Benjamin Aban - Basic Law On Taxation Summary

LEX LEONUM FRATERNITAS
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban JUICY NOTES (PROF. CABANEIRO) A2011 1
Chapter 1: GENERAL PRINCIPLES Thus:

a. Taxes are enforced contributions
TAXATION DEFINED It operates in invitum which means that it is in no way
• Taxation is the inherent power of the sovereign, exercised through dependent on the will or contractual assent, express or implied,
the legislature, to impose burdens upon the subjects and objects of the person taxed. They are positive acts of the government
within its jurisdiction, for the purpose of raising revenues to carry (Rochester vs Bloss).
out the legitimate objects of the government. b. Taxes are proportional in character, since taxes are based on
• It is also defined as the act of levying a tax, i.e. the process or one’s ability to pay.
means by which the sovereign, through its law-making body, raises c. Taxes are levied by authority of law.
income to defray the necessary expenses of government. It is a The power to impose taxes is a legislative power; it cannot be
method of apportioning the cost of government among those who, imposed by the executive department nor by the courts.
in some measure, are privileged to enjoy its benefits and must d. Taxes are for the support of the government and all its public
therefore bear its burdens. needs.
• It is a mode of raising revenue for public purposes, (Cooley) e. Taxes are pecuniary burden payable in money, such that a tax
• Symbiotic relationship between the government and the citizens. is not necessarily confined to those payable in money (e.g. a
backpay cert may be used to pay real estate taxes).
RATIONALE OF TAXATION: DOCTRINE OF SYMBIOTIC f. Taxes are imposed by the State on persons, property or
RELATIONSHIP services within its jurisdiction.
• This doctrine is enunciated in CIR v. Algue, Inc. [158 SCRA 9],
which states that “Taxes are what we pay for civilized society. IMPORTANCE OF TAXES
Without taxes, the government would be paralyzed for lack of • Taxes are importants because they the lifeblood of the government
the motive power to activate and operate it. Hence, despite the and so should be calculated without unnecessary hindrance (CIR vs
natural reluctance to surrender part of one’s hard-earned Algue).
income to the taxing authorities, every person who is able must
contribute his share in the burden of running the government. LIFEBLOOD DOCTRINE
The government for its part, is expected to respond in the form • The lifeblood theory constitutes the theory of taxation, which
of tangible and intangible benefits intended to improve the lives provides that the existence of government is a necessity; that
of the people and enhance their material and moral values.” government cannot continue without means to pay its expenses;
and that for these means it has a right to compel its citizens and
TAXES DEFINED property within its limits to contribute.
• Taxes are the enforced proportional contributions from persons and • Without revenue raised from taxation, the government will not
property levied by the law-making body of the State by virtue of its survive, resulting in detriment to society. Without taxes, the
sovereignty for the support of the government and all public needs, government would be paralyzed for lack of motive power to activate
[Cooley] and operate it. (CIR vs. ALGUE)
• They are not arbitrary exactions but contributions levied by authority • Taxes are the lifeblood of the government and there prompt and
of law, and by some rule of proportion which is intended to ensure certain availability is an imperious need. (CIR vs Goodrich
uniformity of contribution and a just apportionment of the burdens International Rubber Co.)
of government.
LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 1 of 8

ILLUSTRATION OF LIFEBLOOD THEORY the citizenry, and those which come within the State’s territory
1. Collection of taxes cannot be enjoined by injunction. and facilities and protection which a government is supposed to
2. Taxes could not be the subject of compensation or set off. provide.
3. A valid tax may result in the destruction of the taxpayer’s 2) BENEFITS – PROTECTION THEORY
property. • This theory bases the power of the State to demand and receive
4. Taxation is an unlimited and plenary power. taxes on the reciprocal duties of support and protection. The
citizen supports the State by paying the portion from his
TAXES,PERSONAL TO TAXPAYER property that is demanded in order that he may, by means
• A corporation’s tax delinquency cannot be enforced against its thereof, be secured in the enjoyment of the benefits of an
stockholders except for unpaid taxes of a dissolved corporation if it organized society.
appears that the corporate assets have passed into their hands (Tan • No one is allowed to object to or resist payment of taxes solely
Tiong Bio vs CIR). because no personal benefit to him can be pointed out as arising
• Estate taxes accruing upon transmission of the decedent’s estate to from the tax, [Lorenzo v. Posadas].
his heirs are not liabilities which can be enforced against heirs.
