), no input tax can be
credited. The importer can credit the input tax paid to the Bureau of (2) Export Sales Php 300,000.00
Customs on his importation of goods against the output tax payable on the Output tax (0%) 0.00
sale of the imported goods, whether sold in their original state or as LESS: Tax credit (12%)
ingredients or parts of any finished product which is finally sold.
Purchases Input Tax
The payment of the excess of output tax over the input tax is the obligation Raw Materials P 77,000.00 P 9,240.00
of the seller, not of the purchaser. Supplies 16,500.00 1,980.00
Capital goods 11,000.00 1,320.00
Services 5,500.00 660.00
 As amended by RA No. 9337, the Tax Code no longer allows the refund of Total P 110,000.00 P 13,200.00
input VAT paid on purchase of capital goods (depreciable assets).

25
a) Export sales are 0-rated and the exporter is entitled return filed by the resident payor on behalf of the non-resident
to tax credits or refund to all input tax attributable to evidencing remittance of the VAT due which was withheld by the
the goods exported. payor.

b) Under Section 110(B) and subject to Section 112(A),  [Impt!] Other rulings holding liability to VAT
the exporter has the option to apply for refund of the
entire amount of Php 13,200.00, or credit the o Service income consisting of gross receipts for cleaning and
amount to Php 13,200.00 (the exporter can do this if roasting of coffee beans for other persons of firms is subject to
the BIR has already issued in his favour a certificate the VAT of 12% if the gross receipts arsing from the performance
of tax credit) against his liability for other internal of such service exceed Php 1,919,500.00; otherwise, if the gross
revenue taxes receipts are Php 1,919,500.00 or less and the taxpayer did not opt
to register under the VAT, he is exempt from the VAT but subject
 Substantiation of claims for input taxes to the 3% percentage tax based on his gross quarterly sales of
receipts. However, if his gross receipts are Php 1,919,500.00 or
1. Input taxes for the importation of goods or the domestic purchases of less but he is registered under the VAT, he is subject to the VAT
goods, properties, or services is (the importation or the domestic pursuant to Sections 109(2) and 116.
purchase) made in the course of trade or business, whether such input
taxes shall be credited against zero-rated sales, non-zero-rated sales, [A is engaged in the business of buying and selling merchandise
or subjected to 5% or 10% Final Withholding VAT under Section 114C, and his transaction does not fall under Section 109 A-U, hence, he
must be substantiated and supported by the following documents, and is subject to VAT of 12%. However, if his annual gross
must be reported in the information returns required to be submitted sales/receipts does not exceed Php 1,1919,500.00 he is not
to the BIR subject to 12% VAT instead he is subject to 3% percentage tax
under paragraph V of Section109 EXCEPT if he opts to be
a. For the importation of goods – import entry (or written registered under the VAT System in which case he is subject to
declaration of importation by the collector of customs) or other 12% VAT even if his gross annual sales of receipts does not
equivalent document (such as official receipt issued by the exceed Php 1,919,500.00 (Section 109, 2 in relation to Section
collector of customs or the payment of customs duties, fees and 116)]
other charges and the VAT)
b. For the domestic purchase of goods and properties – o Under the manning contract with the owners/managers of the
invoice showing the information required under Secs. 113 and vessels to provide/supply the crew and personnel management
237 requirements of a foreign-owned, but Philippine-flag vessels
c. For the purchase of real property – public instrument, i.e., engaged in worldwide trade (or international trade), a taxpayer
deed of absolute sale, deed of conditional sale, engaged in the business of crewing/manning vessels trading
contract/agreement to sell, etc., together with VAT invoice worldwide is deemed to have performed all of such services within
issued by the seller. the Philippines; hence, he is taxable under Section 108(A). If he is
d. For the purchase of services – official receipt showing the VAT-registered and the consideration paid to him is in acceptable
information required under Secs 113 and 237 foreign currency remitted inwardly and accounted for in
accordance with the rules and regulations of the Central Bank. He
is subject to the VAT of 0% pursuant to Section 108(B,2).
A cash register machine tape issued to a registered buyer shall
constitute valid proof of substantiation of tax credit only if it shows
o As long as the amount of sales exceeds Php 1,919,500.00 during
the information required under Secs. 113 and 237
a 12-month period, a hospital operating a pharmacy or drugstore
becomes subject to VAT irrespective of whomsoever the medicine
2. Transitional input tax – it shall be supported by inventory of goods or drug is sold whether to inpatient or outpatient
as shown in a detailed list to be submitted to the BIR
o Essential Oil used in the manufacture of bath soap is not subject
3. Input tax on deemed sale transactions – it shall be substantiated to the 20% excise tax imposed by Section 150. However, said
with the required invoices (delivery receipts) importation of essential oil is subject to VAT based on the total
value used by the Bureau of Customs in determining tariff and
4. Input tax from payments made to non-residents – it shall be customs duties, plus customs duties, excise tax, if any, and other
supported by a copy of the Monthly Remittance Return of VAT withheld charges pursuant to Section 107.
26
exempt from the value-added tax in all stages of distribution.
o Although corn starch is a by-product in the process of milling corn, However, if the ground coffee is packed or placed in bottles or
it is not one of those considered in their original state for purposes cans and sold, the same is already a manufactured product;
of Section 109(1,A). Under said provision, only corn grits, another hence, subject to VAT if the sales exceed Php 1,919,500.00 during
by-product, is considered in the original state. Such being the the 12-month period. But if the sales derived from all lines of
case, corn starch which is a manufactured product and no longer business do not exceed Php 1,919,500.00 during any 12-month
in its original state is subject to the VAT. Similarly, corn germ is period, the business is exempt from VAT but subject to 3% of
subject to VAT gross sales or receipts pursuant to Section 109(1,V) in relation to
Section 116.
[Because although it is in the original state it is NOT for human
consumption but for planting purposes] o In the manufacture of fresh and cooked dog foods, the
manufacturer uses agricultural by-products such as soya beans,
o Cassava starch can no longer be considered in its original state; chicken heads, organs, fish, animal and poultry feeds as raw
hence, the same is subject to VAT imposed by Section 106(A). materials. All of such raw materials fall under the category of
The process involved in the conversion of cassava tubers into agricultural products and the sale thereof to the manufacturer of
cassava starch reveals that the same is not a mere simple process fresh and cooked dog foods is exempt from VAT. The sale of fresh
of preparation, etc. as provided in Section 109(1,A) but rather the and cooked dog food by the manufacturer to the retailers falls
process of manufacturing. However, the sale of cassava tubers by within the purview of animal feeds pursuant to Section 109(1,B)
the growers and/or purchasers to the manufacturer of cassava under the exception portion, hence, subject to VAT. Note: Fish
starch is exempt from VAT pursuant to Section 109(1,A). and animal specialty feeds, are no longer exempt under
Subsection (1,B) of 109.
o The local sales of crude coconut oil and copra pellets are subject
to VAT pursuant to Section 106(A) because the same are no o Prawn feeds are expressly exempt under Subsection (1,B) of 109
longer in their original state, but a processed food product. On the
other hand, the export of coconut oil is subject to VAT at 0% o Dealers of dried fruits and vegetables as well as food companies
pursuant to Section 106(A,2,a) engaged in the simple processing of agricultural and marine food
products are exempt from the VAT
o Copra cake, also known as copra meal (ground copra), is a by-
product of copra, which comes out in pellet form after the oil is o Other exempt transactions: importation of frozen sliced potato
extracted using solvents or through pressing. Since it is a still in its original state is exempt under Section 109(1,A) and
processed product ultimately used as ingredient or supplement to industrial salt, alternatively known as table salt which is neither
animal feeds, it cannot be considered exempt under Section iodized nor refined under Section 109(1,A); importation or sale of
109(1,A). potassium nitrate as it is classified as a non-traditional forliar
fertilizer under Section 109(1,B); shipment of prawn feeds,
o Hamburger patties are “processed meat products” having though in big quantity under Section 109(1,B); and sale of
undergone manufacturing process thru mixture of salt, pepper, “alamang” to which little salt has been added to preserve its
garlic, powder, monosodium glutamate, hydrolyzed vegetable, freshness, to processors of “bagoong” under Section 109(1,A).
protein and water; hence, are no longer meat products in their
original state. Such being the case, their sales are subject to VAT
[Impt!] SEC. 111. Transitional/ Presumptive Input Tax Credits. –
pursuant to Section 106.
(A) Transitional Input Tax Credits. - A person who becomes liable to value-
 Other rulings exempting from VAT
added tax because his annual gross sales or receipt exceeds Php
1,919,500.00 and his transactions are NOT covered by Section 109(1,A-U)
o The business of supplying fresh water to inter-island and ocean-
or any person who elects to be a VAT-registered person (under Section
going vessels is exempt; fresh water comes within the purview of
109(2)) although his transactions are exempt from VAT under Section
agricultural food products
109(1,A-U) shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of Finance, upon recommendation of
o Export sales of more than Php 1,919,500.00 of roasted coffee
the Commissioner, be allowed input tax on his beginning inventory of goods,
beans are subject to 0% if business is VAT-registered; otherwise,
materials and supplies equivalent to two percent (2%) of the value of such
exports shall be exempt. Roasted and ground coffee beans are not
inventory or the actual value-added tax paid on such goods, materials and
considered manufactured products; hence, the sales thereof are
27
supplies, whichever is higher, which shall be creditable against the output applied against output tax: Provided, however, That in the case of zero-
tax. rated sales under Section 106(A)(2)(a)(1), (2) (Export Sales of Goods)and
(B) (transactions deemed sale) and Section 108 (B)(1) (Zero-rated sales of
(B) Presumptive Input Tax Credits (because when the person or firm engage service) and (2), the acceptable foreign currency exchange proceeds thereof
in the processing of sardines, etc. purchases the agricultural products used had been duly accounted for in accordance with the rules and regulations of
as inputs to the production of said sardines he/it did not pay input tax the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
because agricultural and marine food products in their original state are taxpayer is engaged in zero-rated or effectively zero-rated sales and also in
exempt from VAT). – Persons or firms engaged in the processing of sardines, taxable or exempt sale of goods of properties or services, and the amount of
mackerel and milk, and in manufacturing refined sugar, cooking oil and creditable input tax due or paid cannot be directly and entirely attributed to
packed noodle based instant meals, shall be allowed a presumptive input any one of the transactions, it shall be allocated proportionately on the basis
tax, creditable against the output tax, equivalent to four percent (4%) of of the volume of sales: Provided, finally, That for a person making sales
the gross value in money of their purchases of primary agricultural products that are zero-rated under Section 108 (B)(6) (Transport of Passengers and
which are used as inputs to their production. Cargo by air or sea vessels from the Philippines to a foreign country), the
input taxes shall be allocated ratably between his zero-rated and non-zero-
As used in this Subsection, the term 'processing' shall mean pasteurization, rated sales.
canning and activities which through physical or chemical process alter the [Input tax paid on goods purchased and subsequently sold and the sale is
exterior texture or form or inner substance of a product in such manner as to exempt from VAT cannot be availed of as tax refund or tax credit. This input
prepare it for special use to which it could not have been put in its original form tax is part of the cost of sales, more particularly part of purchases or it can
or condition. be treated as an allowable deduction in the form of taxes. The same is true
with respect to input tax on Capital Goods)
 Transitional input tax on beginning inventories – taxpayers who
(B) Cancellation of VAT Registration. - A person whose registration has been
became VAT-registered persons upon exceeding the threshold amount of
cancelled due to retirement from or cessation of business, or due to changes
Php 1,919,500.00 or who voluntarily registered even if the threshold
(such as when the volume of sales no longer exceeds Php 1,919,500.00) in
amount does not exceed Php 1,919,500.00 or even if their transactions are
or cessation of status under Section 106(C) of this Code may, within two (2)
exempt from VAT under Section 109(1,A-U) shall be allowed to a
years from the date of cancellation, apply for the issuance of a tax credit
transitional input tax on the inventory on hand as of the effectivity of their
certificate (tax refund is NOT allowed) for any unused input tax which may
VAT registration
be used in payment of his other internal revenue taxes.
o The transaction input tax shall be 2% of the value of the
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In
beginning inventory on hand or the actual VAT paid, on such
proper cases, the Commissioner shall grant a refund or issue the tax credit
goods, materials and supplies, whichever is higher, which amount
certificate for creditable input taxes within one hundred twenty (120) days
may be allowed as tax credit against the output tax of the VAT-
from the date of submission of complete documents in support of the
registered person. To avail of the benefit, the taxpayer must have
application filed in accordance with Subsection (A) hereof.
paid input tax on his inventory. In the case of presumptive input
tax credit the taxpayer did not pay any input tax on the marine or
[The law does not require the CIR to decide written claims for tax refund or
agricultural products he purchased.
tax credit because if the CIR does not decide the taxpayer can appeal the
inaction of the CIR to the CTA]
[Impt!] SEC. 112. Refunds or Tax Credits (this term refers to the issuance by the
BIR of tax credit certificate which may be used by the VAT-registered person to pay [VIP!] In case of full or partial denial of the claim for tax refund or tax credit, or
his other NIR taxes such as Income Tax, Donor‟s Tax, Documentary Stamp Tax, etc. the failure on the part of the Commissioner to act on the application within the
This term does not refer to the input tax deductible from the output tax) of Input period prescribed above, the taxpayer affected may, within thirty (30) days
Tax. – from the receipt of the decision denying the claim or within 30 days after the
expiration of the one hundred twenty day-period, appeal the decision or the
(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered unacted claim (or inaction) with the Court of Tax Appeals.
person, whose sales are zero-rated or effectively zero-rated may, within two
(2) years after the close of the taxable quarter when the sales were made, (D) Manner of Giving Refund. - Refunds shall be made upon warrants
apply for the issuance of a tax credit certificate or refund of creditable input (treasury warrants or government checks) drawn by the Commissioner or by
tax due or paid attributable to such sales, except transitional input tax his duly authorized representative without the necessity of being
(because transitional input tax is deductible from output tax of the person countersigned by the Chairman, Commission on Audit, the provisions of the
who becomes liable to VAT), to the extent that such input tax has not been Administrative Code of 1987 to the contrary notwithstanding: Provided,

28
That refunds under this paragraph shall be subject to post audit by the sales) of input taxes allocated to zero-rated or effectively zero-rated sales
Commission on Audit. can be refunded or issued a tax credit certificate.

In the case of a person engaged in the transport of passenger and cargo


 [Impt!] Only a VAT-registered person may be given a tax credit certificate
(Section 108, B, 6 in relation to Section 112A) by air or sea vessels from
or refund of unutilized input VAT paid corresponding to the zero-rated sales
the Philippines to a foreign country, the input taxes shall be allocated
or effectively zero-rated sales of goods, properties or services.
ratably between his zero-rated sales and non-zero-rated sales (sales
subject to regular rate, subject to final VAT withholding and VAT-exempt
o The application for refund or tax credit of unutilized input VAT
sales).
attributable to zero-rated or effectively zero-rated sales should be
filed “within 2 years after the close of the taxable quarter when
 A VAT-registered person whose registration has been cancelled due to
[such] sales were made,” regardless of when the input VAT was
retirement from or cessation of business, may, within 2 years from the
paid or when the related official receipt was issued. Thus, when a
date of cancellation, apply for the issuance of a tax credit certificate (tax
zero-rated VAT taxpayer pays its input VAT a year after the
refund is not allowed) for any unused input tax which he may use in
pertinent transaction (the zero-rated sale was made), said
payment of his other internal revenue taxes. However, he shall be entitled
taxpayer only has a year to file a claim for refund or tax credit of
to a refund if he has no internal revenue tax liabilities against which the tax
the unutilized creditable input VAT.
credit certificate may be utilized.
Example:
 [VIP!] Input taxes on capital goods (depreciable assets) – Input taxes
A is engaged in import and export business. On Jan. 16, 2014
on capital goods can no longer be refunded (May the VAT-registered
he purchased locally manufactured products at a cost of Php
person who purchased capital goods or depreciable assets and who paid an
10M without VAT, hence, A paid to his supplier the total
input tax thereon file with the BIR a written claim for issuance of tax credit
amount of Php 11.2M on said date. On Jan. 16, 2015 A
certificate? ANS: NO, claim for refund or tax credit certificate is applicable
exported the said products to Singapore which sale is a zero-
only on input tax on goods the sale thereof is zero-rated or effectively
rated sale.
zero-rated). Under Section 110(B), the input tax on (capital) goods for
which deduction depreciation is allowed, shall be spread evenly for 60
Until when may A file with the BIR a written claim for tax
months starting from the month of acquisition or during the useful life of
refund of Php 1.2M?
the asset whichever is shorter. This applies if the aggregate acquisition
cost of such asset excluding the VAT component thereof exceeds Php 1M.
ANS: The claim for tax refund may be filed until March 21,
2017. The export sale was made on January 16, 2015
and the taxable quarter ends on March 31, 2015 and A In the case, however, of zero-rated and effectively zero-rated taxpayers,
is given a period of 2 years after the close of the they continue to be entitled to issuance of tax credit certificate or refund of
taxable quarter when the sale is made. input taxes paid on capital goods (THIS IS WRONG! See Page 129 last
paragraph, Page 134 1st paragraph and Page 154 last paragraph)
o Section 204 (C) also sets a 2-year prescriptive period, reckoned
from date of payment of the tax or penalty, for the filing of a
[VIP!] NOTE: Refund of input tax on capital goods (depreciable assets) is
claim for refund or tax credit. Said provision applies only to
no longer allowed because refund of input tax applies only to 0-rated sales
instances of erroneous payment or illegal collection of internal
it does not even apply to sales exempt from VAT
revenue tax not to claim for tax refund on unutilized input tax on
zero-rated sales.
 [Impt!] Requirements for claim of refund or tax credit – To claim a
 [Impt!] Allocation of proportionate share of input taxes – where the refund or tax credit of input VAT attributable to zero-rated or effectively
taxpayer is engaged in both zero-rated or effectively zero-rated sales and zero-rated sales, the taxpayer must satisfy the following requirements:
in taxable (including sales subject to final withholding VAT [Section 114, C
– 5% or 10%]) or exempt sales (Section 109,1,A-U) of goods, properties 1. Taxpayer is VAT-registered
or services, and the amount of creditable input tax due or paid cannot be 2. Taxpayer is engaged in zero-rated or effectively zero-rated sales
(such as purchase of raw materials to be manufactured into finished 3. Input taxes are due or paid
products and eventually sold some of them are zero-rated some are 4. Input taxes are not transitional input taxes
taxable and some are exempt) directly and entirely attributable to any one 5. Input taxes have not been applied against output tax during and in the
of the transactions, only the proportionate share (on the basis of volume of succeeding quarters

29
6. Input taxes claimed are attributable to zero-rated or effectively zero- of the quarter involved, but rather the date of the filing of the
rated sales quarterly VAT return, because it is only then that the amount of
7. Zero-rated sales under Sections 106(A)(2)(1) and (2);106(B), and refund, if any, can be determined.
108(B)(1) and (2), the acceptable foreign currency exchange proceeds
have been duly accounted for in accordance with BSP rules and o To claim a refund for input VAT attributable to zero-rated sales,
regulations; the claimant-taxpayer must be VAT-registered and must comply
8. Where there are both zero-rated or effectively zero-rated sales and with the statutory invoicing requirements. Specifically, the
taxable or exempt sales, and the input taxes cannot be directly and taxpayer must imprint the word “zero-rated” on his sales invoices
entirely attributable to any of these sales, the input taxes shall be and official receipts. Failure to do so will result in the disallowance
proportionately allocated on the basis of sales volume of his claim for refund. The appearance of the word “zero-rated”
9. Claim is filed within 2 years after the close of the taxable quarter when on the face of invoices covering zero-rated sales prevents a buyer
such sales were made from falsely claiming input VAT from its purchases when it did not
pay any VAT to the seller. Absent such word, if a successful claim
The failure to print the word “zero-rated” on the invoices or receipts is fatal for input VAT is made, the government would be refunding money
to a claim for credit or refund or input VAT on zero-rated sales. Invoices or it did not collect in the first place. The requirement to imprint the
receipts which are not duly registered have no probative value for the word “zero-rated” in official receipts and invoices is reasonable
purpose of refund or credit and is in accord with the efficient collection of VAT from the
covered sales of goods and services.