SCOPE OF THE LEGISLATIVE TAXING POWER
NATURE OF THE TAXING POWER 1) The persons, property and excises to be taxed, provided it is within
1) Inherent in sovereignty its jurisdiction
2) Legislative in character 2) Amount or rate of tax
3) Purposes for its levy, provided it be for a public purpose
PURPOSES AND OBJECTIVES OF TAXATION 4) Kind of tax to be collected
PRIMARY 5) Apportionment of the tax
1. To raise revenue in order to support the government (Revenue) 6) Situs of taxation
SECONDARY 7) Method of collection
2. Used for regulatory purposes (Regulation)
3. Used to reduce social inequality (Reduction of Social Inequality) IS THE POWER TO TAX THE POWER TO DESTROY? /
4. Utilized to implement the police power of the State (Promotion of CONSTITUTIONAL RESTRAINTS RE: TAXATION IS THE POWER TO
General Welfare) DESTROY
5. Used to protect our local industries against unfair competition • The power to tax "is an attribute of sovereignty". In fact, it is the
(Protectionism) strongest of all the powers of government. But for all its plenitude,
6. Utilized by the government to encourage the growth of local the power to tax is not unconfined as there are restrictions.
industries (Encourage Economic Growth) Adversely effecting as it does property rights, both the due process
and equal protection clauses of the Constitution may properly be
THEORY AND BASIS OF TAXATION invoked to invalidate in appropriate cases of a revenue measure. If it
1) NECESSITY THEORY were otherwise, there would be truth to the 1903 dictum of Chief
• Taxation as stated in the case of Phil. Guaranty Co., Inc. v. Justice Marshall that "the power to tax involves the power to
Commissioner [13 SCRA 775], is a power predicated upon destroy." The web or unreality spun from Marshall's famous dictum
necessity. It is a necessary burden to preserve the State’s was brushed away by one stroke of Mr. Justice Holmes' pen, thus:
sovereignty and a means to give the citizenry an army to resist "The power to tax is not the power to destroy while this Court sits."
aggression, a navy to defend its shores from invasion, a corps of "So it is in the Philippines." It is because of the constitutional
civil servants to serve, public improvements for the enjoyment of restraints placed on a taxing power that violates fundamental rights.
• The power to tax includes the power to destroy if it is used as an TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT
implement of the police power (regulatory) of the State. However, it DOMAIN
does not include the power to destroy if it is used solely for the TAXATION POLICE POWER EMINENT
purpose of raising revenue. (ROXAS vs. CTA) DOMAIN
• If the purpose of taxation is regulatory in character, taxation is used AS TO PURPOSE For the purpose To promote For public use
raising revenue general welfare
to implement the police power of the state through
• If the power of taxation is used to destroy things, businesses, or regulations
enterprises and the purpose is to raise revenue, the court will come AS TO Protection and The maintenance Just compensation,
in because there will be violation of the inherent and constitutional COMPENSATION benefits received of a healthy not to exceed the
limitations and it will be declared invalid. from the economic standard market value by the
government. of society owner or
(damnum absque administrator or
POWER OF JUDICIAL REVIEW IN TAXATION injuria) anyone having legal
• Courts cannot inquire into the wisdom of a taxing act. (CIR vs interest in the
Lingayen Gulf Electric Power Co) property, or as
• Court’s power in taxation is limited only to the application and determined by the
interpretation of the law. assessor, whichever
is lower.
• It is not within the province of the court to inquire into the
AS TO PERSONS Operate upon community or a class of Operates on the
wisdom of the law for indeed courts are bound by the words in AFFECTED individuals individual property
the mouth of the lawmaker. “A verbo legis non est recedendum” owner
(Commissioner of Customs vs Manila Star Ferry inc.) AS TO AUTHORITY Exercised only by the government or its May be exercised
WHICH EXERCISES political subdivisions. by public services
BASIC PRINCIPLE OF A SOUND TAX SYSTEM THE POWER corp or public
utilities if granted
1) FISCAL ADEQUACY
by law
• The sources of revenues must be adequate to meet gov’t AS TO AMOUNT OF Generally no limit Limited to the cost There is no
expenditures. (Chavez v. Ongpin, 186 SCRA 331). IMPOSITION to the amount of of regulation imposition; rather,
• Even if a tax law violates the principle of Fiscal Adequacy tax that may be it is the owner of
and the proceeds may not be sufficient to satisfy the needs imposed the property taken
of the government, still the tax law is valid who is paid just
compensation.
2) THEORETICAL JUSTICE
AS TO THE Subject to certain Relatively free Subject to certain
• The tax burden should be in proportion to the taxpayers RELATIONSHIP TO constitutional from constitutional constitutional
ability to pay (ABILITY TO PAY PRINCIPLE) THE CONSTITUTION limitations, limitations and limitations, NOT
• Equitable taxation has been mandated by our constitution; including the superior to the including the
as if taxes are unjust and unreasonable then they are not prohibition against non-impairment prohibition against
equitable, thus invalid. impairment of the provisions impairment of the
obligation of obligation of
3) ADMINISTRATIVE FEASIBILITY
contracts contracts
• The tax law must be capable of effective or efficient AS TO TRANSFER Taxes paid become No transfer, but
enforcement. OF PROPERTY part of the public only restraint on
• There is no law that requires compliance with this principle, RIGHTS funds the exercise, of
so even if the tax law violates this principle; such tax law is property right
valid. exists

ASPECTS OF TAXATION • Toll is paid for the used of another’s property; tax is paid for the
1) LEVY or IMPOSITION support of government.
• enactment of tax laws • The amount paid as toll depends upon the cost of construction or
• legislative in character maintenance of the public improvements used; while there is no
2) ASSESSMENT limit on the amount collected as tax as long as it is not excessive,
• collection unreasonable, or confiscatory.
• administrative in character • Toll may be imposed by the government or by private individuals or
entities; tax may be imposed only by the government.
TAXES DISTINGUISHED FROM OTHER IMPOSITIONS
1) toll – amount charged for the cost and maintenance of property Penalty v. Tax
used; • Penalty is any sanction imposed as a punishment for violation of law
2) penalty – punishment for the commission of a crime or for acts deemed injurious; taxes are enforced proportional
3) compromise penalty – amount collected in lieu of criminal contributions from persons and property levied by the State by
prosecution in cases of tax violations; virtue of its sovereignty for the support of the government and all
4) special assessment – levied only on land based wholly on the public needs.
benefit accruing thereon as a result of improvements of public works • Penalty is designed to regulate conduct; taxes are generally
undertaken by government within the vicinity. intended to generate revenue.
5) license fee – regulatory imposition in the exercise of the police • Penalty may be imposed by the government or by private individuals
power of the State; or entities; taxes only by the government.
6) margin fee – exaction designed to stabilize the currency
7) debt – a tax is not a debt but is an obligation imposed by law. Special assessment v. Tax
8) regulatory fees – exaction designed to regulate industries • A special assessment tax is an enforced proportional contribution
9) subsidy – legislative grant of money in aid of a private enterprise from owners of lands especially benefited by public improvements
deemed to promote the public welfare. • A special assessment is levied only on land; tax is imposed on
10) custom duties and fees – duties charged upon commodities on persons, property and excises.
their being imported into or exported from a country; • A special assessment is not a personal liability of the person
11) revenue – broad term that includes not only taxes but income from assessed; it is limited to the land.
other sources as well. • A special assessment is based wholly on benefits, not necessity.
12) Tribute – synonymous with tax • A special assessment is exceptional both as to time and place; a tax
13) Impost – signifies any tax, tribute or duty. has general application.
Some rules:
Toll v. Tax Ø An exemption from taxation does not include exemption
• Toll is a sum of money for the use of something. It is the from a special assessment.
consideration which is paid for the use of a road, bridge, or the like, Ø The power to tax carries with it the power to levy a special
of a public nature. Taxes, on the other hand, are enforced assessment.
proportional contributions from persons and property levied by the
State by virtue of its sovereignty for the support of the government
and all public needs.
• Toll is a demand of proprietorship; tax is a demand of sovereignty.