 [VVIP!] Filing of claims for refund or tax credit – they shall be filed
o The second paragraph of Section 112 (C) envisions 2 scenarios:
with the appropriate BIR Office-Large Taxpayers Service (LTS) or Revenue
(a) when a decision is or rendered issued by the Commissioner
District Office (RDO) – having jurisdiction over the principal place of
before the lapse of the 120-day period, and or (b) when no
business of the taxpayer. However, direct exporters may also file their
decision is made after the 120-day period. In both instances, the
claim for tax credit with the One-Stop-Shop Center of the Department of
taxpayer has 30 days within which to file an appeal with/to the
Finance. The filing of a claim with one office shall preclude the filing of the
CTA. The filing of a judicial claim (or appeal) with the CTA by a
same claim with another office.
taxpayer who did not wait for the decision of the Commissioner
and before the lapse of the 120-day period would be premature
o The commissioner shall grant a tax credit/refund for creditable
and the CTA would not acquire jurisdiction over the matter.
input taxes within 120 days from the date of submission of
complete documents (such as Quarterly VAT Returns, Purchase
A decision rendered by the Commissioner after the 120-day can
Invoice and Sales Invoice) in support of the application filed for
still be appealed to the CTA within 30 days from receipt thereof.
tax refund or credit under Section 112(A).

o In case of full or partial denial of the claim for tax credit/refund as o Section 112(C) provides for a specific period within which a
decided by the Commissioner of Internal Revenue, the taxpayer taxpayer should appeal to the CTA the decision or inaction of the
may appeal to the CTA within 30 days from the receipt of said CIR: within 30 days from receipt of decision rendered by the CIR
denial; otherwise, the decision will become final. However, if no before or after the lapse of the 120-day period, or within 30 days
action on the claim for tax credit/refund has been taken by the after the 120-day (the 180-day period applies to protested
CIR after the 120-day period from the date of submission of the assessment under Section 228 last paragraph) period when no
application with complete documents, the taxpayer may appeal decision is made. The filing of appeal with the CTA before the
(the taxpayer will appeal the inaction of the CIR or his (taxpayer) rendition of the decision of the CIR and before the lapse of the
unacted claim for refund or credit) to the CTA within 30 days 120-day period would be premature.
from the lapse of the 120-day period.
o When claiming tax refund or credit, the VAT taxpayer must be
o While the period under Section 112(A) for filing a claim for refund able to establish that he has refundable or creditable input VAT,
or credit of input VAT or the issuance of a tax credit certificate is and the same has not been applied against its output VAT
reckoned from the close of the taxable quarter when the sales liabilities – information which is supposed to be reflected in the
were made, the period under Section 229 for filing an action to taxpayer‟s VAT returns. Thus, an application for tax refund or
recover taxes which have been erroneously paid is reckoned from credit must be accompanied by copies of the taxpayer‟s VAT
the date of payment. It is settled that in the case of input VAT, return or returns for taxable quarter or quarters concerned.
the date of payment of the input tax is not deemed to be the close

30
 [Impt!] Tax credit certificates – insofar as BIR-issued tax credit sale price between its taxable, exempt and zero-rated components,
certificates are concerned, there is no provision in the Tax Code expressly and the calculation of the value-added tax on each portion of the
prohibiting their transfer or assignment, hence, they can be transferred or sale shall be shown on the invoice or receipt: Provided, That the
assigned by the owner provided that the same have not expired and seller may issue separate invoices or receipts for the taxable,
remain valid in the hands of the original holder pursuant to Section 230. exempt, and zero-rated components of the sale.
The law specifically allows the conversion of unutilized tax credits into cash
refund within 5 years from the date of issue. If the taxpayer can ultimately (3) The date of transaction, quantity, unit cost selling price and description of
dispose the cash proceeds of his TCCs in any manner he chooses, there is the goods or properties or nature of the service; and
no cogent reason why the source of such proceeds should be treated
differently. At any rate, the conversion into cash refund or the transfer of (4) In the case of sales in the amount of one thousand pesos (P1,000) or
the TCC to another yields the same result without any revenue loss or more where the sale or transfer is made to a VAT-registered person, the
prejudice to the government name, business style, if any, address and taxpayer identification number
(TIN) of the purchaser, customer or client.
Chapter 2 – Compliance Requirements (C) [Read!] Accounting Requirements. - Notwithstanding the provisions of
Section 233, all persons subject to the value-added tax under Sections 106
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. – and 108 shall, in addition to the regular accounting records required,
maintain a subsidiary sales journal and subsidiary purchase journal on which
(A) Invoicing Requirements. - A VAT-registered person shall issue: the daily sales and purchases are recorded. The subsidiary journals shall
contain such information as may be required by the Secretary of Finance.
(1) A VAT invoice for every sale, barter or exchange of goods or properties;
and or (D) [Read!] Consequence of Issuing Erroneous Vat Invoice or Vat Official
Receipt. –
(2) A VAT official receipt for every lease of goods or properties, and for every
sale, barter or exchange of services. (1) If a person who is not a VAT-registered person issues an invoice or
receipt showing his Taxpayer Identification Number (TIN), followed by the
(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The word "VAT":
following information shall be indicated in the VAT invoice or VAT official
receipt: (a) The issuer shall, in addition to any liability to other percentage
taxes, be liable to:
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayer's identification number (TIN); (i) The tax imposed in Section 106 or 108 without the benefit of
any input tax credit; and
(2) The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes the value-added tax: (ii) A 50% surcharge under Section 248 (B) of this code;
Provided, That:
(b) The VAT shall, if the other requisite information required under
(a) The amount of the tax shall be shown as a separate item in the Subsection (B) hereof is shown on the invoice or receipt, be
invoice or receipt; recognized as an input tax credit to the purchaser under Section
110 of this Code.
(b) If the sale is exempt from value-added tax, the term "VAT-exempt
sale" shall be written or printed prominently on the invoice or (2) If a VAT-registered person issues a VAT invoice or VAT official receipt for
receipt; a VAT-exempt transaction, but fails to display prominently on the invoice
or receipt the term "VAT-exempt Sale", the issuer shall be liable to
(c) If the sale is subject to zero percent (0%) value-added tax, the account for the tax imposed in Section 106 or 108 as if Section 109 did
term "zero-rated sale" shall be written or printed prominently on not apply.
the invoice or receipt;
(E) Transitional Period. - Notwithstanding Subsection (B) hereof, taxpayers may
(d) If the sale involves goods, properties or services some of which are continue to issue VAT invoices and VAT official receipts for the period July 1,
subject to and some of which are VAT zero-rated or VAT-exempt, 2005 to December 31, 2005, in accordance with Bureau of Internal Revenue
the invoice or receipt shall clearly indicate the breakdown of the administrative practices that existed as of December 31, 2004.

31
 VAT-registered persons must issue duly registered (with authority to print registered persons shall file a monthly VAT declaration and pay the value-
receipts and commercial invoices from the BIR before the printer can print added tax on a monthly basis.
the same and to be submitted to the BIR for stamping) invoice or receipt
for every sale or lease of goods, properties or services regardless of Any person, whose registration has been cancelled in accordance with
amount (See Section 237), containing the required information and must Section 236, shall file a return and pay the tax due thereon within twenty-
comply with accounting and record-keeping requirements. five (25) days from the date of cancellation of registration: Provided (this
is applicable also to the first paragraph), That only one consolidated return
 Only VAT-registered persons can print their TIN, followed by the word shall be filed by the taxpayer for his principal place of business or head office
“VAT” in their invoice or receipt and all branches.

o All purchases covered by invoices other than VAT invoice shall not (B) Where to File the Return and Pay the Tax. - Except as the Commissioner
give rise to any input tax otherwise permits, the return shall be filed with and the tax paid to an
authorized agent bank, Revenue Collection Officer or duly authorized city or
 Consequences of issuing erroneous VAT invoice or VAT-official municipal Treasurer in the Philippines located within the revenue district
receipt where the taxpayer is registered or required to register.

1. By a non-VAT person – if a person who is not VAT-registered issues (C) Withholding of Value-Added Tax. - The Government (Even private
an invoice or receipt showing his TIN, followed by the initials “VAT”, individual or private entity who or which leases property owned by non-
the erroneous issuance shall result to the following: resident must withhold 10% of the rental from the non-resident lessor.
Although this is not included in the law it is provided under the Rules and
 The non-VAT person shall be liable to: Regulations of the BIR pursuant to the power of CIR to interpret the
i. Percentage taxes applicable to his transactions provisions of the NIRC and the power to recommend to the Secretary of
ii. VAT due on the transactions under Section 106 or 108, Finance the promulgation of Rules and Regulations for the effective
without the benefit of any input tax credit enforcement of said provisions) or any of its political subdivisions,
iii. 50% surcharge under Section 248(B) instrumentalities or agencies, including government-owned or -controlled
corporations (GOCCs) shall, before making payment on account of each
2. On exempt transaction by a VAT-registered person – if a VAT- purchase of goods and services (How about lease of properties belonging to
registered person issues a VAT invoice or VAT official receipt for a VAT- resident owners? ANS: It is believed that the payment is also subject to final
exempt transaction, but fails to display prominently on the invoice or withholding tax of 5% by reason of Section 108A – lease of property is
receipt the words “VAT-exempt sale,” the transaction shall become considered sale of services under the 2nd paragraph hereof) which are
taxable and the issuer shall be liable to pay VAT thereon. The subject to the value-added tax imposed in Sections 106 and 108 of this
purchaser shall be entitled to claim an input tax credit on his purchase Code, deduct and withhold a final value-added tax at the rate of five percent
(5%) thereof: Provided, That the payment for lease or use of properties or
 It is clear from the provisions of the VAT regulations and the Tax Code that property rights to nonresident owners shall be subject to ten percent (10%)
the buyer must be properly identified in the invoice before it is given the withholding tax at the time of payment. For purposes of this Section, the
privilege to claim an input VAT on its purchase of taxable goods and payor or person in control of the payment shall be considered as the
services. This provision is designed to avoid the possibility of a VAT withholding agent.
taxpayer claiming an input VAT based on a VAT invoice or receipt issued to
another taxpayer. The value-added tax withheld under this Section shall be remitted within ten
(10) days following the end of the month the withholding was made.
 A VAT-registered person required to issue VAT invoices or receipts for its
VAT taxable transactions, non-VAT invoices or receipts for exempt  [Impt!] Where to file and pay
transactions, and VAT invoices or receipts with “zero-rated” imprinted on o The monthly VAT declaration and quarterly return shall be filed
the invoice covering zero-rated sales. with, and VAT due thereon paid to, an Authorized Agent Bank
(AAB) under the jurisdiction of the Revenue District/BIR Office
[BAR!] [Impt!] SEC. 114. Return and Payment of Value-Added Tax. - where the taxpayer (head office of the business establishment) is
required to be registered.
(A) In General. - Every person liable to pay the value-added tax imposed under
this Title shall file a quarterly return of the amount of his gross sales or [For every quarter the VAT registered person will file 2 monthly
receipts within twenty-five (25) days following the close of each taxable VAT declaration for the first 2 months and quarterly VAT-return
quarter prescribed for each taxpayer: Provided, however, That VAT- for 3 months]
32
 Short period return – Any person who returns from business with due
o In cases where there are no duly accredited agent banks within notice to the BIR Office where the taxpayer is registered or whose VAT
the municipality or city, the monthly VAT declaration and quarterly registration has been cancelled shall file a final quarterly return and pay
VAT return, shall be filed with and any amount sue shall be paid to the tax due thereon within 25 days from the end of the month when the
the RDO, Collection Agent or duly authorized Treasurer of the business ceases to operate or when VAT registration has been officially
Municipality/City where such taxpayer is required to be registered. cancelled.

o Only one consolidated quarterly VAT return or monthly VAT  Withholding of VAT on government money payments and payments to non-
declaration covering the results of operation of the head office as residents
well as the branches for all lines of business subject to VAT shall
be filed by the taxpayer, for every return period, with the BIR o 5% final VAT – the 5% final VAT deducted by the government
Office where said taxpayer is required to be registered. shall represent the net VAT payable of the seller-payee. The
remaining 7% effectively accounts for the standard input VAT for
 [Impt!] Time of filing and payment – the quarterly return must be filed sales of goods or services to government or any of its political
within 25 days following the close of each calendar quarter. subdivisions, instrumentalities or agencies including GOCCs, in lieu
of the actual input VAT directly attributable or ratably apportioned
o The tax shall be paid monthly, based on the taxable sales/receipts to such sales. Should actual input VAT exceed 7% of gross
for the month, using the prescribed monthly VAT declaration form payments, the excess may form part of the seller‟s expense (in
within 20 days following the end of each month. The declaration the case of sale of services the expense is taxes as an allowable
shall be accomplished only for the first 2 months of each calendar deduction thereby decreasing the taxable income and finally
quarter decreasing the income tax) or cost (in the case of sale of goods
where the excess is added to purchases thereby increasing the
o Amounts reflected in the monthly VAT declarations for the first 2 cost of sales and decreasing the gross profit). On the other hand,
months of the quarter shall still be included in the quarterly VAT if actual input VAT is less than 7% of gross payment, the
return which reflects the cumulative figures for the taxable difference must be credited against expense or cost (the
quarter. Payments in the monthly VAT declarations shall, difference shall be deducted from taxes as an allowable deduction)
however, be credited in the quarterly VAT return to arrive at the which in effect constitutes as additional income to the seller.
net VAT payable or excess input tax/over-payment as of the end
of a quarter o 10% VAT – the government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs, as well as private
 Filing of return by VAT-registered exporters – Sales of Vat-registered corporations, individuals, estates and trusts (although this is not
exporters of garments are automatically subject to VAT at zero-rated mentioned in the law this is correct pursuant to the power ranted
pursuant to Section 106(A,2,a). Such exporters are, however, still required to the CIR to interpret the provisions of the NIRC and to
to file a quarterly VAT return which will be used as basis for a refund of the recommend the promulgation of Rules and Regulations), shall
input taxes paid to suppliers of goods and services in connection with their withhold 10% VAT with respect to the following payments:
export activity.
 Lease or use of properties or property rights owned by
[Export Sales are zero-rated provide the payment to the exporter is
non-residents
acceptable foreign currency so that is the payment is in the Philippine
currency the export sales are subject to 12% VAT]
o It is provided in Section 114(C): “final VAT due at the rate of five
percent (5%).” This means that taxable transactions with the
 Electronic filing of tax returns and payment of taxes – the Electronic
government are subject to a 5% rate, which constitutes as full
Filing and Payment System (EFPS) is an alternative mode of filing returns
payment of the tax payable on the transaction. This represents
and payment of taxes which deviates from the conventional manual
the net VAT payable of the seller. The other 7% effectively
process of encoding paper bound tax returns filed which is highly
accounts for the standard input VAT, in lieu of the actual input
susceptible to human errors and intervention. The system allows the
VAT directly or attributable to the taxable transaction.
taxpayers to directly submit their tax returns and pay their taxes due
online over the internet through the BIR website, thereby reducing the
[If actual input tax exceeds 7% the difference shall be treated as
government‟s administrative and operational costs in interacting with
part of sales or as expense, as the case may be. If actual input
taxpayers and in collecting taxes.
tax is less than 7% the difference shall be deducted from cost of
sales or deducted from the expense, as the case may be.
33
case where a return is filed beyond the period prescribed by law, the three (3)-year
In no event or case shall the seller of goods or provider of services period shall be counted from the day the return was filed. For purposes of this
be liable for VAT to the BIR] Section, a return filed before the last day prescribed by law for the filing thereof
shall be considered as filed on such last day.
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a
Taxpayer. - The Commissioner or his duly authorized representative is hereby  The 3-year prescriptive period starts to run 1 day after the last day
empowered to suspend the business operations and temporarily close the business prescribed by law for the filing of the return or from the date the return
establishment of any person for any of the following violations: was actually filed whichever comes later.

(a) In the case of a VAT-registered Person. – The last day prescribed by law for the filing of the ITR of individuals is April
15, when will the 3-year prescriptive period to assess start to run if:
(1) Failure to issue receipts or invoices; 1. The return is filed on January 5 – April 16
2. The return is filed on April 15 – April 16
(2) Failure to file a value-added tax return as required under Section 114; or 3. The return is filed on July 1 – July 1

(3) Understatement of taxable sales or receipts by thirty percent (30%) or  [Impt!] Limitations (or prescriptions) on the government‟s right to assess
more of his correct taxable sales or receipts for the taxable quarter. and collect taxes cannot be presumed in the absence of legislation to the
contrary, and where the government has not, by statutory provision limited
[If the understatement of sales or receipts is less than 30% the CIR its right to assess unpaid taxes, such right is imprescriptible (if the NLRC
cannot suspend the business operations nor can he order the temporary does not contain a provision prescribing a period of limitation to assess, the
closure of the business establishment. But the VAT registered person can right of the government to assess, does not prescribe)
be held liable for tax evasion in addition to the imposition of 50%
surcharge.]  After the expiration of the prescriptive period, the government loses the
right to assess a tax; any assessment thereafter made is invalid
(b) Failure of any Person to Register as Required under Section 236. –
 The general rule as to the prescriptive period for assessment is that where
The temporary closure of the establishment shall be for the duration of not less a return was filed, the period is within 3 years after the date the return was
than five (5) days and shall be lifted only upon compliance with whatever due or was filed which is not false or fraudulent, whichever comes later.
requirements prescribed by the Commissioner in the closure order. Thus, if the income tax return due on April 15, 2011 was filed on April 10,
2011, the 3-year period is counted from April 16, 2011 (the law says
TITLE 8 “after” not “on)
REMEDIES
 An assessment is deemed made for the purpose of giving effect thereto
(the assessment is valid and the BIR can proceed to collect) if:
Chapter 1 – Remedies in General
1. Made within the period of 3 or 10 years, as the case may be; and
SEC. 202. Final Deed to Purchaser. - In case the taxpayer shall not redeem the 2. Notice of the assessment (official or formal or final assessment notice)
property as herein provided the Revenue District Officer shall, as grantor, execute a is released, mailed, or sent to the taxpayer also within the same
deed conveying to the purchaser so much of the property as has been sold, free period
from all liens of any kind whatsoever, and the deed shall succintly recite all the It is not required that the notice be received by the taxpayer within the
proceedings upon which the validity of the sale depends. [should be next to or after
prescribed period.
Section 214]

[Mem!] SEC. 203. Period of Limitation Upon Assessment and Collection. - Except It is required that the taxpayer should actually receive, even beyond the
as provided in Section 222 (false or fraudulent return or failure to file a return prescriptive period, the assessment notice which was timely released,
where the prescriptive period to assess is 10 years from discovery), internal mailed and sent. The 3-year period for collection of the assessed tax begins
revenue taxes shall be assessed within three (3) years after the last day prescribed to run on the date the assessment has been released, mailed, or sent.
by law for the filing of the return, and no proceeding (the BIR cannot file a collection
case in court if the tax is NOT assessed within 3 years in the case of a return filed
Example:
which is NOT false or fraudulent) in court without assessment for the collection of
The ITR was filed on April 15, 2011. When will the 3-year prescriptive
such taxes shall be begun after the expiration of such period: Provided, That in a
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period to assess expire?  The period (3 years or 5 years) of prescription provided (Section 222c) by
law to make a collection by distraint or levy or by a proceeding in court is
ANS: The 3-year prescriptive period to assess will expire on April 14, interrupted once a taxpayer requests for reinvestigation or reconsideration
2014 NOT on April 16, 2014 because 2012 is a leap year of the assessment
o The summary remedy of distraint or levy is begun by the issuance
If the ITR was filed on April 15, 2012 the 3-year prescriptive of a warrant of distraint or levy. Such issuance has the effect of
period to assess will expire on April 15, 2015 stopping the running of the prescriptive period to collect and it is
not necessary (such as when after the issuance of the warrant of
 An assessment contains not only a computation of tax liabilities, but also a distraint the BIR did not seize personal property of the taxpayer
demand for payment within a prescribed period (in the notice of and instead it filed a collection case in court) that it be actually
assessment) executed to be made effective

 [VIP!] The general rule as to the prescriptive period for collection by SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or
judicial action or by distraint or levy where an assessment was made, is Credit Taxes. - The Commissioner may –
within 3 years after the date of assessment (there is NO express provision
under the New NIRC regarding prescriptive period to collect in case a (A) Compromise the payment of any internal revenue tax, when:
return is filed and said return is NOT false or fraudulent unlike under the
old NIRC. Hence, apply Section 222c by analogy); where no assessment (1) A reasonable doubt (such as 1loss of pertinent documents evidencing
was made and a return was filed and the return is not false, fraudulent, the payments of taxes; 2taxpayer claims that the assessment has already
period for collection is the same as the period for assessment, that is, prescribed) as to the validity of the claim against the taxpayer exists; or
within 3 years after the return was due or filed, whichever comes later
(2) [BAR!] The financial position of the taxpayer demonstrates a clear inability
Prescriptive Period to Prescriptive Period to (such as occurrence of natural calamity) to pay the assessed tax.
Assess Collect
1. Return which 3 years after the last day 3 years from the date of The compromise settlement of any tax liability shall be subject to the following
is NOT false prescribed by law for assessment (3 years from minimum amounts:
or fraudulent filing or from the day the the date the taxpayer
return was actually filed, received the For cases of financial incapacity, a minimum compromise rate equivalent to
whichever comes later formal/official/final ten percent (10%) of the basic (surcharge and interest must be paid in full
assessment notice) because they cannot be compromised) assessed tax; and
2. False or 10 years after the 5 years from the date of
fraudulent discretionary by the BIR assessment if the For other cases (reasonable doubt), a minimum compromise rate equivalent
return or for of the falsity, fraud or assessment was made; if to forty percent (40%) of the basic assessed tax.
failure to file omission no assessment was made a
a return case in court may be filed Where the basic tax involved exceeds One million pesos (P1,000.000) or
by the BIR anytime within where the settlement offered is less than the prescribed minimum rates, the
10 years after discovery of compromise shall be subject to the approval of the Evaluation Board which
falsity, fraud or omission shall be composed of the Commissioner and the four (4) Deputy
Commissioners.
o The prescriptive period for enforcing a tax compromise is 1o years
(B) Abate or cancel a tax liability, when:
from the time the right of action accrues as fixed in the Civil Code.
Compromise is a contract
(1) The tax or any portion thereof appears to be unjustly or excessively
assessed; or
Consequently, the 3-year prescriptive period for assessment under
Section 203 shall have an aggregate number of 1,095 days,
(2) The administration and collection costs involved do not justify the
reckoned from the date of the filing of the return or after the last
collection of the amount due.
day prescribed by law for the filing of the return, whichever comes
later
All criminal violations may be compromised except: (a) those already filed in
court, or (b) those involving fraud.