License fee v. Tax TAXES CLASSIFIED

• PURPOSE: Tax imposed for revenue WHILE license fee for AS TO SUBJECT MATTER OR OBJECT
regulation. Tax for general purposes WHILE license fee for 1. Personal, poll or capitation tax
regulatory purposes only. Tax of a fixed amount imposed on persons residing within a
• BASIS: Tax imposed under power of taxation WHILE license fee specified territory, whether citizens or not, without regard to their
under police power. property or the occupation or business in which they may be
• AMOUNT: In taxation, no limit as to amount WHILE license fee engaged, i.e. community tax.
limited to cost of the license and expenses of police surveillance and 2. Property tax
regulation. Tax imposed on property, real or personal, in proportion to its value
• TIME OF PAYMENT: Taxes normally paid after commencement of or in accordance with some other reasonable method of
business WHILE LF before. apportionment.
• EFFECT OF PAYMENT: Failure to pay a tax does not make the 3. Excise tax
business illegal WHILE failure to pay license fee makes business A charge imposed upon the performance of an act, the enjoyment of
illegal. privilege, or the engaging in an occupation.
• SURRENDER: Taxes, being lifeblood of the state, cannot be
surrendered except for lawful consideration WHILE a license fee may AS TO PURPOSE
be surrendered with or without consideration. 4. General/fiscal revenue tax is that imposed for the purpose of
• IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE raising public funds for the service of the government.
FEES: 5. Special or regulatory tax is imposed primarily for the regulation
Ø It is necessary to determine whether a particular imposition is a of useful or non-useful occupation or enterprises and secondarily
tax or a license fee, because some limitations apply only to one only for the purpose of raising public funds.
and not to the other.
Ø Furthermore, exemption from taxes does not include exemption AS TO WHO BEARS THE BURDEN
from license fees 6. Direct tax
A direct tax is demanded from the person who also shoul,ders the
Obligation to pay debt v. obligation to pay tax burden of the tax. It is a tax which the taxpayer is directly or
• A debt is generally based on contract, express or implied, while a tax primarily liable and which he or she cannot shift to another.
is based on laws. 7. Indirect tax
• A debt is assignable, while a tax cannot generally be assigned. An indirect tax is demanded from a person in the expectation and
• A debt may be paid in kind, while a tax is generally paid in money. intention that he or she shall indemnify himself or herself at the
• A debt may be the subject of set off or compensation, a tax cannot. expense of another, falling finally upon the ultimate purchaser or
• A person cannot be imprisoned for non-payment of tax, except poll consumer. A tax which the taxpayer can shift to another.
tax.
• A debt is governed by the ordinary periods of prescription, while a AS TO THE SCOPE OF THE TAX
tax is governed by the special prescriptive periods provided for in 8. National tax
the NIRC. A national tax is imposed by the national government.
• A debt draws interest when it is so stipulated or where there is 9. Local tax
default, while a tax does not draw interest except only when A local tax is imposed by the municipal corporations or local
delinquent. government units (LGUs).

AS TO THE DETERMINATION OF AMOUNT • A taxpayer has no legal standing to question executive acts that do
10. Specific tax not involve the use of public funds. (GONZALES vs. MARCOS)
A specific tax is a tax of a fixed amount imposed by the head or • It is only when an act complained of which may include a legislative
number or by some other standard of weight or measurement. It enactment of a statute, involves the illegal expenditure of public
requires no assessment other than the listing or classification of the money that the so-called taxpayers suit may be allowed. LOZADA vs.
objects to be taxed. COMELEC
11. Ad valorem tax • Taxpayers may be levied with a regulatory purpose to provide
An ad valorem tax is a fixed proportion of the value of the property means for the rehabilitation and stabilization of a threatened
with respect to which the tax is assessed. It requires the industry which is affected with the public interest as to be within the
intervention of assessors or appraisers to estimate the value of such police power of the State. CALTEX vs. COA
property before due from each taxpayer can be determined. • The Supreme Court has discretion whether or not to entertain
12. Customs Duties taxpayers suit and could brush aside lack of locus standi. KILOS
Duties charged upon the commodities on theor being imported into BAYAN vs. GUINGONA
or exported from a country.
REQUISITES FOR A TAXPAYERS PETITION
AS TO GRADUATION OR RATE 1) That money is being extracted and spent in violation of specific
13. Proportional tax constitutional protections against abuses of legislative power
Tax based on a fixed percentage of the amount of the property 2) That public money is being deflected to any improper purpose
receipts or other basis to be taxed. Example: real estate tax. 3) That the petitioner seeks to restrain respondents from wasting
14. Progressive or graduated tax public funds through the enforcement of an invalid or
Tax the rate of which increases as the tax base or bracket increases. unconstitutional law.
Digressive tax rate: progressive rate stops at a certain point.
Progression halts at a particular stage. CASES:
15. Regressive tax
Tax the rate of which decreases as the tax base or bracket Commissioner vs. Algue
increases. There is no such tax in the Philippines. GRL-28890, 17 February 1988.First Division, Cruz (J); 4 concur
TAXPAYER’S SUIT Facts: The Philippine Sugar Estate Development Company (PSEDC)
• One where a taxpayer who feels aggrieved by the implication of a appointed Algue Inc. as its agent, authorizing it to sell its land, factories, and
tax law goes now via judicial review to the SC and asks for a oil manufacturing process. The Vegetable Oil Investment Corporation
nullification of the law. (VOICP) purchased PSEDC properties. For the sale, Algue received a
• In availing judicial review as a taxpayer, the only option one can commission of P125,000 and it was from this commission that it paid
look into are the inherent and constitutional limitations on taxation. Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In
• Taxpayers have sufficient interest of preventing the illegal 1965, Algue received an assessment from the Commissioner of Internal
expenditures of money raised by taxation (NOT DONATIONS AND Revenue in the amount of P83,183.85 as delinquency income tax for years
CONTRIBUTIONS) 1958 amd 1959. Algue filed a protest or request for reconsideration which
• A taxpayer is not relieved from the obligation of paying a tax was not acted upon by the Bureau of Internal Revenue (BIR). The counsel
because of his belief that it is being misappropriated by certain for Algue had to accept the warrant of distrant and levy. Algue, however,
officials filed a petition for review with the Coourt of Tax Appeals.

Issue: Whether the assessment was reasonable. Representatives. To insist that a revenuestatute and not only the bill which
Held: Taxes are the lifeblood of the government and so should be collected initiated the legislative process culminating in the enactment of the law must
without unnecessary hindrance. Every person who is able to pay must substantially be the same as the House bill would be to deny the Senate’s
contribute his share in the running of the government. The Government, for power not only to concur with amendments but also to propose
his part, is expected to respond in the form of tangible and intangible amendments. Indeed, what the Constitution simply means is that the
benefits intended to improve the lives of the people and enhance their moral initiative for filingrevenue, tariff or tax bills, bills authorizing an increase of
and material values. This symbiotic relationship is the rationale of taxation the public debt, private bills and bills of local application must come from the
and should dispel the erroneous notion that is an arbitrary method of House of Representatives on the theory that, elected as they are from
exaction by those in the seat of power. Tax collection, however, should be the districts, the members of the House can be expected to be more
made in accordance with law as any arbitrariness will negate the very reason sensitive to the local needs and problems. Nor does the Constitution
for government itself. For all the awesome power of the tax collector, he prohibit the filing in the Senate of a substitute bill in anticipation of its
may still be stopped in his tracks if the taxpayer can demonstrate that the receipt of the bill from the House, so long as action by the Senate as a body
law has not been observed. Herein, the claimed deduction (pursuant to is withheld pending receipt of the House bill.
Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation
2: as to compensation for personal services) had been legitimately by Algue The next argument of the petitioners was that S. No. 1630 did not pass
Inc. It has further proven that the payment of fees was reasonable and 3 readings on separate days as required by the Constitution because the
necessary in light of the efforts exerted by the payees in inducing investors second and third readings were done on the same day. But this was because
(in VOICP) to involve themselves in an experimental enterprise or a business the President had certified S. No. 1630 as urgent. The presidential
requiring millions of pesos. The assessment was not reasonable. certification dispensed with the requirement not only of printing but also that
of reading the bill on separate days. That upon the certification of a bill by
Tolentino vs. Secetary of Finance the President the requirement of 3 readings on separate days and of printing
GR No. 115455. August 25, 1994 and distribution can be dispensed with is supported by the weight of
legislative practice.