35
(C) Credit or refund taxes erroneously or illegally received or penalties [VIP!] The BIR may, therefore, abate or cancel the whole or any unpaid
imposed without authority, refund the value of internal revenue stamps portion of a tax liability, inclusive of increments (surcharge, interest and
when they are returned in good condition by the purchaser, and, in his other penalties), if its assessment is excessive or erroneous; or if the
discretion, redeem or change unused stamps that have been rendered unfit administration costs involved do not justify the collection of the amount
for use and refund their value upon proof of destruction. [Mem!] No credit due
or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2)  [Impt!] The authority of the Commissioner to compromise is not absolute
years after the payment of the tax or penalty: Provided, however, That a as it is subject to the limitations prescribed in Section 204
return filed showing an overpayment shall be considered as a written claim o In civil cases – the compromise settlement of any tax liability is
for credit or refund. subject to the minimum amounts provided. Compromise is not
permitted with respect to the liability of the taxpayer for
A Tax Credit Certificate validly issued under the provisions of this Code may surcharge as its imposition is mandatory nor in cases which have
be applied against any internal revenue tax, excluding withholding taxes, for been finally terminated since there is no more reason or basis for
which the taxpayer is directly liable. Any request for conversion into refund of it
unutilized tax credits may be allowed, subject to the provisions of Section 230 of o In criminal cases – with respect to those not involving the
this Code: Provided, That the original copy of the Tax Credit Certificate showing commission of fraud (e.g. failure to keep or preserve books and
a creditable balance is surrendered to the appropriate revenue officer for other records), after they reach the prosecutor‟s office, the
verification and cancellation: Provided, further, That in no case shall a tax refund prosecutor must give his consent to the compromise. Once the
be given resulting from availment of incentives granted pursuant to special laws information is filed in court, compromise is no longer allowed
for which no actual payment was made.
[Mem!] In fine, under Section 204, all criminal violations may be
The Commissioner shall submit to the Chairmen of the Committee on Ways and compromised except: (a) those already filed in court although they do not
Means of both the Senate and House of Representatives, every six (6) months, a involve fraud; and (b) those involving fraud although they have not yet
report on the exercise of his powers under this Section, stating therein the been filed in court
following facts and information, among others: names and addresses of
taxpayers whose cases have been the subject of abatement or compromise;  [VVIP!] Filing of claim for credit or refund and appeal
amount involved; amount compromised or abated; and reasons for the exercise
of power: Provided, That the said report shall be presented to the Oversight o Both the claim for refund with the BIR and the subsequent appeal
Committee in Congress that shall be constituted to determine that said powers to the CTA must be filed within the 2-year period. These 2
are reasonably exercised and that the government is not unduly deprived of requirements are mandatory and non-compliance therewith would
revenues. be fatal to the action for refund or tax credit

 Compromise is a contract whereby the parties by reciprocal concessions o A return filed showing an overpayment is automatically considered
avoid a litigation or put an end to one already commenced as a written claim for credit or refund

 The Commissioner of Internal Revenue is the only official vested with the o [BAR!] The taxpayer should not wait for the decision of the
power and discretion to enter into compromise of criminal and civil cases Commissioner because the filing of the claim for refund with the
and to abate or cancel a tax liability or any portion thereof. This power Commissioner does not suspend the running of the prescriptive
cannot be delegated (Section 7C – basic deficiency tax of Php 500,000.00 period of 2 years to file the appeal to the CTA. If the
or less can be compromised by the Regional Evaluation Board) Commissioner takes time in deciding the claim, and the period of
2 years is about to end, the suit or proceeding must be stated in
the CTA before the end of the 2-year period without awaiting the
 Abatement
decision of the Commissioner
- is the act of “diminution or decrease in the amount of tax imposed;”
- it refers to “the act of eliminating or nullifying or lessening or
o [BAR!] However, should the Commissioner deny the claim for
moderating”
refund within the 2-year period, the taxpayer has 30 days from
To abate
the receipt of the denial within which to appeal to the CTA;
- is to nullify or reduce in value or amount
otherwise, the court would not acquire jurisdiction (the appeal to
To cancel
the CTA must be filed both within 30 days from receipt of the
- is to obliterate, cross out, or invalidate and to strike out, make void or
notice of denial AND within 2 years from payment. The 30-day
invalid, annul, destroy, revoke or recall

36
period is jurisdictional while the 2-year period is prescriptive) to not suspend the running of the prescriptive period of 2
entertain the appeal. years

Example:
A, a resident Filipino, filed his ITR for the taxable year 2010  An assessment that has become final and executor because of failure to
on April 15, 2011 and erroneously paid the amount of Php dispute the same within 30 days from receipt of the formal or official or
1.5M instead of the correct amount of Php 1M. The excess final assessment notice may no longer be contested on its merits by paying
payment of Php 500,000.00 was discovered by A on April 15, the tax liability and then claiming the refund thereof; otherwise, the 30-
2012 and 5 days later or on April 20, 2012 A filed a written day period for appeal of disputed assessments would make little sense
claim for tax refund with the CIR.
 Commencement of the 2-year period
A. Assuming that the CIR denied the claim for tax refund
and the notice of denial was received by A on March 1, o If the tax sought to be refunded is illegally or erroneously
2013, A has until March 31, 2013 to appeal the denial to collected, the period of prescription starts from the date the tax
the CTA was paid

1. If A filed his appeal to the CTA on March 31, 2013, o If the tax is paid in instalments or only in part, the period is
the CTA acquired jurisdiction because both the claim counted from the date of the last or final instalment or payment
for refund with the CIR and the appeal to the CTA because for tax purposes, there is no payment until the whole or
were filed within 2 years from payment. Moreover, entire tax liability is full paid
the appeal was filed within the jurisdictional period of
30 days o If the taxpayer merely made a deposit, the period should be
counted from the conversion of the deposit to payment
2. If A filed his appeal to the CTA on April 15, 2013, the
CTA did not acquire jurisdiction because although o If the tax has been withheld from source (through the withholding
both the claim for refund and the appeal were filed tax system), the period is counted from the date it falls due at the
within 2 years from payment, YET the appeal was end of the taxable year
filed beyond the jurisdictional period of 30 days. This
is true even if the CIR did not move for the dismissal o The 2-year prescriptive period within which to claim a refund
of the appeal because jurisdictional issue cannot be commences to run, at the earliest, on the date of the filing of the
waived adjusted final return (or annul ITR or consolidated ITR or the 4th
ITR in the case of a corporation)
B. Assuming that the CIR denied the claim for tax refund
and the notice of denial was received by A on April 10, o Consequently, the 2-year prescriptive period provided in Section
2013 and A filed his appeal with the CTA on May 10, 229 should be computed from the time of filing of the Adjustment
2013, the CTA acquired jurisdiction if the CIR failed to Return or Annual Income Tax Return and final payment of income
move for the dismissal of the Appeal. The failure of the tax
CIR to move for the dismissal of the appeal constitutes
waiver and prescription, as a rule, is waivable o If the tax was not erroneously or illegally paid, but the taxpayer
became entitled to refund because of supervening circumstances,
This is to be so because although the appeal was filed as where a law is passed repealing another law under which the
beyond the prescriptive period of 2 years, yet it was filed tax was collected and providing for the refund of the tax paid, or
within the jurisdictional period of 30 days. This is the where the basis of tax credit is a tax exemption granted by the
meaning of the phrase “the 2-year period is prescriptive Board of Industries pursuant to law, the 2-year period should start
while the 30-day period is jurisdictional” to run from the date the taxpayer becomes entitled to refund
(specified in the repealing law or amendatory law) and not from
C. Assuming that the CIR did not act on the claim for tax the date of payment
refund filed by A, the latter must appeal the inaction of
the CIR to the CTA on or before April 15, 2013, because  [VIP!] Party entitled to refund/credit – generally, the person entitled to
the filing of the claim for tax refund with the CIR does ask for a refund/credit is the taxpayer who paid the same

37
2. On April 15, 2011, A filed his ITR for taxable year 2010. On
o Where tax has been shifted – the rule applies even if the tax June 1, 2011, A received a final assessment notice for tax
has been actually shifted by the taxpayer to his customers as in deficiency of Php 300,000.00 in 2010, although A‟s ITR for
sales tax (VAT) and even if the tax has been billed as a separate said taxable year is neither false nor fraudulent. As of today,
item in the invoice Aug. 3, 2014, A has not received any warrant of distraint or
warrant of levy or summons from the court, hence, the
o Where payer is not the taxpayer – in said cases, theatre collection of the tax deficiency of Php 300,000.00 is now
owners who paid illegal municipal taxes (amusement tax) billed to barred or has already prescribed. In 2013, A made an
and collected from theatre goers were held not entitled to claim overpayment of tax in the amount of Php 500,000.00 which
refund of such taxes. The reason given is that taxes paid were he discovered in 2014 and he promptly filed a written claim
municipal imposts which were levied upon the theatre goers who for refund. The CIR offered to refund to A the amount of Php
actually paid the tax 200,000.00 claiming that the deficiency tax of A of Php
300,000.00 in 2010 can be recouped or set off against the
o Where payer is withholding tax (such as corporation with excess tax paid in 2013 of Php 500,000.00 thereby leaving a
respect to dividend tax) – the withholding agent is directly and balance of Php 200,000.00. The CIR claims that the doctrine
independently liable for the correct amount of tax that should be of equitable recoupment is applicable in this case. Is the CIR
withheld, and for deficiency assessments, surcharges and correct?
penalties. Therefore, a withholding agent is properly regarded as a
“taxpayer” within the meaning of Section 204(3) ANS: NO, the doctrine of equitable recoupment, although is
applicable in this case, is not applicable in the
 [Mem!] Doctrine of equitable recoupment Philippines.
When the refund of a tax illegally or erroneously collected or overpaid
by a taxpayer is barred by the statute of limitations (2 years from Chapter 2 – Civil Remedies for Collection of Taxes
payment), and a tax is being presently assessed against said taxpayer,
such present tax may be recouped or set-off against the tax, the
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for
refund of which has been barred. Similarly, when the collection of a
the collection of internal revenue taxes, fees (such as registration fee under Section
tax is already barred by such statute (3 or 5 years from receipt of
236) or charges (such as change for failure to file information return under Section
notice of assessment) and the taxpayer is entitled to a refund or credit
250), and any increment (such as interest and surcharge for late filing of return)
of a tax illegally or erroneously collected and such refund is not yet
thereto resulting from delinquency shall be:
barred, the government may set off the tax whose collection is barred
Administrative
against the refund of the tax illegally or erroneously collected.
(a) By distraint of goods, chattels, or effects, and other personal property of
whatever character, including stocks and other securities (such as bonds),
The Supreme Court has held that the doctrine, which is a common law
debts, credits, bank accounts and interest in and rights to personal
principle or doctrine, is not binding in our jurisdiction.
property, and by levy upon real property and interest in rights to real
property; and
Example: Judicial
1. In 2011, A made an overpayment of tax Php 500,000.00 (b) By civil or criminal action (only in case of false or fraudulent return with
which he discovered only in 2014, hence, the refund of which intent to evade tax).
is now barred or has already prescribed. In 2014, A received
a final notice of assessment for tax deficiency in 2013 in the Either of these remedies or both simultaneously (without prejudice to the provisions
amount of Php 800,000.00. A offered to pay Php 300,000.00 of the Rules of Court against forum-shopping) may be pursued in the discretion of
claiming that the 2013 deficiency tax of Php 800,000.00 can the authorities charged with the collection of such taxes: Provided, however, That
be recouped or set-off against the excess payment in 2011 of the remedies of distraint and levy shall not be availed of where the amount of tax
Php 500,000.00, thereby leaving a balance of Php involve is not more than One hundred pesos (P100).
300,000.00. A claims that the doctrine of equitable
recoupment is applicable in this case. Is A correct? [Mem!] The judgment in the criminal case shall not only impose the penalty
(imprisonment and/or fee) but shall also order payment of the taxes subject of the
ANS: NO, the doctrine of equitable recoupment, although is criminal case as finally decided (determined) by the Commissioner.
applicable in this case, is not applicable in the
Philippines. The Bureau of Internal Revenue shall advance the amounts needed to defray costs
of collection by means of civil or criminal action, including the preservation or
38
transportation of personal property distrained and the advertisement and sale SEC. 206. Constructive Distraint of the Property of A Taxpayer. - To safeguard
thereof, as well as of real property and improvements thereon. the interest of the Government, the Commissioner may place under constructive
distraint the personal property of a delinquent taxpayer or any taxpayer (even if not
 [Mem!] Distraint is the seizure by the government of personal property, delinquent) who, 1in his opinion, is retiring from any business subject to tax, or 2is
tangible or intangible (such as shares of stock, bonds, receivables, bank intending to leave the Philippines or to remove his property therefrom or to hide or
deposits, etc.), to enforce the payment of taxes, to be followed by its conceal his property or 3to perform (“is performing” [Section 6,D]) any act tending
public sale, if the taxes are not voluntarily paid. to obstruct the proceedings for collecting the tax due or which may be due from
him.
 2 Kinds of Distraint
The constructive distraint of personal property shall be affected by requiring the
1. Actual – there is a taking of possession of personal property out of taxpayer or any person having possession or control of such property to sign a
the taxpayer into that of the government. Physical transfer of receipt covering the property distrained and obligate himself to preserve the same
possession is, however, impossible in the case of intangible personal intact and unaltered and not to dispose of the same; in any manner whatsoever,
property like stocks (Distraint is effected by serving copy of the without the express authority of the Commissioner.
warrant of distraint to the taxpayer and the corporation and the
creditors or debtors of the taxpayer) and credits. In case the taxpayer or the person having the possession and control of the
property sought to be placed under constructive distraint refuses or fails to sign the
2. Constructive – the owner (taxpayer) is merely prohibited from receipt herein referred to, the revenue officer effecting the constructive distraint
disposing of his personal properties shall proceed to prepare a list of such property and, in the presence of two (2)
witnessed, leave a copy thereof in the premises where the property distrained is
 Criminal action is now a mode for the collection of taxes. Before, it was located, after which the said property shall be deemed to have been placed under
allowed only for the enforcement of statutory penalties such as fines constructive distraint.
and/or imprisonment
o Big-Ticket Items – refer to transactions that are significant in SEC. 207. Summary Remedies. -
size and volume, i.e., amount exceeds Php 200 million with
substantive tax consequences (A) Distraint of Personal Property. - Upon the failure of the person owing
any delinquent tax or delinquent revenue (or free or charge) to pay the
 [VVIP!] R.A. 1125 creating the CTA allows the taxpayer to dispute the same at the time required (in all the official or formal or final assessment
correctness or legality of an assessment both in the purely administrative notice and in the warrant of distraint), the Commissioner or his duly
level (the protest is filed with the CIR) and in said court (Decision of the authorized representative, if the amount involved is in excess of One million
CIR is appealed to the CTA). It does not, however, prohibit the pesos (P1,000,000), or the Revenue District Officer, if the amount involved
Commissioner from collecting the tax through any of the means provided is One million pesos (P1,000,000) or less, shall seize and distraint (the
for in Section 205 except when enjoined by said court. The CTA has actual seizure of personal property is preceded by the issuance of a warrant
jurisdiction over disputed assessments of the BIR of distraint) any goods, chattels or effects, and other personal property,
including stocks and other securities, debts, credits, bank accounts, and
 Where an assessment is pending (the CIR has not yet issued the final or interests in and rights to personal property of such persons ;in sufficient
official or formal assessment notice) with the Commissioner, it cannot yet quantity to satisfy the 1tax fee, or charge, together with any 2increment
serve as the basis of collection by distraint or levy or by judicial action. (interest and surcharge) thereto incident to delinquency, and the 3expenses
Such assessment is clearly not yet final, executor or demandable. of the distraint (such as transportation and warehousing expenses) and the
4
cost of the subsequent sale.
Formal assessment notice which is not disputed or contested within 30
days from receipt thereof by the taxpayer becomes final, executor and A report on the distraint shall, within ten (10) days from receipt (by the
demandable. distraining officer) of the warrant of distraint, be submitted by the
distraining officer to the Revenue District Officer, and to the Revenue
If the tax assessment (final or formal or official) is not disputed, an Regional Director: Provided, That the Commissioner or his duly authorized
ordinary action for the collection of the tax may be filed by the representative shall, subject to rules and regulations promulgated by the
Commissioner of Internal Revenue with the CTA if the principal amount of Secretary of Finance, upon recommendation of the Commissioner, have the
taxes and fees, exclusive of charges and penalties, claimed is Php 1M or power to lift such order warrant of distraint: Provided, further, That a
more. If said amount is less than Php 1M, the collection case should be consolidated report by the Revenue Regional Director may be required by
filed with the RTC or MTC (RA 9282) the Commissioner as often as necessary.

39
(B) Levy on Real Property. - After the expiration of the time required to pay property distrained, a copy of which, signed by himself (distraining officer), shall be
the delinquent tax or delinquent revenue fee or charge as prescribed in this left either with the owner or person from whose possession such goods, chattels, or
Section, real property may be levied upon, before simultaneously or after effects or other personal property were taken, or at the dwelling or place of
the distraint of personal property belonging to the delinquent. To this end, business of such person and with someone of suitable age and discretion, to which
any internal revenue officer designated by the Commissioner or his duly list shall be added a statement of the sum demanded (or claim of the government
authorized representative shall prepare a duly authenticated certificate (or or entire claim or all proper charges) and note of the date, time and place of sale.
warrant of levy) showing the name of the taxpayer and the amounts of the
tax, fee or charge and penalty increment due from him. Said certificate shall Stocks and other securities shall be distrained by serving a copy of the warrant of
operate with the force of a legal execution throughout the Philippines. distraint upon the taxpayer and upon the president, manager, treasurer or other
responsible officer of the corporation, company or association, which issued the said
Levy shall be affected by writing upon said certificate a description of the property stocks or securities.
upon which levy is made. At the same time, written notice of the levy shall be
mailed to or served upon the Register of Deeds for the province or city where the Debts (Taxpayer is the creditor) and credits (taxpayer is the debtor who
property is located and upon the delinquent taxpayer, or if he be absent from the previously issued an instrument of credit, such as check or promissory note) shall
Philippines, to his agent or the manager of the business in respect to which the be distrained by leaving (or serving) with the person owing (debtor of the taxpayer)
liability arose, or if there be none, to the occupant of the property in question. the debts or having in his possession or under his (creditor of the taxpayer) control
such credits, or with his agent, a copy of the warrant of distraint. The warrant of
In case the warrant of levy on real property is not issued before or simultaneously distraint shall be sufficient authority to the person owning the debts or having in his
with the warrant of distraint on personal property, and the personal property of the possession or under his control any credits belonging to the taxpayer to pay to the
taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his Commissioner the amount of such debts or credits.
duly authorized representative shall, within thirty (30) days after execution of the
distraint, proceed with the levy on the taxpayer's real property. Bank accounts shall be garnished by serving a warrant (or writ) of garnishment
upon the taxpayer and upon the president, manager, treasurer or other responsible
Within ten (10) days after receipt by the levying officer of the warrant of levy, a officer of the bank. Upon receipt of the warrant of garnishment, the bank shall turn
report on any levy shall be submitted by the levying officer to the Commissioner or over to the Commissioner so much of the bank accounts as may be sufficient to
his duly authorized representative: Provided, however, That a consolidated report satisfy the claim of the Government ([1]Tax fee or charge [2]Interest and
by the Revenue Regional Director may be required by the Commissioner as often as surcharge [3]Expenses of distraint [4]Expenses of auction sale).
necessary: Provided, further, That the Commissioner or his duly authorized
representative, subject to rules and regulations promulgated by the Secretary of SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue
Finance, upon recommendation of the Commissioner, shall have the authority to lift District Officer or his duly authorized representative, other than the Officer
warrants of levy issued in accordance with the provisions hereof. (Distraining) referred to in Section 208 of this Code shall, according to rules and
regulations prescribed by the Secretary of Finance, upon recommendation of the
 Officials authorized to sign Warrants of Distraint and Levy or Writ of Commissioner, forthwith cause a notification (or notice of auction sale) to be
Garnishment exhibited (or posted) in not less than two (2) public places in the municipality or
1. Commissioner of Internal Revenue – Amount involved is above city where the distraint is made, specifying; the date, time and place of sale and the
Php 1M articles distrained. The time of sale shall not be less than twenty (20) days after
2. Deputy CIR (Operations) – above Php 500,000.00 to Php 1M notice. One place for the posting of such notice shall be at the Office of the Mayor of
3. Assistant CIR for Collection Service – above Php 300,000.00 but the city or municipality in which the property is distrained.
not over Php 500,000.00
4. Regional Director – above Php 100,000.00 but not over Php At the date, time and place fixed in such notice, the said revenue officer (RDO or his
300,000.00 DAR) shall sell the goods, chattels, or effects, or and other personal property,
a. Revenue District Officer – Php 100,000.00 and below including stocks and other securities so distrained, at public auction, to the highest
bidder for cash, or with the approval of the Commissioner, through duly licensed
 [Impt!] As a rule, the warrant of distraint or levy is, “proof of the finality of commodity or stock exchanges.
assessment” and renders hopeless a request for reconsideration, being
tantamount to an outright denial thereof and makes the said request In the case of Stocks and other securities, the officer making the sale shall execute
deemed rejected a bill of sale (or deed of sale) which he shall deliver to the buyer, and a copy
thereof furnished the corporation, company or association which issued the stocks
[Impt!] SEC. 208. Procedure for Distraint and Garnishment. - The officer or other securities. Upon receipt of the copy of the bill of sale, the corporation,
(distraining) serving the warrant of distraint shall make or cause to be made an company or association shall make the corresponding entry in its books, transfer
account (or list or inventory) of the goods, chattels, effects or and other personal

40
the stocks or other securities sold in the name of the buyer, and issue, if required to sufficient to discharge the obligation without having to know how much the
do so, the corresponding certificates of stock or other securities. deposits are, or where the money or any part of it came from.