Facts: The value-added tax (VAT) is levied on the sale, barter or exchange
of goods and properties as well as on the sale or exchange of services. RA EXERCISES:
7716 seeks to widen the tax base of the existing VAT system and enhance
its administration by amending the NationalInternal Revenue Code. There Discuss the importance of taxes
are various suits challenging the constitutionality of RA 7716 on various SUGGESTED ANSWER:
grounds. Taxes are the lifeblood of the government, for without taxes, the
One contention is that RA 7716 did not originate exclusively in the House of government can neither exist nor endure. A principal attribute of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because sovereignty, the exercise of taxing power derives its source from the
it is in fact the result of the consolidation of 2distinct bills, H. No. 11197 and very existence of the state whose social contract with its citizens
S. No. 1630. There is also a contention that S. No. 1630 did not pass obliges it to promote public interest and common good. The theory
3 readings as required by the Constitution. behind the exercise of the power to tax emanates from necessity;
Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the without taxes, government cannot fulfill its mandate of promoting the
Constitution general welfare and well-being of the people. (NAPOCOR v. City of
Held: The argument that RA 7716 did not originate exclusively in the House Cabanatuan, G.R. No. 149110, April 9, 2003).
of Representatives as required by Art. VI, Sec. 24 of the Constitution will not
bear analysis. To begin with, it is not the law but the revenue bill which is
required by the Constitution to originate exclusively in the House of
Nature of the Power of Taxation (#1, 2000 Bar Exams) SUGGESTED ANSWER:
Justice Holmes once said: “The power to tax is not the power to Yes, the legislative body may enact laws even in the absence
destroy while this Court (the SC) sits.” Describe the power to tax and its of a constitutional provision because the power to tax is inherent in the
limitations. government and not merely a constitutional grant. The power of taxation is
SUGGESTED ANSWER: an essential and inherent attribute of sovereignty belonging as a matter
of right to every independent government without being expressly granted
The power to tax is an inherent power of the sovereignty which is
by the people. (Pepsi-Cola Bottling Company of the Philippines, Inc. v.
exercised through the legislature to impose burdens upon subjects and
Municipality of Tanauan, Leyte, G.R. No. L-31156)
objects within its jurisdiction for the purpose of raising revenues to
Taxation is the inherent power of a State to collect enforced proportional
carry out the legitimate objects of gov’t. The underlying basis for its
contribution to support the expenses of government. Taxation is the
exercise is governmental necessity for without it, no gov’t can exist nor power vested in the legislature to impose burdens or charges upon
endure. Accordingly, it has the broadest scope of all the powers of persons and property in order to raise revenue for public purposes.
government because in the absence of limitations, it is considered an The power to tax is so unlimited in force and so searching in extent that
unlimited, plenary, comprehensive and supreme. The two limitations courts scarcely venture to declare it is subject to any restrictions whatever,
on the power of taxation are the inherent and constitutional except such as rest in the discretion of the authority which exercises it. (Tio
limitations which are intended to prevent abuse on the exercise of the v. Videogram Regulatory Board, G.R. No. L-75697, June 18, 1987) So
otherwise plenary and unlimited power. It is the Court’s role to see to it potent is the power to tax that it was once opined that "the power to tax
that the exercise of the power does not transgress these limitations. involves the power to destroy."(C.J. Marshall in McCulloch v. Maryland)
Power of Taxation: Legislative in Nature (Bar 1994) Revocation of Exempting Statutes (Bar 1997)
The Secretary of Finance, upon recommendation of the "X" Corporation was the recipient in 1990 of two tax exemptions both from
Commissioner of Internal Revenue, issued a Revenue Regulation Congress, one law exempting the company's bond issues from taxes and
using gross income as the tax base for corporations doing business the other exempting the company from taxes in the operation of its
in the Philippines. Is the Rev.Reg.valid? public utilities. The two laws extending the tax exemptions were revoked
SUGGESTED ANSWER: by Congress before their expiry dates. Were the revocations constitutional?