Any residue (or excess) over and above what is required to pay the entire claim, Levy of Real Property
including expenses, shall be returned given to the owner (or taxpayer) of the SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy (after
property sold. The expenses chargeable upon each seizure and sale shall embrace service of notice or warrant of levy to the taxpayer), the levying officer conducting
only the actual expenses of seizure and preservation of the property pending ;the the proceedings shall proceed to advertise the property or a usable portion thereof
sale, and no charge shall be imposed for the services of the local internal revenue as may be necessary to satisfy the claim ([1]Tax fee or charge [2]Interest and
officer or his deputy. surcharge [3]Expenses of Auction Sale (i.e. publication fee)) and cost of sale; and
such advertisement shall cover a period of at least thirty (30) days. It shall be
SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any effectuated by posting a notice (of auction sale) at the main entrance of the
time prior to the consummation of the sale all proper charges are paid to the municipal building or city hall and in public and conspicuous place in the barrio or
officer conducting the sale, the goods or effects distrained shall be restored to the district in which the real estate lies and by publication once a week for three (3)
owner. weeks in a newspaper of general circulation in the municipality or city where the
property is located. The advertisement shall contain a statement of the amount of
SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two (2) days after taxes and penalties so due and the time and place of sale, the name of the taxpayer
the sale, the officer making the same shall make a report of his proceedings in against whom taxes are levied, and a short description of the property to be sold. At
writing to the Commissioner and shall himself preserve a copy of such report as an any time before the day fixed (in the warrant of levy and in the notice of auction
official record. sale) for the sale, the taxpayer may discontinue all proceedings by paying the taxes,
penalties and interest claim. If he does not do so, the sale shall proceed and shall
SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid be held either at the main entrance of the municipal building or city hall, or on the
for the property under distraint is not equal to the amount of the tax or is very premises to be sold, as the officer conducting the proceedings shall determine and
much less than the actual market value of the articles offered for sale, the as the notice of sale shall specify.
Commissioner or his deputy may purchase the same in behalf of the national
Government for the amount of taxes, penalties and costs due thereon. Within five (5) days after the sale, a return (or report) by the distraining or
levying officer of the proceedings shall be entered upon the records of the Revenue
Property so purchased may be resold by the Commissioner or his deputy, subject to Collection Officer, the Revenue District officer and the Revenue Regional Director.
the rules and regulations prescribed by the Secretary of Finance, the net proceeds The Revenue Collection Officer, in consultation with the Revenue district Officer,
therefrom shall be remitted to the National Treasury and accounted for as internal shall then make out and deliver to the purchaser a certificate (of auction sale or
revenue. provisional deed of sale) from his records, showing the proceedings of the sale,
describing the property sold stating the name of the purchaser and setting out the
Actual distraint Constructive Distraint exact amount of all taxes, penalties and interest: Provided, however, That in case
Made on the property of a delinquent Made on the property of any taxpayer, the proceeds of the sale exceeds the claim and cost of sale, the excess shall be
taxpayer whether delinquent or not turned over to the owner of the property.
The taxpayer is merely prohibited from
There is taking of possession [TRANSFERRED FROM SECTION 214]
disposing of his personal property
Effected by requiring the taxpayer to The owner shall not, however, be deprived of the possession of the said property
Effected by leaving a list of the personal and shall be entitled to the rents and other income thereof until the expiration of
sign a receipt of the personal property to
property seized the time (1 year) allowed for its redemption.
be preserved

 [Mem!] Requisites of (actual) distraint and levy The Revenue Collection Officer, upon approval by the Revenue District Officer may,
1. Taxpayer must be delinquent in the payment of tax out of his collection, advance an amount sufficient to defray the costs of collection
2. There must be a subsequent demand for its payment by means of the summary remedies provided for in this Code, including ;the
3. Taxpayer failed to pay the delinquent tax at the time required preservation or transportation in case of personal property, and the advertisement
4. Period (3 years or 5 years) within which to collect the tax has not yet and subsequent sale, both in cases of personal and real property including
prescribed improvements found on the latter. In his monthly collection reports, such advances
shall be reflected and supported by receipts.
 Bank accounts may be distrained notwithstanding R.A. 1405 which
prohibits inquiry into bank accounts, since in the case of distraint, no SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of
inquiry is made. The BIR simply seizes so much of the deposit as is sale, the delinquent taxpayer, or any one acting for him, shall have the right of to
redeem the property by paying to the Revenue District Officer the amount of the

41
public taxes, penalties, and interest thereon from the date of delinquency to the  If the requirements (especially the notice of auction sale and the
date of sale purchase price at the auction sale, together with interest on said publication thereof) are not strictly complied with, such sale may be
purchase price at the rate of fifteen percent (15%) per annum from the date of voided. Thus, the court declared as void a tax sale
purchase (or auction sale) to the date of redemption, and such payment shall entitle
the person paying to the delivery of the certificate of auction sale or Provisional  Real property placed under levy may be sold at public auction for less than
Deed of Sale issued to the purchaser and a certificate of redemption from the said its market value since the taxpayer is given the right to redeem. With
Revenue District Officer that he has thus redeemed the property, and the Revenue respect to distrained personal property (must be sold at fair market value),
District Officer shall forthwith pay over to the purchaser the amount (the purchase the rule is different
price at auction sale and the 15% interest) by which such property has thus been
redeemed, and said property thereafter shall be free from the lien of such taxes and  The 1 year period for redemption begins from the registration of the
penalties. provisional deed of sale although the law says “1 year from the date of
sale” or from the date of forfeiture
[SECTION 202 SHOULD BE HERE]
 [VIP!] The forfeiture of real property advertised for sale for want of bidder
SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder does not operate as a total discharge of the claim
for of the real property exposed advertised for sale as herein above provided or if
the highest bid is for an amount insufficient to pay the taxes, penalties and costs  Distraint and levy distinguished
entire claim, the Internal Revenue Officer conducting the sale shall declare the
property forfeited to the Government in satisfaction of the claim in question and Distraint Levy
within two (2) days thereafter, shall make a return of his proceedings and the Personal property Real Property
forfeiture which shall be spread upon the records of his office. It shall be the duty of Forfeiture by the government is not Forfeiture of the government is
the Register of Deeds concerned, upon registration with his office of any such provided authorized
declaration of forfeiture, to transfer the title of the property forfeited to the No right of redemption Right of redemption is given
Government without the necessity of an order from a competent court.
 [VIP!][BAR!] As a rule, the warrant of distraint or levy is “proof of the
Within one (1) year from the date of such forfeiture, the taxpayer, or any one acting finality of the assessment” and “renders hopeless a request for
for him may redeem said property by paying to the Commissioner or the latter's reconsideration,” being “tantamount to an outright denial thereof and
Revenue Collection Officer the full amount of the taxes and penalties claim, together makes the said request deemed rejected,” because it is the most drastic
with interest (from forfeiture to redemption at 15% per annum) thereon and the action of all means of enforcing the collection of tax
costs of sale, but if the property be not thus redeemed, the forfeiture shall become
absolute. Life-Blood Doctrine
SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court (EXCEPT
SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have the CTA) shall have the authority to grant an injunction to restrain the collection of
charge of any real estate obtained by the Government of the Philippines in payment any national internal revenue tax, fee or charge imposed by this Code.
or satisfaction of taxes, penalties or costs arising under this Code or in compromise
or adjustment of any claim therefore, and said Commissioner may, upon the giving  The government is never estopped (because of the Lifeblood Doctrine;
of not less than twenty (20) days notice, sell and dispose of the same of public except if the collection period has already expired) to collect legitimate
auction or with prior approval of the Secretary of Finance, dispose of the same at taxes because of the error committed by its agent
private sale. In either case, the proceeds of the sale shall be deposited with the
National Treasury, and an accounting of the same shall rendered to the Chairman of  Action of Commissioner on request for reinvestigation
the Commission on Audit. - The Commissioner of Internal Revenue is not required by the Tax Code
to rule (or decide) first on a taxpayer‟s request for reinvestigation
[Impt!] SEC. 217. Further Distraint or Levy. - The remedy by of distraint of before he can go to court of the purpose of collecting the tax assessed.
personal property and levy on realty may be repeated if necessary until the full On the contrary, Section 218 withholds from all courts, except the
amount due, including all expenses of the claim of the government is collected, is Court of Tax Appeals, the authority to restrain the collection of any
collected. national internal revenue tax, fee or charge thereby indicating the
legislative policy to allow the Commissioner much latitude in the
 Levy refers to the act of seizure of real property in order to enforce the speedy and prompt collection of taxes. Taxes, being the chief sources
payment of taxes of revenue for the Government to keep it running, must be paid
immediately and without delay

42
 The “court” mentioned by Section 218 refers only to ordinary courts of any fine, penalty or forfeiture under this Code shall be filed in court without the
because under Section 11 of RA No. 1125, as amended, the Court of Tax approval of the Commissioner.
Appeals is empowered to suspend the collection of internal revenue taxes
and customs duties in cases pending appeal subject to certain conditions SEC. 221. Remedy for Enforcement of Statutory Penal Provisions. - The remedy for
([1] The appeal is meritorious [2] Taxpayer must file a bond). The enforcement of statutory penalties (such as interest, surcharge, fine and
legislative policy is to allow the CIR much latitude on the prompt and imprisonment) of all sorts shall be by criminal or civil action, as the particular
speedy collection of taxes. situation may require, subject to the approval of the Commissioner.

SEC. 219. Nature and Extent of Tax Lien. - If any person individual, corporation,  An assessment of a tax deficiency is not necessary to a criminal
partnership, joint-account (cuentas en participacion), association or insurance prosecution for tax evasion. The crime is complete when the violator
company liable to pay an internal revenue tax, neglects or refuses to pay the same knowingly and willfully filed a fraudulent return with intent to evade and
after demand (formal or official or final assessment notice), the amount shall be a defeat the tax
lien (or encumbrance) in favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner until paid, with interests, What is involved here is not the collection of taxes where the assessment
penalties, and costs that may accrue in addition thereto upon all property and rights of the CIR may be reviewed by the CTA, but a criminal prosecution for
to property belonging to the taxpayer: Provided, That this lien shall not be valid violations of the NIRC which is within the cognizance of the RTCs (if the
against any mortgagee purchaser or judgment creditor until notice of such lien shall principal amount of the basic taxes and fees, exclusive of charges and
be filed by the Commissioner in the office of the Register of Deeds of the province penalties is Php 1M or more, CTA has exclusive and original jurisdiction
or city where the property of the taxpayer is situated or located. involving criminal offenses). While there can be no civil action to enforce
collection before the assessment procedures provided in the Code have
 [Mem!] Tax Lien - is a legal claim or charge or encumbrance on property, been followed, there is no requirement for the precise computation and
real or personal, established (or created) by law as security in default of assessment of the tax before there can be a criminal prosecution under the
the payment of taxes. Code (Section 222)

 Rights to property include products of the property such as the proceeds So, a petition for reconsideration of an assessment may suspend the
of insurance policy on the property subject to the lien running of the prescriptive period for collection of the tax but not the
prescriptive period of a criminal action for violation of law
 In a seizure to property to enforce a tax lien, the residue after the payment
of taxes and expenses goes to the taxpayer or owner of the property [VVIP!] SEC. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes.
 [Impt!] Extinguishment of tax liens
1. By payment or abatement of the tax [No more tax liability] (a) In the case of a false or fraudulent return with intent to evade tax or of
2. By prescription of the right of the government to assess or (tax lien failure to file a return, the tax may be assessed, or a preceeding in court for
attaches from the time of assessment, hence, if the period to assess the collection of such tax may be filed without assessment (including
has already prescribed, the tax lien did not attach so there is nothing criminal action), at any time within ten (10) years after the discovery of the
to extinguish) collect [No more tax liability] falsity, fraud or omission: Provided, That in a fraud assessment which has
3. By failure to file notice of such lien in the office of the Register of become final and executory, the fact of fraud shall be judicially taken
Deeds, as against any mortgagee, purchaser, or judgment creditor cognizance of in the civil or criminal action for the collection thereof.
[Taxpayer is still liable and the tax may be enforced against the other (3 years – 3 years; 10 years – 5 years)
properties of the taxpayer]
4. By destruction of the property subject of the lien [Taxpayer is still (b) If before the expiration of the time prescribed in Section 203 (3 years) for
liable and the tax may be enforced against the other properties of the the assessment of the tax, both the Commissioner and the taxpayer have
taxpayer] agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil be extended by subsequent written agreement made before the expiration
and criminal actions and other proceedings (distraint and levy) instituted in on of the period previously agreed upon.
behalf of the Government under the authority of this Code or other law enforced by
the Bureau of Internal Revenue shall be brought in the name of the Government of (c) Any internal revenue tax which has been assessed within the period (10
the Philippines and shall be conducted by legal officers of the Bureau of Internal years) of limitation as prescribed in paragraph (a) hereof may be collected
Revenue but no civil or criminal action for the recovery of taxes or the enforcement by distraint or levy or by a proceeding in court within five (5) years
following the assessment of the tax.

43
beginning of distraint or levy a proceeding in court for collection, in respect of any
(d) Any internal revenue tax, which has been assessed within the period deficiency, shall be suspended 1for the period (fixed in the Writ of Injunction) during
agreed upon as provided in paragraph (b) hereinabove, may be collected which the Commissioner is prohibited (by the CTA) from making the assessment or
by distraint or levy or by a proceeding in court within the period agreed beginning distraint or levy or a proceeding in court and for sixty (60) days
upon in writing before the expiration of the five (5) -year period. The thereafter (after the expiration of the period stated in the Writ of Injunction);
2
period so agreed upon may be extended by subsequent written (what is suspended is the prescriptive period to collect) when the taxpayer
agreements made before the expiration of the period previously agreed requests for a reinvestigation (or recomputation or reconsideration of the
upon. assessment) which is granted by the Commissioner; 3when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is being
(e) Provided, however, That nothing in the immediately preceding and assessed or collected: Provided, that, if the taxpayer informs the Commissioner of
paragraph (a) hereof shall be construed to authorize the examination and any change in address, the running of the Statute of Limitations will not be
investigation or inquiry into any tax return filed in accordance with the suspended; 4(what is suspended is the prescriptive period to collect) when the
provisions of any tax amnesty law or decree. warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no
 It is essential that the discovery of the falsity or fraud or of failure to file property could be located; and 5when the taxpayer is out of the Philippines.
must have been made within the 3-year period following the general rule
 In the following cases, the running of the statute of limitations provided in
Section 222 states that an assessment is not necessary before a criminal Sections 203 and 222 was held suspended:
charge can be filed. This is the general rule. Private respondents failed to 1. Where an appeal is filed by the taxpayer with the Court of Tax Appeals
show that they are entitled to an exception. Moreover, the criminal charge and the appeal precludes the Commissioner from instituting an action
need only be supported by a prima facie showing of failure to file a in court for collection
required return. This fact need not be proven by an assessment 2. Where a bond is filed by the taxpayer to secure the payment of his tax
obligation, the period during which the bond remains in full force and
 Distinction between false return and fraudulent return effect may be considered to have suspended the running of the 3 year
period to collect provided for in the Tax Code
False Return Fraudulent Return 3. Where a request for a reinvestigation (of the assessment) is made by
May be due to mistake, carelessness Made with intent to evade the the taxpayer, provided it “is granted by the Commissioner.” The mere
or ignorance taxes due request for re-investigation alone does not suspend the prescriptive
Implies intentional or deceitful period. To effect a suspension, the request should first be granted
Merely implies deviation from the 4. Where there is a written agreement between the taxpayer and the
entry with intent to evade the
truth Commissioner or where there is a waiver (on the part of the taxpayer)
taxes due
May not be an attempt to evade a tax Always an attempt to evade a tax 5. Where the taxpayer‟s conduct may constitute estoppel so as to
Fraud is never imputed and the courts preclude the defense of prescription even if he has not previously
never sustain findings of fraud upon waived it in writing as where the taxpayer admitted his obligation and
circumstances which, at most, create promised to pay the same in various letters to the BIR and the delay
only suspicion and the mere was due to his own repeated requests for reinvestigation and similarly
understatement of a tax is not itself repeated requests for extension of time to pay
proof of fraud for the purpose of tax
evasion SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and
Fraud contemplated by law must be removable fixtures of any sort shall be enforced by the seizure and sale, or
actual and not constructive; it must destruction, of the specific forfeited property. The forfeiture of real property shall be
be intentional consisting of deception enforced by a judgment of condemnation and sale in a legal action or proceeding,
willfully and deliberately done or civil or criminal, as the case may require.
resorted to
SEC. 225. When Property to be Sold or Destroyed. - Sales of forfeited chattels and
 RA No. 8424 extends the period for collection in Subsections (c) and (d) removable fixtures shall be effected, so far as practicable, in the same manner and
from 3 years to 5 years under the same conditions as the public notice and the time and manner of sale as
are prescribed for sales of personal property distrained for the non-payment of
SEC. 223. Suspension of Running of Statute of Limitations. - The running of the taxes.
Statute of Limitations (or prescriptive periods) provided in Sections 203 (3 years
and 3 years) and 222 (10 years and 5 years) on the making of assessment and the
44
Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, the estimated tax liabilities for the taxable quarter or quarters of the
and all apparatus used I or about the illicit production of such articles may, upon succeeding taxable year; or
forfeiture, be destroyed by order of the Commissioner, when the sale of the same
for consumption or use would be injurious to public health or prejudicial to the (d) When the excise tax due on excisable articles (such as alcohol, tobacco,
enforcement of the law. petroleum and mineral products) has not been paid; or

All other articles subject to excise tax, which have been manufactured or removed (e) When the article locally purchased or imported by an exempt person, such
in violation of this Code, as well as dies for the printing or making of internal as, but not limited to, vehicles, capital equipment, machineries and spare
revenue stamps and labels which are in imitation of or purport to be lawful stamps, parts, has been sold, traded or transferred to non-exempt persons.
or labels may, upon forfeiture, be sold or destroyed in the discretion of the
Commissioner. The taxpayers shall be informed in writing (preliminary assessment notice or pre-
assessment notice) of the law and the facts on which the assessment is made;
Forfeited property shall not be destroyed until at least twenty (20) days after otherwise, the assessment shall be void.
seizure.
Within a period (15 days) to be prescribed by implementing rules and regulations,
SEC. 226. Disposition of funds Recovered in Legal Proceedings or Obtained from the taxpayer shall be required to respond (not to protect) to said notice. If the
Forfeitures. - all judgments and monies recovered and received for taxes, costs, taxpayer fails to respond, the Commissioner or his duly authorized representative
forfeitures, fines and penalties shall be paid to the Commissioner or his authorized shall issue an assessment (formal or official or final which can now be protested)
deputies as the taxes themselves are required to be paid, and except as specially based on his findings.
provided, shall be accounted for and dealt with the same way.
Such assessment (formal or official or final which can now be protested) may be
SEC. 227. Satisfaction of Judgment Recovered Against any Internal Revenue protested administratively by filing a request (or motion or petition) for
Officer. - When an action is brought against any Internal Revenue officer to recover reconsideration or reinvestigation or recomputation within thirty (30) days from
damages by reason of any act done in the performance of official duty, and the receipt of the assessment in such form and manner as may be prescribed by
Commissioner is notified of such action in time to make defense against the same, implementing rules and regulations. Within sixty (60) days from filing of the protest,
through the Solicitor General, any judgment, damages or costs recovered in such all relevant supporting documents shall have been submitted; otherwise, the
action shall be satisfied by the Commissioner, upon approval of the Secretary of assessment shall become final.
Finance, or if the same be paid by the person used shall be repaid or reimbursed to
him. The relevant supporting documents may be filed together with the request or
motion or petition.
No such judgment, damages, or costs shall be paid or reimbursed in behalf of a
person who has acted negligently or in bad faith, or with willful oppression. If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax Appeals within thirty
Chapter 3 – Protesting an Asessment, Refund, etc.
(30) days from receipt of the said decision, or from the lapse of the one hundred
eighty (180)-day period; otherwise, the decision or the assessment, as the case
[VVIP!][BAR!] SEC. 228. Protesting of Assessment. - When the Commissioner or his
may be, shall become final, executory (the CIR will then issue warrant of distraint
duly authorized representative finds that proper taxes should be assessed, he shall
and/or warrant of levy or will file a collection case in court) and demandable.
first notify the taxpayer of his findings: Provided, however, That a preassessment
notice shall not be required in the following cases (formal or official or final
Example:
assessment notice may immediately be issued:
A, a resident citizen, received from the BIR an official assessment notice of his
delinquency tax of Php 2M for the taxable year 2014 on June 1, 2015. On July 1,
(a) When the finding for any deficiency tax is the result of mathematical error
2015 A filed with the CIR a request for reconsideration and on August 1, 2015 he
in the computation of the tax as appearing on the face of the return; or
submitted to the CIR all the relevant supporting documents thereto.
(b) When a discrepancy has been determined between the tax withheld and
1. Assuming that the CIR denied A‟s protest and the latter received the notice
the amount actually remitted by the withholding agent (the person to
of denial on Nov. 5, 2015, until when may A file his appeal to the CTA?
whom the formal assessment notice will be issued); or
ANS: The taxpayer is given a period of 30 days from receipt of the notice
(c) When a taxpayer who opted to claim a refund or tax credit of excess
of denial to appeal to the CTA, hence, A has until December 5, 2015 to
creditable withholding tax for a taxable period was determined to have
appeal.
carried over and automatically applied the same amount claimed against
45
rules and regulations or jurisprudence on which the proposed
2. Assuming that the CIR did not act on the protest of A, until when may A assessment is based.
file his appeal to the CTA?
o If the taxpayer fails to respond within 15 days from date of receipt
Solution: of the PAN, he shall be considered in default, in which case, a
August – 30 formal letter of demand and assessment notice shall be caused to
September – 30 be issued by the said Office, calling for payment of the taxpayer‟s
October – 31 deficiency tax liability, inclusive of the applicable penalties such as
November – 30 surcharge or interest
December – 31
January – 28  Exceptions to prior notice of the assessment
180 days - The notice for informal conference and the preliminary assessment
notice shall not be required in any of the 5 cases enumerated in
The 180-day period expired on January 28, 2016, hence, A may appeal the Section 228, in which case, issuance of the formal assessment
inaction of the CIR to the CTA until February 27, 2016. notice for the payment of the taxpayer‟s deficiency tax liability
shall be sufficient

 A taxpayer has a right to be informed of his liability for deficiency taxes  [VIP!] Disputed assessment
both through a preliminary assessment notice (PAN) and a final (or formal - The taxpayer or his duly authorized representative may protest
or official) assessment notice (FAN). The assessment is void if only the FAN administratively the aforesaid formal letter of demand and formal
is issued except in cases where PAN is not required by law (Section 228, assessment notice within 30 days from date of receipt thereof
first paragraph, a-e) for it violates the taxpayer‟s right to due process.
Thus, in a case, for failure to send the PAN which states the facts and the o If the taxpayer fails to file a valid protest against the formal letter
law on which the assessment was made, the assessment contained in a of demand and assessment notice within 30 days from date of
final letter of demand (this usually accompanies the FAN and said final or receipt thereof, the assessment shall become final, executory and
formal letter of demand reiterates the law and the facts on which the demandable
assessment was made which were already contained in the PAN previously
issued) served on taxpayer was held void. o If the protest is denied, in whole or in part, by the Commissioner,
the taxpayer may appeal to the Court of Tax Appeals within 30
 Both the formal letter of demand and the notice of assessment (FAN)shall days from date of receipt of the said decision; otherwise, the
be void if the former fails to state the facts, the law, rules and regulations assessment shall become final, executory and demandable
or jurisprudence on which the assessment is based, which is a mandatory
requirement under Section 228. A notice containing a mere computation of o If the Commissioner or his duly authorized representative fails to
the tax deficiency and a demand for payment does not comply with the act on the taxpayer‟s protest within 180 days from date of
requirement. submission, by the taxpayer, of the required documents in support
of protest, the taxpayer may appeal to the CTA within 30 days
The law requires that the legal and factual bases of the assessment be from the lapse of the said 180-day period; otherwise, the
stated in the formal letter of demand and assessment notice. Thus, such assessment shall become final, executory and demandable
cannot be presumed. Otherwise, the express provisions of Article 228 of
the NIRC and RR No. 12-99 would be rendered nugatory. The alleged  Appeal to the Courts
„factual bases‟ in the advice, preliminary letter and „audit working papers‟ o From the decision of the Commissioner or his duly authorized
did not suffice. representative on the disputed assessment, the taxpayer
adversely affected may appeal to the CTA within 30 days from
 Preliminary Assessment Notice (PAN) receipt thereof; or he may appeal within 30 days from the lapse of
o If after review and evaluation by the Assessment Division or by the 180-day period because of the BIR‟s inaction. The effect of the
the Commissioner or his duly authorized representative, as the appeal is to deprive the BIR of administrative jurisdiction over the
case may be, it is determined that there exists sufficient basis to case
assess the taxpayer for any deficiency tax or taxes, the said Office
shall issue to the taxpayer, at least be registered mail a PAN for o A party (CIR or taxpayer) adversely affected by a resolution of a
the proposed assessment showing in detail, the facts and the law, Division of the CTA on an MR or new trial, may file a petition for
review with the CTA en banc

46
entitled to an exception. Moreover, the criminal charge need only be
o From the CTA, en banc, the taxpayer or CIR may file with the supported by a prima facie showing of failure to file a required return. This
Supreme Court a verified petition for review on certiorari as fact need not be proven by an assessment.
provided in Rule 45 of the Rules of Court. The findings of fact of
the CTA when supported by substantial evidence shall be final SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or
proceeding shall be maintained in any court (appeal to the CTA) for the recovery of
 Under the penultimate and last paragraphs, the failure of the taxpayer to any national internal revenue tax hereafter alleged to have been erroneously or
submit all “relevant supporting documents” within 60 days from filing the illegally assessed or collected, or of any penalty claimed to have been collected
protest shall render the assessment final, and his failure to appeal to the without authority, of any sum alleged to have been excessively or in any manner
CTA the decision or inaction on his protest within the prescribed 30-day wrongfully collected without authority, or of any sum alleged to have been
period shall render the decision or assessment final, executory and excessively or in any manner wrongfully collected, until a claim for refund or credit
demandable has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest
 The CTA can entertain an appeal only from a final decision on the or duress.
assessment of the Commissioner, or in cases where the Commissioner has
not acted within the period (180 days) prescribed by Section 228. It is the In any case, no such suit or proceeding shall be filed after the expiration of two (2)
Formal Letter of Demand and Formal Assessment Notice that must be years from the date of payment of the tax or penalty regardless of any supervening
administratively protested or disputed within 30 days and not the cause (filing fo the written claim for tax refund or tax credit with the CIR) that may
Preliminary Assessment Notice arise after payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the
 The decisions, rulings or inaction of the Commissioner are necessary in return upon which payment was made, such payment tax appears clearly to have
order to vest the CTA with jurisdiction to entertain the appeal, provided it been erroneously paid.
is filed within 30 days after the receipt of such decision or ruling, or within
30 days after the expiration of the 180-day period fixed by law for the  The 2-year prescriptive period in Section 229 refers exclusively to claim for
Commissioner to act on the disputed assessments. refund of national internal revenue taxes erroneously or illegally collected
and not to a refund of local or municipal license taxes or fees illegally
o Period for appeal jurisdiction – this 30-day period within which collected. [THE FOLLOWING IS WRONG!] The period for prescription of
to file an appeal is jurisdictional (if the appeal to the CTA is filed action to recover municipal license taxes is 6 years (The applicable
beyond the 30-day period the CTA does not acquire jurisdiction provision is Section 196 of the LGC of 1991/2 where the prescriptive period
even if the CIR did not file a motion to dismiss) and failure to is also 2 years from payment) under Article 1145 (2) of the Civil Code.
comply therewith would bar the appeal and deprive the CTA of its
jurisdiction to entertain and determine the correctness of the Section 229 stipulates that the 2-year period to claim refund should be
assessments. Such period is not merely directory but mandatory counted from date of payment of the tax sought to be refunded. When
and it is beyond the power of the courts to extend the same applied to taxpayers filing income tax returns on a quarterly basis, the date
of payment mentioned in Section 229 must be deemed to be qualified by
 [Mem!] The filing of a criminal complaint need not be preceded by an Sections 75 and 76. Clearly, the prescriptive period of 2 years should
assessment. Section 222 specifically states that in cases where a false or commence to run only from the time that the refund is ascertained, which
fraudulent return with intent to evade tax is submitted or in cases of failure can only be determined after a final adjustment return in accomplished.
to file a return, proceedings in court may be commenced without an
assessment. Furthermore, Section 205 clearly mandates that the civil and Consequently, the 2-year prescriptive period provided in Section 229
criminal aspects of the case may be pursued simultaneously. In Ungab v should be computed from the time of filing the Adjustment Return or
Cusi, petitioner therein sought the dismissal of the criminal complaints for Annual Income Tax Return and Final Payment of Income Tax.
being premature, since his protest to the CTA had not yet been resolved.
The Supreme Court held that such protests could not stop or suspend the When a tax is paid on installments, the prescriptive period of 2 years
criminal action which was independent of the resolution of the protest in should be counted from the date of final payment. This ruling was
the CTA. This was because the CIR had, in such tax evasion cases, reiterated in Commissioner vs. Palanca, wherein the Supreme Court stated
discretion on whether to issue an assessment or to file a criminal case that where the tax was paid on installment, the computation of the 2-year
against the taxpayer or to do both. prescriptive period under Section 229 should be from the date of the last
installment.
To reiterate, an assessment is not necessary before a criminal charge can
be filed. This is the general rule. The taxpayer must show that he is

47
This is erroneous payment of tax when a taxpayer pays under a mistake of
fact, as, for instance, in a case where he is not aware of an existing  The subsequent appeal for refund or credit must also (the written claim for
exemption in his favor at the time the payment was made. The ground refund to be filed with the CIR must be within 2 years from payment) be
upon which the right of recovery rests is that money paid through filed within the said 2-year period
misapprehension of facts belong in equity and in good conscience to the
person who paid it. Tax refunds are based on the principle of quasi- o If the CIR takes time in deciding the claim and the period of 2
contract or solution indebiti. The government is not exempted from the years is about to end, the suit or proceeding must be started
application of this doctrine. (because the CIR did not act on the claim, hence, there was no
proceeding before the CIR) in the CTA before the end of the 2-
 Tax credit certificate year period without awaiting the decision of the Commissioner.
- A certification, duly issued to the taxpayer named therein, by the
Commissioner or his duly authorized representative, reduced in a The taxpayer need not pay under protest (because the
BIR Accountable Form in accordance with the prescribed overpayment may have been discovered by the taxpayer only
formalities, acknowledging that the grantee-taxpayer named after payment). The rule is different under the Tariff and Customs
therein is legally entitled to a tax credit, the money value of which Code (if the importer does not agree with the assessment made
may be used in payment or in satisfaction of any of his internal by the collector of customs, the importer can protest the
revenue tax liability, or may be converted as cash refund, or may assessment BUT he must first pay the customs duties taxes and
otherwise be disposed of in the manner and in accordance with other charges. Such payment must be made by the importer
the limitations, if any, as may be prescribed by the provisions of under protest. – protest made 15 days from payment then appeal
these Regulations to the commissioner of customs after 15 days).

 Requirements for claim for refund or credit o [VIP!] If the claim is denied by the Commissioner within the 2-
1. In writing, stating clearly the basis or grounds for such claim year period, the taxpayer has 30 days from receipt of the denial
2. Filed by the taxpayer with the Commissioner within 2 years after the within which to appeal to the CTA provided the 2-year period has
payment of the tax or penalty not yet expired

The taxpayer is the person entitled to claim a tax refund; hence, the o [VIP!] The 2-year period is not a jurisdictional requirement but a
proper party to file a claim for refund or credit of taxes allegedly to have prescriptive period. Even if it had already lapsed, the same may
been illegally assessed or erroneously collected. He is the “party adversely be suspended for reasons of equity and other special
affected” who is given the right to appeal the decision or ruling of the circumstances. It is subject to waiver in the absence of objection
Commissioner. However, in case the taxpayer does not file a claim for on the part of the CIR to the appeal to the CTA filed after 2 years.
refund, the withholding agent may file the claim. Thus, a withholding agent
was considered a proper party to file a claim for refund of the withheld  Offsetting (no longer allowed under the 1998 NIRC)
taxes of its foreign parent company. In case of indirect taxes (e.g., excise The same provision was omitted when the NIRC of 1997 was enacted.
taxes (VAT)), the proper party to question, or seek a refund “is the Section 56 (A), as now worded, does not provide for any offsetting by the
statutory taxpayer (the seller), the person on whom the tax is imposed by taxpayer of a claim not yet approved.
law and who paid the same even if he shifts the burden thereof to another”
The present rule is that a taxpayer cannot defer the payment of taxes by
 [Impt!] The purposeof the written claim requirement before maintaining a raising the defense that he still has a pending claim for refund or credit;
suit or proceeding in any court (i.e., appeal to the CTA) is to afford the otherwise, he shall be subject to the imposition of surcharges and interest
Commissioner an opportunity to correct the mistake, if any, committed by which is mandatory
him or his subordinate officers and the filing of the written claim is also
intended, first, to afford the Commissioner an opportunity to correct the  As a rule, the government is not liable to pay interest on refund of taxes.
action of subordinate officers; and second, to notify the government that The exceptions are: (1) where the tax was arbitrarily collected and (2) in
such taxes have been questioned, and the notice should then be borne in case of taxes withheld upon wages under Section 79 (C, 2)
mind in estimating the revenue available for expenditure. The filing of the
claim is mandatory and is a condition precedent and non-compliance  The CTA is not a mere superior administrative agency or tribunal but is a
therewith precludes the CIR from exercising the authority thereunder part of the judicial system of the Philippines. It was created by Congress
given. Thus, mere adjustments by BIR examiners showing an overpayment pursuant to RA No. 1125 as a regular court, a centralized court,
of tax, without any accompanying written claim for refund, filed by the specializing in tax cases. RA No. 9282 expanded the jurisdiction of the CTA,
taxpayer will not authorize the approval of the refund.

48
elevated its rank to the level of the CTA, enlarging its membership to nature of its function, dedicated exclusively to the study and consideration
include a Presiding Justice and 8 Associate Justices. of tax problems and has necessarily developed an expertise on the subject
unless there has been an abuse or improvident exercise of authority on its
 [VVIP!] Under the LGC, the Central Board of Assessment Appeals has part.”
jurisdiction over appealed assessment of real property taxes cases decided
by the Local Board of Assessment Appeals of the province or city. The  A taxpayer cannot raise the issue that is exempt from tax for the first time
decision of the Central Board of Assessment Appeals is final and executory in the CTA based on the concept of exhaustion of administrative remedies
(THIS IS WRONG! Under Section 7,a,5 of RA 9282, decision of the CBAA is
already appealable to the CTA) (Sec 229 thereof). SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -
(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with
 The rules is that for the CTA to acquire jurisdiction, an assessment must the pertinent provisions of this Code, which shall remain unclaimed or
first be disputed by the taxpayer and ruled upon by the CIR to warrant a uncashed within five (5) years from the date the said warrant or check was
decision from which a petition for review may be taken to the CTA. mailed or delivered, shall be forfeited in favor of the Government and the
However, if the Commissioner does not decide the request for amount thereof shall revert to the general fund.
reconsideration but instead goes to court to collect the taxes or proceeds to
collect the same by distraint or levy, this move on his part might amount (B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with
to a decision denying the reconsideration, and may be appealable to the the pertinent provisions of this Code, which shall remain unutilized after
CTA. five (5) years from the date of issue, shall, unless revalidated, be
considered invalid, and shall not be allowed as payment for internal
 When a taxpayer fails to appeal to the CTA in due time: revenue tax liabilities of the taxpayer, and the amount covered by the
o Decision or assessment (CIR did not decide the protest and the certificate shall revert to the general fund.
180-day period has expired and the taxpayer did not appeal to the
CTA within 30 days from the expiration of the 180-day period) (C) Transitory Provision. - For purposes of the preceding Subsection, a tax
becomes final and executory credit certificate issued by the Commissioner or his duly authorized
o Taxpayer is thereafter barred, in action for collection of the tax by representative prior to January 1, 1998, which remains unutilized or has a
the government, from alleging in his defense that the assessment creditable balance as of said date, shall be presented for revalidation with
is excessive or illegal or invoking any defense that will in effect re- the Commissioner or his duly authorized representative or on before June
open the question of his liability on the merits, including that of 30, 1998.
prescription
o Assessment is considered correct and all that is necessary is for SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the seizure of
the Commissioner to enforce the collection of the tax by summary personal property under claim of forfeiture, the owner desiring to contest the
remedies or by judicial action validity of the forfeiture may, at any time before sale or destruction of the property,
bring an action against the person seizing the property or having possession thereof
 The Tax Code does not bar the right to contest the legality of the to recover the same, and upon giving proper bond, may enjoin the sale; or after the
assessment of the tax after the taxpayer pays it. Under Section 229, he sale and within six (6) months, he may bring an action to recover the net proceeds
can pay the tax (the purpose of the taxpayer is to avoid payment of realized at the sale.
surcharge and interest in case the protest is denied) and claim a refund
therefore. A fortiori (with an even stranger reason or More so), his TITLE 9
willingness to pay the tax is no waiver to raise defense against the tax‟s
COMPLIANCE REQUIREMENTS
legality or against assessment of the tax

 It is doctrinal that the findings of fact of the CTA, when supported by Chapter 1 – Keeping of Books of Accounts and Records
substantial evidence, will not be disturbed on appeal, unless it is shown
that it committed gross error in the appreciation of facts “Substantial SEC. 232. Keeping of Books of Accounts. -
evidence” has been construed to mean not necessarily preponderant proof (A) Corporations, Companies, Partnerships or Persons Required to Keep Books
as is required in ordinary civil action, but such kind of “relevant evidence of Accounts. - All corporations, companies (or associations), partnerships
as a reasonable man might accept as adequate in support of a conclusion” or persons individuals required by law to pay internal revenue taxes shall
keep a journal and a ledger or their equivalents: Provided, however, That
The CTA is a highly specialized body specifically created for the purpose of those whose quarterly sales, earnings, receipts, or output do not exceed
reviewing tax cases. Consequently, as a matter of principle, the SC “will Fifty thousand pesos (P50,000) shall keep and use simplified set of
not set aside the conclusion reached xxx by the CTA which is, by the very bookkeeping records duly authorized by the Secretary of Finance where in

49
all transactions and results of operations are shown and from which all (b) The taxpayer requests reinvestigation;
taxes due the Government may readily and accurately be ascertained and (c) Verification of compliance with withholding tax laws and regulations;
determined any time of the year: Provided, further, That corporations, (d) Verification of capital gains tax liabilities; and
companies, partnerships or persons whose gross quarterly sales, earnings, (e) In the exercise of the Commissioner's power under Section 5(B) to obtain
receipts or output exceed One hundred fifty thousand pesos (P150,000) information from other persons in which case, another or separate
shall have their books of accounts audited and examined yearly by examination and inspection may be made. Examination and inspection of
independent Certified Public Accountants and their income tax returns books of accounts and other accounting records shall be done in the
accompanied with a duly accomplished Account Information Form (AIF) taxpayer's office or place of business or in the office of the Bureau of
which shall contain, among others, information lifted from certified balance Internal Revenue. All corporations, partnerships or persons that retire from
sheets, profit and loss statements, schedules listing income-producing business shall, within ten (10) days from the date of retirement or within
properties and the corresponding income therefrom and other relevant such period of time as may be allowed by the Commissioner in special
statements. cases, submit their books of accounts, including the subsidiary books and
other accounting records to the Commissioner or any of his deputies for
(B) Independent Certified Public Accountant Defined. - The term 'Independent examination, after which they shall be returned. Corporations and
Certified Public Accountant', as used in the preceding paragraph, means an partnerships contemplating dissolution must notify the Commissioner and
accountant who possesses the independence as defined in the rules and shall not be dissolved until cleared of any tax liability.
regulations of the Board of Accountancy promulgated pursuant to
Presidential Decree No. 692, otherwise known as the Revised Accountancy Any provision of existing general or special law to the contrary notwithstanding,
Law. the books of accounts and other pertinent records of tax-exempt organizations
or grantees of tax incentives shall be subject to examination by the Bureau of
SEC. 233. Subsidiary Books. - All corporations, companies, partnerships or persons Internal Revenue for purposes of ascertaining compliance with the conditions
keeping the books of accounts mentioned in the preceding Section may, at their under which they have been granted tax exemptions or tax incentives, and
option, keep subsidiary books as the needs of their business may require: Provided, their tax liability, if any.
That were such subsidiaries are kept, they shall form part of the accounting system
of the taxpayer and shall be subject to the same rules and regulations as to their  The preservation of books of accounts for the prescribed period from the
keeping, translation, production and inspection as are applicable to the journal and last entry (December 31 if the accounting period is calendar year) until the
the ledger. last day prescribed for making an assessment is mandatory. The
Commissioner is without authority to shorten it (BIR Ruling, Jan. 31,
SEC. 234. Language in which Books are to be Kept; Translation. - All such 1975). 1Thus, if the last entry in the 2004 records is December 31, 2004,
corporations, companies, partnerships or persons shall keep the books or records and the return was field on April 15, 2005, the records must be preserved
mentioned in Section 232 hereof in native language, English or Spanish: Provided, for three (3) years or up to April 15, 2008 (last day prescribed by law to
however, That if in addition to said books or records the taxpayer keeps other books make assessment).
or records in a language other than a native language, English or Spanish, he shall
make a true and complete translation of all the entries in suck other books or If for instance the fiscal year starts April 1 it will end March 31 of the
records into a native language; English or Spanish, and the said translation must be following year, hence, the last entry date is March 31.
made by the bookkeeper, or such taxpayer, or in his absence, by his manager and
2
must be certified under oath as to its correctness by the said bookkeeper or If the ITR was filed on March 1, 2005 the books must be preserved until
manager, and shall form an integral part of the aforesaid books of accounts. The April 15, 2008.
keeping of such books or records in any language other than a native language,
3
English or Spanish, is hereby prohibited. If the ITR was filed on July 1, 2005, the books must be preserved until
June 30, 2008
[Impt!] SEC. 235. Preservation of Books and Accounts and Other Accounting - This is because 2008 is a leap year, if during the 3-year period
Records. - All the books of accounts (journal and ledger), including the subsidiary there is no leap year the last day to make assessment should be
books and other accounting records of corporations, partnerships, or persons other July 1
persons, shall be preserved by them for a period beginning from the last entry in
4
each book until the last day prescribed by Section 203 within which the If in the 3-year period there is no leap year the last day in numbers 1 and
Commissioner is authorized to make an assessment. The said books and records 2 is April 16 not April 15.
shall be subject to examination and inspection by internal revenue officers:
Provided, That for income tax purposes, such examination and inspection shall be
made only once in a taxable year, except in the following cases: Chapter 2 – Keeping of Books of Accounts and Records
(a) Fraud, irregularity or mistakes, as determined by the Commissioner;

50
SEC. 236. Registration Requirements. – (1) General Rule. - The registration of any person who ceases to be
liable to a tax type shall be cancelled upon filing with the Revenue
(A) Requirements. - Every person subject to any internal revenue tax shall District Office where he is registered, an application for registration
register once with the appropriate Revenue District Officer: information update in a form prescribed therefor;
(1) Within ten (10) days from date of employment, or
(2) On or before the commencement of business, or (2) Cancellation of Value-Added Tax Registration. - A VAT-registered
(3) Before payment of any tax due, or person may cancel his registration for VAT if:
(4) Upon filing of a return, statement or declaration as required in this
Code. (a) He makes written application and can demonstrate to the
The registration shall contain the taxpayer's name, style, place of Commissioner's satisfaction that his gross sales or receipts for
residence, business, and such other information as may be required by the the following twelve (12) months, other than those that are
Commissioner in the form prescribed therefor. exempt under Section 109 (A) TO (U), will not exceed One
million five hundred thousand pesos (P1,500,000) Php
A person maintaining a head office, branch or facility shall register with the 1,919,500.00 beginning January 1, 2012; or
Revenue District Officer having jurisdiction over the head office, branch or
facility. For purposes of this Section, the term 'facility' may include but not (b) He has ceased to carry on his trade or business, and does not
be limited to sales outlets, places of production, warehouses or storage expect to recommence any trade or business within the next
places. twelve (12) months.

(B) [Impt!] Annual Registration Fee. - An annual registration fee in the The cancellation of registration will be effective from the first day of
amount of Five hundred pesos (P500) for every separate or distinct the following month. (as amended by RA No. 9337)
establishment or place of business, including facility types where sales
transactions occur, shall be paid upon registration and every year (G) Persons Required to Register for Value-added Tax. –
thereafter on or before the last day of January: Provided, however, That
cooperatives, individuals earning purely compensation income, whether (1) Any person who, in the course of trade or business, sells, barters or
locally or abroad, and overseas workers are not liable to the registration exchanges goods or properties, or engages in the sale or exchange
fee herein imposed. of services, shall be liable to register for Value-added tax if:

The registration fee shall be paid to an authorized agent bank located (a) His gross sales or receipts for the past twelve (12) months,
within the revenue district, or to the Revenue Collection Officer, or duly other than those that are exempt under section 109 (a) to (u),
authorized Treasurer of the city or municipality where each place of have exceeded One million five hundred thousand pesos
business or branch is registered. (P1,500,000) Php 1,919,500.00; or

(C) Registration of Each Type of Internal Revenue Tax. - Every person who is (b) There are reasonable grounds to believe that his gross sales or
required to register with the Bureau of Internal Revenue under Subsection receipts for the next twelve (12) months, other than those that
(A) hereof, shall register each type of internal revenue tax for which he is are exempt under Section 109 (A) to (U), will exceed one
obligated, shall file a return and shall pay such taxes, and shall update million five hundred thousand pesos (P1,500,000) Php
such registration of any changes in accordance with Subsection (E) hereof. 1,919,500.00.

(D) Transfer of Registration. - In case a registered person decides to transfer (2) Every person who becomes liable to be registered under paragraph
his place of business or his head office or branches, it shall be his duty to (1) of this Subsection shall register with the Revenue District Office
update his registration status by filing an application for registration which has jurisdiction over the head office or branch of that person,
information update in the form prescribed therefor. and shall pay the annual registration fee prescribed in Subsection
(B) hereof. If he fails to register, he shall be liable to pay the tax
(E) Other Updates. - Any person registered in accordance with this Section under Title IV as if he were a VAT-registered person, but without the
shall, whenever applicable, update his registration information with the benefit of input tax credits for the period in which he was not
Revenue District Office where he is registered, specifying therein any properly registered. (as amended by RA No. 9337)
change in tax type and other taxpayer details.
(H) Optional Registration for Value-added Tax of Exempt Person. -
(F) Cancellation of Registration. – (1) Any person who is not required to register for Value-added tax under
Subsection (G) hereof may elect to register for Value-added tax by

51
registering with the Revenue District Office that has jurisdiction over
the head office of that person, and paying the annual registration fee Only one Taxpayer Identification Number (TIN) shall be assigned to a
in Subsection (B) hereof. taxpayer. Any person who shall secure more than one Taxpayer
Identification Number shall be criminally liable under the provisions of
(2) Any person who elects to register under this Subsection shall not be Section 275 on 'Violation of Other Provisions of this Code or Regulations in
entitled to cancel his registration under Subsection (F)(2) for the next General.
three (3) years.
 The new TIN shall be used in the filing of the estate tax return (only
For purposes of Title IV of this Code, any person who has registered value- once) of the decedent, as well as in the filing o other tax returns if the
added tax as a tax type in accordance with the provisions of Subsection (C) estate is under judicial settlement. In case the decedent is engaged in
hereof shall be referred to as a "VAT-registered person" who shall be business, the TIN of decedent shall only be cancelled upon submission of
assigned only one Taxpayer Identification Number (TIN). notice of death and short-term income tax return covering the period
January 1 to the date of his death. The said return shall be filed within 60
(I) Supplying of Taxpayer Identification Number (TIN). - Any person days from the date of death, unless the heirs/authorized
required under the authority of this Code to make, render or file a return, representative/administrator/executor shall request for an extension to file
statement or other document shall be supplied with or assigned a Taxpayer the same, but not to exceed 6 months or April 15 of the following year,
Identification Number (TIN) which he shall indicate in such return, whichever is earlier.
statement or document filed with the Bureau of Internal Revenue for his
proper identification for tax purposes, and which he shall indicate in certain Until the partition and actual distribution of the estate or properties of the
documents, such as, but not limited to, the following: decedent the estate is required to file annual income tax return.

(1) Sugar quedans, refined sugac release order or similar instruments;  Annual registration fee
(2) Domestic bills of lading; Exemptions – the following shall be exempt from the imposition of annual
(3) Documents to be registered with the Register of Deeds or Assessor's registration fee:
Office; a. Cooperatives duly registered with the CDA;
(4) Registration certificate of transportation equipment by land, sea or b. Individuals earning purely compensation income
air; c. Overseas Workers
(5) Documents to be registered with the Securities and Exchange d. GAIs (Government Agencies and Institutions), in the discharge of
Commission; their governmental functions
(6) Building construction permits; e. Marginal Income Earners
(7) Application for loan with banks, financial institutions, or other f. LGUs, in the discharge of their governmental functions
financial intermedieries; g. Tax exempt persons
(8) Application for mayor's permit; h. Non-stock/non-profit organizations not engaged in business
(9) Application for business license with the Department of Trade and i. Persons subject to tax under one-time transactions “isolated
Industry; and transactions”
(10) Such other documents which may hereafter be required under rules j. Facility/ies where no sales transactions occur
and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner. SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons
(engaged in business or trade or profession) subject to an internal revenue tax
In cases where a registered taxpayer dies the, the administrator or shall, for each sale or transfer of merchandise or for services rendered valued at
executor shall register the estate of the decedent in accordance with Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or
Subsection (A) hereof and a new Taxpayer Identification Number (TIN) commercial invoices, prepared at least in duplicate, showing the date of transaction,
shall be supplied in accordance with the provisions of this Section. quantity, unit cost selling price and description of merchandise or nature of service:
Provided, however, That where the receipt is issued to cover payment made as
In the case of a nonresident decedent, the executor or administrator of the rentals, commissions, compensation or fees, receipts or invoices shall be issued
estate shall register the estate with the Revenue District Office where he which shall show the name, business style, if any, and address of the purchaser,
(executor or administrator) is registered: Provided, however; That in customer or client. (as amended by RA No. 9337)
case such executor or administrator is not registered, registration of the
estate shall be made with and the Taxpayer Identification Number (TIN) The original of each receipt or invoice shall be issued to the purchaser, customer or
supplied by the Revenue District Office having jurisdiction over his legal client at the time the transaction is effected, who, if engaged in business or in the
residence. exercise of profession, shall keep and preserve the same in his place of business for

52
a period of three (3) years from the close of the taxable year in which such invoice
or receipt was issued, while the duplicate shall be kept and preserved by the issuer, Hence, the requirement that receipts/invoices shall be registered with and
also in his place of business, for a like period. stamped by the corresponding Revenue District Office before the same
may be used and issued to customers or clients is again in force.
The Commissioner may, in meritorious cases, exempt any person (such as market
vendors) subject to internal revenue tax from compliance with the provisions of this  Marginal Income Earners – they refer to individuals not otherwise
Section. deriving compensation as an employee under an employer-employee
relationship but who are self-employed and deriving gross sales/receipts
 Persons required to issue BIR registered with the BIR receipts – they not exceeding Php 100,000.00 during any 12-month period
are only those engaged in business and professionals subject to internal
revenue tax: SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who
1. Those whose sales or transfers of merchandise or whose services are engaged in business shall secure from the Bureau of Internal Revenue an
rendered are valued at Php 25.00 or more; and authority to print receipts or sales or commercial invoices before a printer can print
2. Those who receive payment made as rentals, commissions, the same.
compensations or fees, regardless of amount received
No authority to print receipts or sales or commercial invoices shall be granted unless
 Persons not required to issue receipts: the receipts or invoices to be printed are serially numbered and shall show, among
1. Those whose sales or transfers of merchandise or whose services other things, the name, business style, Taxpayer Identification Number (TIN) and
rendered are valued below Php 25.00 business address of the person or entity to use the same, and such other
2. Those exempted by the CIR information that may be required by rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.
 The following have been exempted from complying with the requirement of
issuing receipts or sales invoice: All persons who print receipt or sales or commercial invoices shall maintain a
1. Vendors/stallholders insider markets on their sales of domestic food logbook/register of taxpayers who availed of their printing services. The
products, even if they also sell articles for which they are required to logbook/register shall contain the following information:
issue sales receipts or invoices. On their sales of domestic non-food (1) Names, Taxpayer Identification Numbers of the persons or entities for
products and imported products of whatever kind, including dry whom the receipts or sales or commercial invoices were printed; and
goods, they are, however, required to issue receipts or sales invoices; (2) Number of booklets, number of sets per booklet, number of copies per set
2. Eateries or “carinderias” located inside markets and the serial numbers of the receipts or invoices in each booklet.

 Market refers to what is traditionally known as “palengke” or to a place SEC. 239. Sign to be Exhibited by Distiller, Rectifier, Compounder, Repacker and
designated as such by the local governments, where vendors sell their Wholesale Liquor Dealer. - Every person engaged in distilling or rectifying spirits,
wares in stalls and where the public buy and sell primarily domestic food compounding liquors, repacking wines or distilled spirits, and every wholesale liquor
and non-food products and such other items as are necessary for dealer shall keep conspicuously on the outside of his place of business a sign
subsistence. It does not include stores, groceries, fast food centers, and exhibiting, in letters not less than six centimeters (6 cms.) high, his name or firm
other similar establishment style, with the words 'Registered Distiller,' 'Rectifier of Spirits,' 'Compounder of
Liquors,' 'Repacker of Wines or Distilled Spirits,' or 'Wholesale Liquor Dealer,' as the
 Retail trading establishments not otherwise subject to any percentage tax, case may be, and his assessment number.
like supermarkets, department stores, drug stores, bookstores and
groceries, having voluminous transactions daily which render it extremely SEC. 240. Sign to be exhibited by manufacturer of Products of Tobacco. - Every
difficult and inconvenient for them to comply with the requirement of manufacturer of cigars, cigarettes or tobacco, and every wholesale dealer in leaf
issuing sales invoices/receipts for every transaction may, upon previous tobacco or manufactured products of tobacco shall place and keep on outside of the
application with the Revenue District Officer of the place where the building wherein his business is carried on, so that it can be distinctly seen, a sign
business is located and approval thereof by the Regional Director having stating his full name and business in letters not less than six centimeters (6 cms.)
jurisdiction, be allowed to use cash register machines with 2 roll tapes, high and also giving his assessment number.
one to serve as customer‟s receipts in lieu of the regular sales invoices,
and the other to be kept by the establishment for audit and internal SEC. 241. Exhibition of Certificate of Payment at Place of Business. - The certificate
revenue tax verification purposes or receipts showing payment of taxes issued to a person engaged in a business
subject to an annual registration fee shall be kept conspicuously exhibited in plain
 Persons required to issue receipts or sales or commercial invoices are view in or at the place where the business is conducted; and in case of a peddler or
required under Section 237 to register the same with the BIR other persons not having a fixed place of business, shall be kept in the possession

53
of the holder thereof, subject to production upon demand of any internal revenue
officer. (d) The conditions to be observed by revenue officers respecting the
institutions and conduct of legal actions and proceedings;
SEC. 242. Continuation of Business of Deceased Person. - When any individual who
has paid the annual registration fee dies, and the same business is continued by the (e) The conditions under which goods intended for storage in bonded
person or persons interested in his estate, no additional payment shall be required warehouses shall be conveyed thither, their manner of storage and the
for the residue of the term which the tax was paid: Provided, however, That the method of keeping the entries and records in connection therewith, also
person or persons interested in the estate should, within thirty (30) days from the the books to be kept by Revenue Inspectors and the reports to be made by
death of the decedent, submit to the Bureau of Internal Revenue or the regional or them in connection with their supervision of such houses;
revenue District Office inventories of goods or stocks had at the time of such death.
The requirement under this Section shall also be applicable in the case of transfer of (f) The conditions under which denatured alcohol may be removed and dealt
ownership or change of name of the business establishment. in, the character and quantity of the denaturing material to be used, the
manner in which the process of denaturing shall be effected, so as to
SEC. 243. Removal of Business to Other Location. - Any business for which the render the alcohol suitably denatured and unfit for oral intake, the bonds to
annual registration fee has been paid may, subject to the rules and regulations be given, the books and records to be kept, the entries to be made therein,
prescribed by the Secretary of Finance, upon recommendation of the Commissioner, the reports to be made to the Commissioner, and the signs to be displayed
be removed and continued in any other place without the payment of additional tax in the business ort by the person for whom such denaturing is done or by
during the term for which the payment was made. whom, such alcohol is dealt in;

Chapter 3 – Rules and Regulations (g) The manner in which revenue shall be collected and paid, the instrument,
document or object to which revenue stamps shall be affixed, the mode of
Under the TCC, it is the commission of customs who promulgates rules and cancellation of the same, the manner in which the proper books, records,
regulations for the enforcement of the provisions of the said law, subject to the invoices and other papers shall be kept and entries therein made by the
approval of the Secretary of Finance. person subject to the tax, as well as the manner in which licenses and
stamps shall be gathered up and returned after serving their purposes;
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations. -
The Secretary of Finance, upon recommendation of the Commissioner, shall (h) The conditions to be observed by revenue officers respecting the
promulgate all needful rules and regulations for the effective enforcement of the enforcement of Title III imposing a tax on estate of a decedent, and other
provisions of this Code. transfers mortis causa, as well as on gifts and such other rules and
regulations which the Commissioner may consider suitable for the
 Regulations partake of administrative interpretations of tax laws. They are enforcement of the said Title III;
entitled to great respect from the courts especially if followed for some
considerable period. But they are not conclusive upon the courts and will (i) The manner in which tax returns, information and reports shall be prepared
be ignored if judicially found to be erroneous. and reported and the tax collected and paid, as well as the conditions
under which evidence of payment shall be furnished the taxpayer, and the
SEC. 245. Specific Provisions to be Contained in Rules and Regulations. - The rules preparation and publication of tax statistics;
and regulations of the Bureau of Internal Revenue shall, among other things,
contain provisions specifying, prescribing or defining: (j) The manner in which internal revenue taxes, such as income tax, including
(a) The time and manner in which Revenue Regional Director shall canvass withholding tax, estate and donor's taxes, value-added tax, other
their respective Revenue Regions for the purpose of discovering persons percentage taxes, excise taxes and documentary stamp taxes shall be paid
and property liable to national internal revenue taxes, and the manner in through the collection officers of the Bureau of Internal Revenue or through
which their lists and records of taxable persons and taxable objects shall be duly authorized agent banks which are hereby deputized to receive
made and kept; payments of such taxes and the returns, papers and statements that may
be filed by the taxpayers in connection with the payment of the tax:
(b) The forms of labels, brands or marks to be required on goods subject to an Provided, however, That notwithstanding the other provisions of this Code
excise tax, and the manner in which the labelling, branding or marking prescribing the place of filing of returns and payment of taxes, the
shall be effected; Commissioner may, by rules and regulations, require that the tax returns,
papers and statements that may be filed by the taxpayers in connection
(c) The conditions under which and the manner in which goods intended for with the payment of the tax. Provided, however, That notwithstanding the
export, which if not exported would be subject to an excise tax, shall be other provisions of this Code prescribing the place of filing of returns and
labelled, branded or marked; payment of taxes, the Commissioner may, by rules and regulations require

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that the tax returns, papers and statements and taxes of large taxpayers not be given retroactive application if the revocation, modification or reversal will be
be filed and paid, respectively, through collection officers or through duly prejudicial to the taxpayers, except in the following cases:
authorized agent banks: Provided, further, That the Commissioner can (a) Where the taxpayer deliberately misstates or omits material facts from his
exercise this power within six (6) years from the approval of Republic Act return or any document required of him by the Bureau of Internal
No. 7646 or the completion of its comprehensive computerization program, Revenue;
whichever comes earlier: Provided, finally, That separate venues for the
Luzon, Visayas and Mindanao areas may be designated for the filing of tax (b) Where the facts subsequently gathered by the Bureau of Internal Revenue
returns and payment of taxes by said large taxpayers. are materially different from the facts on which the ruling is based; or
For the purpose of this Section, 'large taxpayer' means a taxpayer who satisfies any
of the following criteria; (c) Where the taxpayer acted in bad faith.
(1) Value-Added Tax (VAT) - Business establishment with VAT paid or payable
of at least One hundred thousand pesos (P100,000) for any quarter of the TITLE 10
preceding taxable year;
[Impt!] Statutory Offenses and Penalties
(2) Excise tax - Business establishment with excise tax paid or payable of at
least One million pesos (P1,000,000) for the preceding taxable year; Chapter 1 – Additions to the Basic Tax
1. Surcharge
(3) Corporate Income Tax - Business establishment with annual income tax 2. Interest
paid or payable of at least One million pesos (P1,000,000) for the 3. Other Penalties such as Compromise penalty
preceding taxable year; and
SEC. 247. General Provisions. -
(4) Withholding tax - Business establishment with withholding tax payment or The additions to the tax or deficiency tax prescribed in this Chapter shall
remittance of at least One million pesos (P1,000,000) for the preceding apply to all taxes, fees and charges imposed in this Code. The Amount so
taxable year. added to the tax shall be collected at the same time, in the same manner
and as part of the tax.
Provided, however, That the Secretary of Finance, upon recommendation of the
Commissioner, may modify or add to the above criteria for determining a large The following should have been paragraphs B & C under Section 251:
taxpayer after considering such factors as inflation, volume of business, wage and (b) If the withholding agent is the Government or any of its agencies, political
employment levels, and similar economic factors. subdivisions or instrumentalities, or a government-owned or controlled
corporation, the employee (such as accountant or treasurer) thereof
The penalties prescribed under Section 248 of this Code shall be imposed on any responsible for the withholding and remittance of the tax shall be
violation of the rules and regulations issued by the Secretary of Finance, upon personally liable for the additions to the tax prescribed herein.
recommendation of the Commissioner, prescribing the place of filing of returns and
payments of taxes by large taxpayers. (c) The term 'person', as used in this Chapter, includes an officer or employee
of a corporation who as such officer, or employee or member is under a
 The interpretation of the provisions of the Tax Code and other tax laws are duty to perform the act in respect of which the violation occurs.
made through the issuance of either what are known as “Revenue
Regulations” or “BIR Rulings.” Revenue regulations are the formal SEC. 248. Civil Penalties. -
interpretations by the Secretary of Finance upon the recommendation of (A) There shall be imposed, in addition to the tax required to be paid, a
the Commissioner while BIR rulings are less formal interpretations of penalty (surcharge) equivalent to twenty-five percent (25%) of the
provisions of tax laws and revenue regulations by the Commissioner. It is amount due, in the following cases:
essential that the procedure fixed for their promulgation is followed.
(1) Failure (unintended) to file any return and pay the tax due thereon as
 Requisites of validity of revenue regulations are: required under the provisions of this Code or rules and regulations on
1. Necessary to the proper enforcement of the law the date prescribed; or
2. Are not contrary to law and the Constitution
3. Must be published in the Official Gazette (2) Unless otherwise authorized by the Commissioner, filing a return with
an internal revenue officer other than those with whom the return is
SEC. 246. Non- Retroactivity of Rulings. - Any revocation, modification or reversal required to be filed; or
of any of the rules and regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the Commissioner shall

55
(3) Failure to pay the deficiency tax within the time period or date payment of tax in filing a false return (the false return becomes fraudulent
prescribed for its payment in the notice of assessment; or return).

(4) Failure to pay the full or part of the amount of tax shown on any SEC. 249. Interest. -
return required to be filed under the provisions of this Code or rules (A) In General. - There shall be assessed and collected on any unpaid amount
and regulations, or the full amount of tax due for which no return is of tax (basic because surcharge is not included in computing interest as a
required to be filed (deficiency tax assessed by the BIR), on or before rule), interest at the rate of twenty percent (20%) per annum, or such
the date prescribed in the notice of assessment for its payment. higher rate as may be prescribed by rules and regulations (this is an
example of undue delegation of legislative power because the maximum
(B) In case of willful neglect failure to file the return within the period rate that may be prescribed by the regulation is NOT fixed by law), from
prescribed by this Code or by rules and regulations, or in case a false or the date prescribed for payment until the amount is fully paid.
fraudulent return is willfully made, the penalty (surcharge) to be imposed
shall be fifty percent (50%) of the tax or of the deficiency tax, in case, any (B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined
payment has been made on the basis of such return before the discovery in this Code, shall be subject to the interest prescribed in Subsection (A)
of the falsity or fraud: Provided, That a substantial underdeclaration of hereof, which interest shall be assessed and collected from the date
taxable sales, receipts or income, or a substantial overstatement of prescribed for its payment until the full payment thereof.
deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of Finance, shall constitute (C) Delinquency Interest. - In case of failure to pay:
prima facie evidence of a false or fraudulent return: Provided, further, That (1) The amount of the tax due on any return to be filed, or
failure to report sales, receipts or income in an amount exceeding thirty (2) The amount of the tax due for which no return is required, or
percent (30%) of that declared per return, and a claim of deductions in an (3) A deficiency tax, or any surcharge or interest thereon on the due date
amount exceeding (30%) of actual deductions, shall render the taxpayer appearing in the notice and demand of the Commissioner, there shall
liable for substantial underdeclaration of sales, receipts or income or for be assessed and collected on the unpaid amount, interest at the rate
overstatement of deductions, as mentioned herein. prescribed in Subsection (A) hereof until the amount is fully paid,
which interest shall form part of the tax.
 Surcharge – is an overcharge or exaction imposed by law as addition to
the main tax required to be paid (D) Interest on Extended Payment. - If any person required to pay the tax is
o The imposition of surcharge is mandatory. The CIR has no qualified and elects to pay the tax on installment under the provisions of
authority to waive or dispense with the collection thereof. Even this Code, but fails to pay the tax or any installment hereof, or any part of
the good faith of the taxpayer in failing to pay the tax upon advice such amount or installment on or before the date prescribed for its
of counsel if not sufficient justification for seeking exemption from payment, or where the Commissioner has authorized an extension of time
the payment of surcharges. Bad faith is not essential of the within which to pay a tax or a deficiency tax or any part thereof, there shall
imposition of the 25% surcharge be assessed and collected interest at the rate hereinabove prescribed on
the tax or deficiency tax or any part thereof unpaid from the date of notice
 Basis of surcharge – “the penalty is equivalent to 25% of the amount and demand until it is paid.
due, “the tax due”, or “the tax shown on any return,” or “the deficiency
tax” assessed.  Delinquency is the failure of the taxpayer to pay the tax due on the date
fixed by law or indicated in the assessment notice or letter of demand. It is
 If the taxpayer filed his return on the date prescribed by law, but paid the to be distinguished from deficiency which is the amount still due and
tax due after said date, the penalty is 25%. If he field the return and paid collectible from a taxpayer upon audit or investigation or examination by
the tax after said date, the total penalty imposable is also 25%. Both the the BIR examiner.
failure to file return and the failure to pay the ax shown on such return is
considered as a single offense. But if, in addition, he field his return with  Deficiency interest – Under Subsection (B), where the taxpayer paid a
the wrong internal revenue officer, the total penalty to be imposed is 50%. tax of Php 10,000 and was assessed a deficiency tax of Php 4,000 with
50% penalty (or surcharge [Section 248, D]) for filing a fraudulent return,
 An example of a tax for which no return is required to be filed is deficiency if the deficiency is paid after 6 months from date prescribed by law for
tax assessed by the BIR payment of the tax, the total amount payable is computed as follows:

 It is not enough that the taxpayer failed to file the required tax return or
that the return is false to justify the imposition of the 50% surcharge for
fraud. It must appear that the taxpayer had an intention to evade the

56
Deficiency tax Php 4,000 supply any information required by this Code or by the Commissioner on the date
PLUS: 50% surcharge 2,000 prescribed therefor, unless it is shown that such failure is due to reasonable cause
Deficiency tax and surcharge Php 6,000 and not to willful neglect, there shall, upon notice and demand by the
Interest for 6 months Commisssioner, be paid by the person failing to file, keep or supply the same, One
(Php 4,000 x 20% x ½) 400 thousand pesos (1,000) for each failure: Provided, however, That the aggregate
Total amount payable Php 6,400 amount to be imposed for all such failures during a calendar year shall not exceed
Twenty-five thousand pesos (P25,000).
The basis of interest is Php 4,000 and not Php 6,000.
SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. –
 Delinquency interest in case of late filing and payment (a) Any person required to withhold, account for, and remit any tax imposed
Where the taxpayer filed his tax return and paid the tax due thereon in the by this Code or who willfully fails to withhold such tax, or account for and
amount of Php 10,000 6 months after the date prescribed by law, the total remit such tax, or aids or abets in any manner to evade any such tax or
amount payable is computed as follows: the payment thereof, shall, in addition to other penalties (surcharge and
interest) provided for under this Chapter, be liable upon conviction to a
Amount of tax due Php 10,000 penalty equal to the total amount of the tax not withheld, or not accounted
Interest for 6 months for and remitted.
(Php 10,000 x 20% x ½) 1,000
Surcharge for late filing and payment *to be followed by B & C from Section 247
(Php 10,000 x 25%) 2,500
Total amount payable Php 13,500 SEC. 252. Failure of a Withholding Agent to refund Excess Withholding Tax. - Any
employer/withholding agent who fails or refuses to refund excess withholding tax
Both failure to file return and the failure to pay the ax per such return shall, in addition to the penalties provided in this Title, be liable to a penalty to the
should be considered as a single offense for which only one 25% surcharge total amount of refunds which was not refunded to the employee resulting from any
may be assessed. excess of the amount withheld over the tax actually due on their return.

 Delinquency interest in case deficiency tax paid after notice and Chapter 2 – Crimes, Other Offenses and Forfeitures
demand
SEC. 253. General Provisions. -
Assuming that the taxpayer filed his tax return and paid tax on the (a) Any person convicted of a crime penalized by this Code shall, in addition to
prescribed date on April 15, and he received a notice (formal or final or being liable for the payment of the tax, be subject to the penalties imposed
official assessment notice) and demand for payment of Php 10,000 on June herein such as imprisonment and/or fine: Provided, That payment of the
15, to be paid on or before July 15. If the deficiency is paid on October 15, tax due after apprehension shall not constitute a valid defense in any
the total amount payable is computed as follows: prosecution for violation of any provision of this Code or in any action for
the forfeiture of untaxed articles.
Deficiency Tax Php 10,000
Interest for 3 months (4/16 – 7/15) (b) Any person who willfully aids or abets in the commission of a crime
(Php 10,000 x 20% x ¼) 500 penalized herein or who causes the commission of any such offense by
Surcharge (25% X Php 10,000) 2,500 another shall be liable in the same manner as the principal.
Basis of Interest Php 13,000
Interest for 3 months (7/16 – 10/15) (c) If the offender is not a citizen of the Philippines, he shall be deported
(Php 13,000 x 20% x ¼) 650 immediately after serving the sentence without further proceedings for
Total amount payable Php 13,500 deportation. If he is a public officer or employee, the maximum penalty
prescribed for the offense shall be imposed and, in addition, he shall be
The interest (7/16 – 10/15) in this case is based on the sum of the dismissed from the public service and perpetually disqualified from holding
deficiency tax, surcharge (for late payment), and interest up to July 15 any public office, to vote and to participate in any election. If the offender
because of the failure of the taxpayer to pay within the time shown in the is a Certified Public Accountant, his certificate as a Certified Public
notice and demand. Accountant shall, upon conviction, be automatically revoked or cancelled.

Example of a Charge (d) In the case of associations, partnerships or corporations, the penalty shall
SEC. 250. Failure to File Certain Information Returns. - In the case of each failure be imposed on the partner, president, general manager, branch manager,
to file an information return such as GPP, statement or list, or keep any record, or

57
treasurer, officer-in-charge, and the employees responsible for the thereunder to pay any tax make a return, keep any record, or supply correct the
violation. accurate information, who willfully fails to pay such tax, make such return, keep
such record, or supply correct and accurate information, or withhold or remit taxes
(e) The fines to be imposed for any violation of the provisions of this Code withheld, or refund excess taxes withheld on compensation, at the time or times
shall not be lower than the fines imposed herein or twice the amount of required by law or rules and regulations shall, in addition to other penalties provided
taxes, interest and surcharges due from the taxpayer, whichever is higher. by law, upon conviction thereof, be punished by a fine of not less than Ten thousand
(As added by RA No. 7642). pesos (P10,000) and suffer imprisonment of not less than one (1) year but not
more than ten (10) years.
SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in
any manner to evade or defeat any tax imposed under this Code or the payment Any person who attempts to make it appear for any reason that he or another has
thereof shall, in addition to other penalties provided by law, upon conviction in fact filed a return or statement, or actually files a return or statement and
thereof, be punished by a fine not less than Thirty thousand (P30,000) but not more subsequently withdraws the same return or statement after securing the official
than One hunderd thousand pesos (P100,000) and suffer imprisonment of not less receiving seal or stamp of receipt of internal revenue office wherein the same was
than two (2) years but not more than four (4) years: Provided, That the conviction actually filed shall, upon conviction therefor, be punished by a fine of not less than
or acquittal obtained under this Section shall not be a bar to the filing of a civil suit Ten thousand pesos (P10,000) but not more than Twenty thousand pesos (P20,000)
for the collection of taxes. and suffer imprisonment of not less than one (1) year but not more than three (3)
years.
 An assessment of a tax deficiency is not necessary to a criminal
prosecution for tax evasion. The crime if complete when the taxpayer has SEC. 256. Penal Liability of Corporations. - Any corporation, association or general
knowingly and willfully filed a fraudulent return with intent to evade and co-partnership liable for any of the acts or omissions penalized under this Code, in
defeat the tax. The perpetration of the crime is grounded upon knowledge addition to the penalties imposed herein upon the responsible corporate officers,
on the part of the taxpayer that he has made an inaccurate return and the partners, or employees shall, upon conviction for each act or omission, be punished
government‟s failure to discover the error and to promptly assess the same by a fine of not less than Fifty thousand pesos (P50,000) but not more than One
has no connection with the commission of the crime hundred thousand pesos (P100,000).

However, the SC qualified the Ungab ruling: “In plain words, for criminal SEC. 257. Penal Liability for Making False Entries, Records or Reports, or Using
prosecution to proceed before assessment, there must be a prima facie Falsified or Fake Accountable Forms. -
showing of willfull attempt to evade taxes. There was a willful attempt to (A) Any financial officer or independent Certified Public Accountant engaged to
evade tax in Ungab because of the taxpayer‟s failure to declare in his examine and audit books of accounts of taxpayers under Section 232 (A)
income tax return „his income derived from banana saplings.‟ In the mind and any person under his direction who:
of the trial court and the CTA, Fortune‟s situation is quite apart factually
since the registered wholesale price of the goods approved by the BIR is (1) Willfully falsifies any report or statement bearing on any examination
presumed to be the actual wholesale price, and therefore, not fraudulent or audit, or renders a report, including exhibits, statements, schedules
and unless and until the BIR has made final determination of what is or other forms of accountancy work which has not been verified by him
supposed to be the correct taxes, the taxpayer should not be placed in the personally or under his supervision or by a member of his firm or by a
crucible (severe test) of criminal prosecution member of his staff in accordance with sound auditing practices; or

While a precise computation and assessment is required for a civil action to (2) Certifies financial statements of a business enterprise containing an
collect a tax deficiency, the NIRC Sections 222 and 254 does not require essential misstatement of facts or omission in respect of the
such computation and assessment prior to criminal prosecution for transactions, taxable income, deduction and exemption of his client; or
fraudulent tax evasion. In case at bar, the complaints filed before the DOJ
for investigation charge private respondents with fraudulent concealment (B) Any person who:
of the actual wholesale price of products sold through declaration of
registered wholesale prices lower than the actual wholesale prices, (1) Not being an independent Certified Public Accountant according to
resulting in underpayment of income, ad valorem and value-added taxes. Section 232(B) or a financial officer, examines and audits books of
Both cases involve, therefore, fraudulent schemes to evade payment to the accounts of taxpayers; or
Government of correct taxes.
(2) Offers to sign and certify financial statements without audit; or
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any (3) Offers any taxpayer the use of accounting bookkeeping records for
person required under this Code or by rules and regulations promulgated internal revenue purposes not in conformity with the requirements

58
prescribed in this Code or rules and regulations promulgated more than Fifty thousand pesos (P50,000) and suffer imprisonment of not less than
thereunder; or one (1) year but not more than two (2) years.

(4) Knowingly makes any false entry or enters any false or fictitious name SEC. 260. Unlawful Possession of Cigarette Paper in Bobbins or Rolls, Etc. - It shall
in the books of accounts or record mentioned in the preceding be unlawful for any person to have in his possession cigarette paper in bobbins or
paragraphs; or rolls, cigarette tipping paper or cigarette filter tips, without the corresponding
authority therefor issued by the Commissioner. Any person, importer, manufacturer
(5) Keeps two (2) or more sets of such records or books of accounts; or of cigar and cigarettes, who has been found guilty under this Section, shall, upon
conviction for each act or omission, be punished by a fine of not less than Twenty
(6) In any way commits an act or omission, in violation of the provisions thousand pesos (P20,000) but not more than One hundred thousand pesos
of this Section; or (P1000,000) and suffer imprisonment for a term of not less than six (6) years and
one (1) day but not more than twelve (12) years.
(7) Fails to keep the books of accounts or records mentioned in Section
232 in a native language, English or Spanish, or to make a true and SEC. 261. Unlawful Use of Denatured Alcohol. - Any person who for the purpose of
complete translation as required in Section 234 of this Code, or whose manufacturing any beverage, uses denatured alcohol or alcohol specially denatured
books of accounts or records kept in a native language, English or to be used for motive power or withdrawn under bond for industrial uses or alcohol
Spanish, and found to be at material variance with books or records knowingly misrepresented to be denatured to be unfit for oral intake or who
kept by him in another language; or knowingly sells or offers for sale any beverage made in whole or in part from such
alcohol or who uses such alcohol for the manufacture of liquid medicinal
(8) Willfully attempts in any manner to evade or defeat any tax imposed preparations taken internally, or knowingly sells or offers for sale such preparations
under this Code, or knowingly uses fake or falsified revenue official containing as an ingredient such alcohol, shall upon conviction for each act or
receipts, Letters of Authority, certificates authorizing registration, Tax omission be punished by a fine of not less than Twenty thousand pesos (P20,000)
Credit Certificates, Tax Debit Memoranda and other accountable forms but not more than One hundred thousand pesos (P100,000) and suffer
shall, upon conviction for each act or omission, be punished by a fine imprisonment for a term of not less than six (6) years and one (1) day but not more
not less than Fifty thousand pesos (P50,000) but not more than One than twelve (12) years.
hundred pesos (P100,000) and suffer imprisonment of not less than
two (2) years but not more than six (6) years. Any person who shall unlawfully recover or attempt to recover by distillation or
other process any denatured alcohol or who knowingly sells or offers for sale,
If the offender is a Certified Public Accountant, his certificate as a Certified Public conceals or otherwise disposes of alcohol so recovered or redistilled shall be subject
Accountant shall be automatically revoked or cancelled upon conviction. to the same penalties imposed under this Section.

In the case of foreigners, conviction under this Code shall result in his immediate SEC. 262. Shipment or Removal of Liquor or Tobacco Products under False Name or
deportation after serving sentence, without further proceedings for deportation. Brand or as an Imitation of any Existing or Otherwise Known Product Name or
Brand. - Any person who ships, transports or removes spirituous, compounded or
SEC. 258. Unlawful Pursuit of Business. - Any person who carries on any business fermented liquors, wines or any manufactured products of tobacco under any other
for which an annual registration fee is imposed without paying the tax as required than the proper name or brand known to the trade as designating the kind and
by law shall, upon conviction for each act or omission, be punished by a fine of not quality of the contents of the cask, bottle or package containing the same or as an
less than Five thousand pesos (P5,000) but not more than Twenty thousand pesos imitation of any existing or otherwise known product name or brand or causes such
(P20,000) and suffer imprisonment of not less than six (6) months but not more act to be done, shall, upon conviction for each act or omission, be punished by a
than two (2) years: Provided, That in the case of a person engaged in the business fine of not less than Twenty thousand pesos (P20,000) but not more than One
of distilling, rectifying, repacking, compounding or manufacturing any article subject hundred thousand pesos (P1000,000) and suffer imprisonment of not less than six
to excise tax, he shall, upon conviction for each act or omission, be punished by a (6) years and one (1) day but not more than twelve (12) years.
fine of not less than Thirty thousand pesos (P30,000) but not more than Fifty
thousand pesos (P50,000) and suffer imprisonment of not less than two (2) years SEC. 263. Unlawful Possession or Removal of Articles Subject to Excise Tax without
but not more than four (4) years. Payment of the Tax. - Any person who owns and/or is found in possession of
imported articles subject to excise tax, the tax on which has not been paid in
SEC. 259. Illegal Collection of Foreign Payments. - Any person who knowingly accordance with law, or any person who owns and/or is found in possession of
undertakes the collection of foreign payments as provided under Section 67 of this imported tax-exempt articles other than those to whom they are legally issued shall
Code without having obtained a license therefor, or without complying with its be punished by:
implementing rules and regulations, shall, upon conviction for each act or omission, (a) A fine of not less than One thousand pesos (P1,000) nor more than Two
be punished by a fine of not less than Twenty thousand pesos (P20,000) but not thousand pesos (P2,000) and suffer imprisonment of not less than sixty

59
(60) days but not more than one hundred (100) days, if the appraised (a) Any person who, being required under Section 237 to issue receipts or
value, to be determined in the manner prescribed in the Tariff and Customs sales or commercial invoices, fails or refuses to issue such receipts of
Code, including duties and taxes, of the articles does not exceed One invoices, issues receipts or invoices that do not truly reflect and/or contain
thousand pesos (P1,000). all the information required to be shown therein, or uses multiple or double
receipts or invoices, shall, upon conviction for each act or omission, be
(b) A fine of not less than Ten thousand pesos (P10,000) but not more than punished by a fine of not less than One thousand pesos (P1,000) but not
Twenty thousand pesos (P20,000) and suffer imprisonment of not less than more than Fifty thousand pesos (P50,000) and suffer imprisonment of not
two (2) years but not more than four (4) years, if the appraised value, to less than two (2) years but not more than four (4) years.
be determined in the manner prescribed in the Tariff and Customs Code,
including duties and taxes, of the articles exceeds One thousand pesos (b) Any person who commits any of the acts enumerated hereunder shall be
(P1,000) but does not exceed Fifty thousand pesos (P50,000); penalized in the same manner and to the same extent as provided for in
this Section:
(c) A fine of not less than Thirty thousand pesos (P30,000) but not more than
Sixty thousand pesos (P60,000) and suffer imprisonment of not less than (1) Printing of receipts or sales or commercial invoices without authority
four (4) years but not more than six (6) years, if the appraised value, to be from the Bureau of Internal Revenue; or
determined in the manner prescribed in the Tariff and Customs Code, (2) Printing of double or multiple sets of invoices or receipts; or
including duties and taxes of the articles is more than Fifty thousand pesos (3) Printing of unnumbered receipts or sales or commercial invoices, not
(P50,000) but does not exceed One hundred fifty thousand pesos bearing the name, business style, Taxpayer Identification Number, and
(P150,000); or business address of the person or entity.

(d) A fine of not less than Fifty thousand pesos (P50,000) but not more than SEC. 265. Offenses Relating to Stamps. - Any person who commits any of the acts
One hundred thousand pesos (P100,000) and suffer imprisonment of not enumerated hereunder shall, upon conviction thereof, be punished by a fine of not
less than ten (10) years but not more than twelve (12) years, if the less than Twenty thousand pesos (P20,000) but not more than Fifty thousand pesos
appraised value, to be determined in the manner prescribed in the Tariff (P50,000) and suffer imprisonment of not less than four (4) years but not more
and Customs Code, including duties and taxes, of the articles exceeds One than eight (8) years:
hundred fifty thousand pesos (P150,000). (a) making, importing, selling, using or possessing without express authority
from the Commissioner, any die for printing or making stamps, labels, tags
Any person who is found in possession of locally manufactured articles subject to or playing cards;
excise tax, the tax on which has not been paid in accordance with law, or any
person who is found in possession of such articles which are exempt from excise tax (b) Erasing the cancellation marks of any stamp previously used, or altering
other than those to whom the same is lawfully issued shall be punished with a fine the written figures or letters or cancellation marks on internal revenue
of not less than (10) times the amount of excise tax due on the articles found but stamps;
not less than Five hundred pesos (P500) and suffer imprisonment of not less than
two (2) years but not more than four (4) years. (c) Possessing false, counterfeit, restored or altered stamps, labels or tags or
causing the commission of any such offense by another;
Any manufacturer, owner or person in charge of any article subject to excise tax
who removes or allows or causes the unlawful removal of any such articles from the (d) Selling or offering for sale any box or package containing articles subject to
place of production or bonded warehouse, upon which the excise tax has not been excise tax with false, spurious or counterfeit stamps or labels or selling
paid at the time and in the manner required, and any person who knowingly aids or from any such fraudulent box, package or container as aforementioned; or
abets in the removal of such articles as aforesaid, or conceals the same after illegal
removal shall, for the first offense, be punished with a fine of not less than ten (10) (e) Giving away or accepting from another, or selling, buying or using
times the amount of excise tax due on the articles but not less than One thousand containers on which the stamps are not completely destroyed.
pesos (P1,000) and suffer imprisonment of not less than one (1) year but not more
than two (2) years. SEC. 266. Failure to Obey Summons. - Any person who, being duly summoned to
appear to testify, or to appear and produce books of accounts, records, memoranda
The mere unexplained possession of articles subject to excise tax, the tax on which or other papers, or to furnish information as required under the pertinent provisions
has not been paid in accordance with law, shall be punishable under this Section. of this Code, neglects to appear or to produce such books of accounts, records,
memoranda or other papers, or to furnish such information, shall, upon conviction,
SEC. 264. Failure or refusal to Issue Receipts or Sales or Commercial Invoices, be punished by a fine of not less than Five thousand pesos (P5,000) but not more
Violations related to the Printing of such Receipts or Invoices and Other Violations. - than ten thousand pesos (P10,000) and suffer imprisonment of not less than one
(1) year but not more than two (2) years.

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(c) Willfully neglecting to give receipts, as by law required, for any sum
SEC. 267. Declaration under Penalties of Perjury. - Any declaration, return and collected in the performance of duty or willfully neglecting to perform any
other statement required under this Code, shall, in lieu of an oath, contain a written other duties enjoined by law;
statement that they are made under the penalties of perjury. Any person who
willfully files a declaration, return or statement containing information which is not (d) Offering or undertaking to accomplish, file or submit a report or
true and correct as to every material matter shall, upon conviction, be subject to assessment on a taxpayer without the appropriate examination of the
the penalties prescribed for perjury under the Revised Penal Code. books of accounts or tax liability, or offering or undertaking to submit a
report or assessment less than the amount due the Government for any
SEC. 268. Other Crimes and Offenses. - consideration or compensation, or conspiring or colluding with another or
(A) Misdeclaration or Misrepresentation of Manufacturers Subject to Excise Tax. others to defraud the revenues or otherwise violate the provisions of this
- Any manufacturer who, in violation of the provisions of Title VI of this Code;
Code, misdeclares in the sworn statement required therein or in the sales
invoice, any pertinent data or information shall be punished by a summary (e) Neglecting or by design permitting the violation of the law by any other
cancellation or withdrawal of the permit to engage in business as a person;
manufacturer of articles subject to excise tax.
(f) Making or signing any false entry or entries in any book, or making or
(B) Forfeiture of Property Used in Unlicensed Business or Dies Used for Printing signing any false certificate or return;
False Stamps, Etc. - All chattels, machinery, and removable fixtures of any
sort used in the unlicensed production of articles subject to excise tax shall (g) Allowing or conspiring or colluding with another to allow the unauthorized
be forfeited. Dies and other equipment used for the printing or making of retrieval, withdrawal or recall of any return, statement or declaration after
any internal revenue stamp, label or tag which is in imitation of or purports the same has been officially received by the Bureau of Internal Revenue;
to be a lawful stamp, label or tag shall also be forfeited.
(h) Having knowledge or information of any violation of this Code or of any
(C) Forfeiture of Goods Illegally Stored or Removed. - Unless otherwise fraud committed on the revenues collectible by the Bureau of Internal
specifically authorized by the Commissioner, all articles subject to excise Revenue, failure to report such knowledge or information to their superior
tax should not be stored or allowed to remain in the distillery warehouse, officer, or failure to report as otherwise required by law; and
bonded warehouse or other place where made, after the tax thereon has
been paid; otherwise, all such articles shall be forfeited. Articles withdrawn (i) Without the authority of law, demanding or accepting or attempting to
from any such place or from customs custody or imported into the country collect, directly or indirectly, as payment or otherwise any sum of money
without the payment of the required tax shall likewise be forfeited. or other thing of value for the compromise, adjustment or settlement of
any charge or complaint for any violation or alleged violation of this Code.
Chapter 3 – Penalties Imposed on Public Officers
Provided, That the provisions of the foregoing paragraph notwithstanding, any
SEC. 269. Violations Committed by Government Enforcement Officers. - Every internal revenue officer for which a prima facie case of grave misconduct has been
official, agent, or employee of the Bureau of Internal Revenue or any other agency established shall, after due notice and hearing of the administrative case and
of the Government charged with the enforcement of the provisions of this Code, subject to Civil Service Laws, be dismissed from the revenue service: Provided,
who is guilty of any of the offenses herein below specified shall, upon conviction for further, That the term 'grave misconduct', as defined in Civil Service Law, shall
each act or omission, be punished by a fine of not less than Fifty thousand pesos include the issuance of fake letters of authority and receipts, forgery of signature,
(P50,000) but not more than One hundred thousand pesos (P100,000) and suffer unsurpation of authority and habitual issuance of unreasonable assessments.
imprisonment of not less than ten (10) years but not more than fifteen (15) years
and shall likewise suffer an additional penalty of perpetual disqualification to hold SEC. 270. Unlawful Divulgence of Trade Secrets. - Except as provided in Section 71
public office, to vote, and to participate in any public election: of this Code and Section 26 of Republic Act No. 6388, any officer or employee of the
(a) Extortion or willful oppression through the use of his office or willful Bureau of Internal Revenue who divulges to any person or makes known in any
oppression and harassment of a taxpayer who refused, declined, turned other manner than may be provided by law information regarding the business,
down or rejected any of his offers specified in paragraph (d) hereof; income or estate of any taxpayer, the secrets, operation, style or work, or
apparatus of any manufacturer or producer, or confidential information regarding
(b) Knowingly demanding or receiving any fee, other or greater sums that are the business of any taxpayer, knowledge of which was acquired by him in the
authorized by law or receiving any fee, compensation or reward, except as discharge of his official duties, shall upon conviction for each act or omission, be
by law prescribed, for the performance of any duty; punished by a fine of not less than Fifty thousand pesos (P50,000) but not more
than One hundred thousand pesos (P100,000), or suffer imprisonment of not less
than two (2) years but not more than five (5) years, or both.

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SEC. 271. Unlawful Interest of Revenue Law Enforcers in Business. - Any internal SEC. 276. Penalty for Selling, Transferring, Encumbering or in any way Disposing of
revenue officer who is or shall become interested, directly or indirectly, in the Property Placed under Constructive Distraint. - Any taxpayer, whose property has
manufacture, sale or importation of any article subject to excise tax under Title VI been placed under constructive distraint, who sells, transfers, encumbers or in any
of this Code or in the manufacture or repair or sale, of any die for printing, or way disposes of said property, or any part thereof, without the knowledge and
making of stamps, or labels shall upon conviction for each act or omission, be consent of the Commissioner, shall, upon conviction for each act or omission, be
punished by a fine of not less than Five thousand pesos (P5,000) but not more than punished by a fine of not less than twice the value of the property so sold,
Ten thousand pesos (P10,000), or suffer imprisonment of not less than two (2) encumbered or disposed of but not less than Five Thousand pesos (P5,000), or
years and one (1) day but not more than four (4) years, or both. suffer imprisonment of not less than two (2) years and one (1) day but not more
than four (4) years, of both.
SEC. 272. Violation of Withholding Tax Provision. - Every officer or employee of the
Government of the Republic of the Philippines or any of its agencies and SEC. 277. Failure to Surrender Property Placed under Distraint and Levy. - Any
instrumentalities, its political subdivisions, as well as government-owned or person having in his possession or under his control any property or rights to
controlled corporations, including the Bangko Sentral ng Pilipinas (BSP), who, under property, upon which a warrant of constructive distraint, or actual distraint and levy
the provisions of this Code or rules and regulations promulgated thereunder, is has been issued shall, upon demand by the Commissioner or any of his deputies
charged with the duty to deduct and withhold any internal revenue tax and to remit executing such warrant, surrender such property or right to property to the
the same in accordance with the provisions of this Code and other laws is guilty of Commissioner or any of his deputies, unless such property or right is, at the time of
any offense herein below specified shall, upon conviction for each act or omission be such demand, subject to an attachment or execution under any judicial process.
punished by a fine of not less than Five thousand pesos (P5,000) but not more than Any person who fails or refuses to surrender any of such property or right shall be
Fifty thousand pesos (P50,000) or suffer imprisonment of not less than six (6) liable in his own person and estate to the Government in a sum equal to the value
months and one (1) day but not more than two (2) years, or both: of the property or rights not so surrendered but not exceeding the amount of the
(a) Failing or causing the failure to deduct and withhold any internal revenue taxes (including penalties and interest) for the collection of which such warrant had
tax under any of the withholding tax laws and implementing rules and been issued, together with cost and interest if any, from the date of such warrant.
regulations; In addition, such person shall, upon conviction for each act or omission, be
punished by a fine of not less than Five thousand pesos (P5,000), or suffer
(b) Failing or causing the failure to remit taxes deducted and withheld within imprisonment of not less than six (6) months and one (1) day but not more than
the time prescribed by law, and implementing rules and regulations; and two (2) years, or both.

(c) Failing or causing the failure to file return or statement within the time SEC. 278. Procuring Unlawful Divulgence of Trade Secrets. - Any person who
prescribed, or rendering or furnishing a false or fraudulent return or causes or procures an officer or employee of the Bureau of Internal Revenue to
statement required under the withholding tax laws and rules and divulge any confidential information regarding the business, income or inheritance
regulations. of any taxpayer, knowledge of which was acquired by him in the discharge of his
official duties, and which it is unlawful for him to reveal, and any person who
SEC. 273. Penalty for Failure to Issue and Execute Warrant. - Any official who fails publishes or prints in any manner whatever, not provided by law, any income,
to issue or execute the warrant of distraint or levy within thirty (30) days after the profit, loss or expenditure appearing in any income tax return, shall be punished by
expiration of the time prescribed in Section 207 or who is found guilty of abusing a fine of not more than Two thousand pesos (P2,000), or suffer imprisonment of not
the exercise thereof by competent authority shall be automatically dismissed from less than six (6) months nor more than five (5) years, or both.
the service after due notice and hearing.
SEC. 279. Confiscation and Forfeiture of the Proceeds or Instruments of Crime. - In
Chapter 4 – Other Penal Provisions addition to the penalty Imposed for the violation of the provisions of Title X of this
Code, the same shall carry with it the confiscation and forfeiture in favor of the
SEC. 274. Penalty for Second and Subsequent Offenses. - In the case of government of the proceeds of the crime or value of the goods, and the instruments
reincidence, the maximum of the penalty prescribed for the offense shall be or tools with which the crime was committed: Provided, however, That if in the
imposed. course of the proceedings, it is established that the instruments or tools used in the
illicit act belong to a third person, the same shall be confiscated and forfeited after
SEC. 275. Violation of Other Provisions of this Code or Rules and Regulations in due notice and hearing in a separate proceeding in favor of the Government if such
General. - Any person who violates any provision of this Code or any rule or third person leased, let, chartered or otherwise entrusted the same to the offender:
regulation promulgated by the Department of Finance, for which no specific penalty Provided, further, That in case the lessee subleased, or the borrower, charterer, or
is provided by law, shall, upon conviction for each act or omission, be punished by a trustee allowed the use of the instruments or tools to the offender, such
fine of not more than One thousand pesos (P1,000) or suffer imprisonment of not instruments or tools shall, likewise, be confiscated and forfeited: Provided, finally,
more than six (6) months, or both. That property of common carriers shall not be subject to forfeiture when used in the

62
transaction of their business as such common carrier, unless the owner or operator and regulations issued by the Secretary of Finance, upon recommendation
of said common carrier was, at the time of the illegal act, a consenting party or of the Commissioner.
privy thereto, without prejudice to the owner's right of recovery against the offender
in a civil or criminal action. Articles which are not subject of lawful commerce shall (B) For Discovery and Seizure of Smuggled Goods. To encourage the public to
be destroyed. extend full cooperation in eradicating smuggling, a cash reward equivalent
to ten percent (10%) of the fair market value of the smuggled and
SEC. 280. Subsidiary Penalty. - If the person convicted for violation of any of the confiscated goods or One Million Pesos (P1,000,000) per case, whichever
provisions of this Code has no property with which to meet the fine imposed upon is lower, shall be given to persons instrumental in the discovery and
him by the court, or is unable to pay such fine, he shall be subject to a subsidiary seizure of such smuggled goods.
personal liability at the rate of one (1) day for each Eight pesos and fifty centavos
(P8.50) subject to the rules established in Article 39 of the Revised Penal Code. The cash rewards of informers shall be subject to income tax, collected as a final
withholding tax, at a rate of ten percent (10%).
SEC. 281. Prescription for Violations of any Provision of this Code. - All violations of
any provision of this Code shall prescribe after five (5) years. The Provisions of the foregoing Subsections notwithstanding, all public officials,
whether incumbent or retired, who acquired the information in the course of the
Prescription shall begin to run from the day of the commission of the violation of the performance of their duties during their incumbency, are prohibited from claiming
law, and if the same be not known at the time, from the discovery thereof and the informer's reward.
institution of judicial proceedings for its investigation and punishment.
TITLE 11
The prescription shall be interrupted when proceedings are instituted against the
Allotment of Internal Revenue
guilty persons and shall begin to run again if the proceedings are dismissed for
reasons not constituting jeopardy.
Chapter 1 – Disposition and Allotment of National Internal Revenue
The term of prescription shall not run when the offender is absent from the in General
Philippines.
SEC. 283. Disposition of National Internal Revenue. - National Internal revenue
[BAR!] SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of collected and not applied as herein above provided or otherwise specially disposed
Violations of the National Internal Revenue Code and in the Discovery and Seizure of by law shall accrue to the National Treasury and shall be available for the general
of Smuggled Goods. – purposes of the Government, with the exception of the amounts set apart by way of
allotment as provided for under Republic Act No. 7160, otherwise known as the
(A) For Violations of the National Internal Revenue Code. Any person, except Local Government Code of 1991.
an internal revenue official or employee, or other public official or
employee, or his relative within the sixth degree of consanguinity, who In addition to the internal revenue allotment as provided for in the preceding
voluntarily gives definite and sworn information, not yet in the possession paragraph, fifty percent (50%) of the national taxes collected under Sections 106,
of the Bureau of Internal Revenue, leading to the discovery of frauds upon 108 and 116 of this Code in excess of the increase in collections for the immediately
the internal revenue laws or violations of any of the provisions thereof, preceding year shall be distributed as follows:
thereby resulting in the recovery of revenues, surcharges and fees and/or (a) Twenty percent (20%) shall accrue to the city or municipality where such
the conviction of the guilty party and/or the imposition of any of the fine or taxes are collected and shall be allocated in accordance with Section 150 of
penalty, shall be rewarded in a sum equivalent to ten percent (10%) of Republic Act No. 7160, otherwise known as the Local Government Code of
the revenues, surcharges or fees recovered and/or fine or penalty imposed 1991; and
and collected or One Million Pesos (P1,000,000) per case, whichever is
lower. The same amount of reward shall also be given to an informer (b) Eighty percent (80%) shall accrue to the National Government.
where the offender has offered to compromise the violation of law
committed by him and his offer has been accepted by the Commissioner SEC. 284. Allotment for the Commission on Audit. - One-half of one percent (1/2 of
and collected from the offender: Provided, That should no revenue, 1%) of the collections from the national internal revenue taxes not otherwise
surcharges or fees be actually recovered or collected, such person shall not accruing to special accounts in the general fund of the national government shall
be entitled to a reward: Provided, further, That the information mentioned accrue to the Commission on Audit as a fee for auditing services rendered to local
herein shall not refer to a case already pending or previously investigated government units, excluding maintenance, equipment, and other operating
or examined by the Commissioner or any of his deputies, agents or expenses as provided for in Section 21 of Presidential Decree No. 898.
examiners, or the Secretary of Finance or any of his deputies or agents:
Provided, finally, That the reward provided herein shall be paid under rules

63
The Secretary of Finance is hereby authorized to deduct from the monthly internal wealth based on the following formula, whichever will produce a higher
revenue tax collections an amount equivalent to the percentage as herein fixed, and share for the local government unit:
to remit the same directly to the Commission on Audit under such rules and (1) One percent (1%) of the gross sales or receipts of the preceding
regulations as may be promulgated by the Secretary of Finance and the Chairman calendar year, or
of the Commission on Audit.
(2) Forty percent (40%) of the excise taxes on mineral products, royalties,
SEC. 285. Allotment for the Bureau of Internal Revenue. - An amount equivalent to and such other taxes, fees or charges, including related surcharges,
five percent (5%) of the excess of actual collections of national internal revenue interests or fines the government agency or government-owned or -
taxes over the collection goal shall accrue to the special fund of the Bureau of controlled corporations would have paid if it were not otherwise
Internal Revenue and shall be treated as receipts automatically appropriated. Said exempt.
amount shall be utilized as incentive bonus for revenue personnel, purchase of (C) Allocation of Shares. - The share in the preceding Section shall be
necessary equipment and facilities for the improvement of tax administration, as distributed in the following manner:
approved by the Commissioner: Provided, That the President may, upon
recommendation of the Commissioner, direct that the excess be credited to a (1) Where the natural resources are located in the province:
Special Account in the National Treasury to be held in the reserve available for
distribution as incentive bonus in the subsequent years. (a) Province - twenty percent (20%)
(b) Component city/municipality - forty-five percent (45%); and
The Secretary of Finance is hereby authorized to transfer from the Treasury an (c) Barangay - thirty-five percent (35%)
amount equivalent to the percentage as herein fixed and to remit the same directly
to the Bureau of Internal Revenue under such rules and regulations as may be Provided, however, That where the natural resources are located in
promulgated by the Secretary of Finance. two (2) or more cities, the allocation of shares shall be based on the
formula on population and land area as specified in subsection (C)(1)
Chapter 2 – Special Disposition of Certain National Internal hereof.
Revenue Taxes
(2) Where the natural resources are located in a highly urbanized or
independent component city:
SEC. 286. Disposition of Proceeds of insurance Premium Tax. - Twenty-five percent
(25%) of the premium tax collected under Section 123 of this Code shall accrue to
(a) City - sixty - five percent (65%); and
the Insurance Fund as contemplated in Section 418 of Presidential Decree No. 612
(b) Barangay - thirty - five percent (35%)
which shall be used for the purpose of defraying the expenses of the Insurance
Commission. The Commissioner shall turn over and deliver the said Insurance Fund
Provided, however, That where the natural resources are located in
to the Insurance Commissioner as soon as the collection is made.
two (2) or more cities, the allocation of shares shall be based on the
formula on population and land area as specified in subsection (c)(1)
SEC. 287. Shares of Local Government Units in the Proceeds from the Development
hereof.
and Utilization of the National Wealth. - Local Government units shall have an
equitable share in the proceeds derived from the utilization and development of the
SEC. 288. Disposition of Incremental Revenues. -
national wealth, within their respective areas, including sharing the same with the
(A) Incremental Revenues from Republic Act No. 7660. - The incremental
inhabitants by way of direct benefits.
revenues from the increase in the documentary stamp taxes under R.A.
(A) Amount of Share of Local Government Units. - Local government units
No. 7660 shall be set aside for the following purposes:
shall, in addition to the internal revenue allotment, have a share of forty
percent (40%) of the gross collection derived by the national government
(1) In 1994 and 1995, twenty-five percent (25%) thereof respectively,
from the preceding fiscal year from excise taxes on mineral products,
shall accrue to the Unified Home-Lending Program under Executive
royalties, and such other taxes, fees or charges, including related
Order No. 90 particularly for mass-socialized housing program to be
surcharges, interests or fines, and from its share in any co-production,
allocated as follows: fifty percent (50%) for mass-socialized housing;
joint venture or production sharing agreement in the utilization and
thirty percent (30%) for the community mortgage program; and
development of the national wealth within their territorial jurisdiction.
twenty percent (20%) for land banking and development to be
administered by the National Housing Authority: Provided, That not
(B) Share of the Local Governments from Any Government Agency or
more than one percent (1%) of the respective allocations hereof shall
Government-owned or - Controlled Corporation. - Local Government Units
be used for administrative expenses;
shall have a share, based on the preceding fiscal year, from the proceeds
derived by any government agency or government-owned or controlled
corporation engaged in the utilization and development of the national
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(2) In 1996, twenty-five percent (25%) thereof to be utilized for the (1) Two and a half percent (2.5%) of the incremental revenue from the
National Health Insurance Program that hereafter may be mandated excise tax on alcohol and tobacco products starting January 2005 shall
by law; be remitted directly to the Philippine Health Insurance Corporation for
the purpose of meeting and sustaining the goal of universal coverage
(3) In 1994 and every year thereafter, twenty-five percent (25%) thereof of the National Health Insurance Program; and
shall accrue to a Special Education Fund to be administered by the
Department of Education, Culture and Sports for the construction and (2) Two and a half percent (2.5%) of the incremental revenue from the
repair of school facilities, training of teachers, and procurement or excise tax on alcohol and tobacco products starting January 2005 shall
production of instructional materials and teaching aids; and he credited to the account of the Department of Health and constituted
as a trust fund for its disease prevention program.
(4) In 1994 and every year thereafter, fifty percent (50%) thereof shall
accrue to a Special Infrastructure Fund for the construction and repair The earmarking provided under this provision shall be observed for five (5)
of roads, bridges, dams and irrigation, seaports and hydroelectric and years starting from January 2005."
other indigenous power projects: Provided, however, That for the
years 1994 and 1995, thirty percent (30%), and for the years 1996, (D) Incremental Revenue from the Value-added Tax. - Fifty percent (50%) of
1997 and 1998, twenty percent (20%), of this fund-shall be allocated the local government unit's share from the incremental revenue from the
for depressed provinces as declared by the President as of the time of value-added tax shall be allocated and used exclusively for the following
the effectivity of R.A. No. 7660: Provided, further, That availments purposes:
under this fund shall be determined by the President on the basis of
equity. 1. Fifteen percent (15%) for public elementary and secondary education,
to finance the construction of buildings, purchases of school furniture
Provided, finally, That in paragraphs (2), (3) and (4) of this Section, not and in-service teacher trainings;
more than one percent (1%) of the allocated funds thereof shall be used
for administrative expenses by the implementing agencies. 2. Ten percent (10%) for health insurance premiums of enrolled indigents
as a counterpart contribution of the local government to sustain the
(B) Incremental Revenues from Republic Act No. 8240. - Fifteen percent (15%) universal coverage of the national health insurance program;
of the incremental revenue collected from the excise tax on tobacco
products under R.A. No. 8240 shall be allocated and divided among the 3. Fifteen percent (15%) for environmental conservation to fully
provinces producing burley and native tobacco in accordance with the implement a comprehensive national reforestation program; and
vo1ume of tobacco leaf production. The fund shall be exclusively utilized
for programs in pursuit of the following objectives: 4. Ten percent (10%) for agricultural modernization to finance the
construction of farm-to-market roads and irrigation facilities.
(1) Cooperative projects that will enhance better quality of agricultural
products and increase income and productivity of farmers; Such allocations shall be segregated as separate trust funds by the
National Treasury and shall be over and above the annual appropriation for
(2) Livelihood projects, particularly the development of alternative farming similar purposes.
system to enhance farmer's income; and
(E) The amount of fifteen million pesos (P15,000,000) shall be allocated for a
(3) Agro-industrial projects that will enable tobacco farmers to be involved public information and education program to be administered by the
in the management and subsequent ownership of projects, such as Bureau of Internal Revenue, explaining clearly to businesses their
post-harvest and secondary processing like cigarette manufacturing registration, invoicing and reporting requirements under the Value-added
and by-product utilization. tax rules. Such program should include seminars and visits to taxpayers to
familiarize them with the tax, and the development and publication of
The Department of Budget and Management, in consultation with the easy-to-read guides on the Value-added Tax.
Oversight Committee created under said R.A. No. 8240, shall issue the
corresponding rules and regulations governing the allocation and SEC. 289. Special Financial Support to Beneficiary Provinces Producing Virginia
disbursement of this fund. Tobacco. - The financial support given by the National Government for the
beneficiary provinces shall be constituted and collected from the proceeds of fifteen
(C) Incremental Revenues from the Excise Tax on Alcohol and Tobacco percent (15%) of the excise taxes on locally manufactured Virginia-type of
Products. – cigarettes.

65
The funds allotted shall be divided among the beneficiary provinces pro-rata In furtherance of the hereinabove cited objectives, the Committee is empowered to
according to the volume of Virginia tobacco production. require of the Bureau of Internal Revenue, submission of all pertinent information,
including but not limited to: industry audits; collection performance data; status
Production producing Virginia tobacco shall be the beneficiary provinces under report on criminal actions initiated against persons; and submission of taxpayer
Republic Act No. 7171. Provided, however, that to qualify as beneficiary under R.A. returns: Provided, however, That any return or return information which can be
No. 7171, a province must have an average annual production of Virginia leaf associated with, or otherwise identify, directly or indirectly, a particular taxpayer
tobacco in an amount not less than one million kilos: Provided, further, that the shall be furnished the Committee only when sitting in Executive Session unless such
Department of Budget and Management (DBM) shall each year determine the taxpayer otherwise consents in writing to such disclosure
beneficiary provinces and their computed share of the funds under R.A. No. 7171,
referring to the National Tobacco Administration (NTA) records of tobacco
acceptances, at the tobacco trading centers for the immediate past year.

The Secretary of Budget and Management is hereby directed to retain annually the
said funds equivalent to fifteen percent (15%) of excise taxes on locally
manufactured Virginia type cigarettes to be remitted to the beneficiary provinces
qualified under R.A. No. 7171.

The provision of existing laws to the contrary notwithstanding, the fifteen percent
(15%) share from government revenues mentioned in R.A. No. 7171 and due to the
Virginia tobacco-producing provinces shall be directly remitted to the provinces
concerned.

Provided, That this Section shall be implemented in accordance with the guidelines
of Memorandum Circular No. 61-A dated November 28, 1993, which amended
Memorandum Circular No. 61, entitled "Prescribing Guidelines for Implementing
Republic Act No. 7171", dated January 1, 1992.

Provided, further, That in addition to the local government units mentioned in the
above circular, the concerned officials in the province shall be consulted as regards
the identification of projects to be financed.

TITLE 12
Oversight Committee

SEC. 290. Congressional Oversight Committee. -


A Congressional Oversight Committee, hereinafter referred to as the Committee, is
hereby constituted in accordance with the provisions of this Code. The Committee
shall be composed of the Chairmen of the Committee on Ways and Means of the
Senate and House Representatives and four (4) additional members from each
house, to be designated by the Speaker of the House of Representatives and the
Senate President, respectively.

The Committee shall, among others, in aid of legislation:


(1) Monitor and ensure the proper implementation of Republic Act No. 8240;
(2) Determine that the power of the Commissioner to compromise and abate is
reasonably exercised;
(3) Review the collection performance of the Bureau of Internal Revenue; and
(4) Review the implementation of the programs of the Bureau of Internal
Revenue.

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