The regulation establishing gross income as the tax base for
SUGGESTED ANSWER:
corporations doing business in the Philippines (domestic as well as Yes. The exempting statutes are both granted unilaterally by
resident foreign) is not valid. This is no longer implementation of the Congress in the exercise of taxing powers. Since taxation is the rule and
law but actually it constitutes legislation because among the powers tax exemption, the exception, any tax exemption unilaterally granted can be
that are exclusively within the legislative authority to tax is the power withdrawn at the pleasure of the taxing authority without violating the
to determine -the amount of the tax. (See 1 Cooley 176-184). Constitution (Mactan Cebu International Airport Authority v, Marcos,
Certainly, if the tax is limited to gross income without deductions of G.R No. 120082, September 11, 1996).
these corporations, this is changing the amount of the tax as said Neither of these were issued by the taxing authority in a contract lawfully
amount ultimately depends on the taxable base. entered by it so that their revocation would not constitute an
impairment of the obligations of contracts.
Power of Taxation; Inherent in a Sovereign State (2005)Describe ALTERNATIVE ANSWER:
the power of taxation. May a legislative body enact laws to raise No. The withdrawal of the tax exemption amounts to a
revenues in the absence of a constitutional provision granting said body deprivation of property without due process of law, hence
the power to tax? Explain. unconstitutional.

Chapter 2: LIMITATIONS ON THE TAXING POWER B. NON-DELEGABILITY OF THE TAXING POWER
• Power of taxation is exclusively legislative
INHERENT LIMITATIONS ON THE TAXING POWER • General Rule: Taxing Power may not be delegated
• Taxing power has very distinct and positive limitations some of • Exceptions:
which inhere in its very nature and exists whether declared or not 1. Delegation to the President (Flexible Tariff Clause)
declared in the constitution. ü Authority given to the President in case of
• Inherent limitations are so called because they proceed from the emergency upon the recommendation of the
very nature of the taxing power itself. NEDA to increase or to decrease or to amend
• These inherent limitations are: (PENTI – indispensable for women tariff rates, wharfage dues or quotas.
kaya inherent limitation) 2. Delegation to the local government
1. Public purpose of taxes ü Basis: Sec 5 Art. X, Constitution w/c mandates
2. Exemption of the government from taxes that local government should be autonomous.
3. Non-delegability of the taxing power ü They were given the power to exact their own
4. Territoriality or the situs of taxation source of revenue.
5. International comity 3. Delegation to the administrative body
ü What is delegated to the administrative body is
A. PUBLIC PURPOSE OF TAXES the duty of implementation.
• Public purpose in taxation is important because of all the powers ü Dept. of Finance has the task of regulating or
of government, that of taxation is said to be the strongest as it clarifying the law because the law that comes
can be readily employed against one class of individuals in favor out of Congress is not really complete.
of another so as to ruin one class and give unlimited wealth and ü Without the regulation, taxpayer has the best
property to another, if there is no implied limitation on the uses defense not to pay because you cannot be
for which such taxing power may be exercised. compelled to pay based on ambiguous law.
• Public purpose may be interpreted to be that kind of purpose ü Certain aspects of the taxing process that are
that inures to great majority of inhabitants and needs to be not really legislative in nature are vested in
addressed by the government. administrative agencies. In these cases, there
• TESTS FOR DETERMINING THE PUBLIC PURPOSE IN A really is no delegation, to wit:
TAX: a. power to value property
b. power to assess and collect taxes
1. Whether the thing to be furthered by the appropriation of
c. power to perform details of computation,
public revenue is something which is the duty of the State, appraisement or adjustments.
as a government, to provide.
2. Whether the proceeds of the tax will directly promote the • POWERS WHICH CANNOT BE DELEGATED
welfare of the community in equal measure. 1. Determination of the subjects to be taxed
• What is being violated if a tax is being collected for a private 2. Purpose of the tax
purpose? 3. Amount or rate of the tax
1. Inherent limitation 4. Manner, means and agencies of collection
2. Due process of law 5. Prescription of the necessary rules with respect thereto

Chapter 2: LIMITATIONS ON THE TAXING POWER. Page 1 of 10
C. TERRITORIALITY OR THE SITUS OF TAXATION • EXCEPTIONS TO THE TERRITORIALITY RULE
• Place of taxation 1. Where the tax laws operate outside territorial jurisdiction
• It is a determinant or criteria to determine which governmental a. TAXATION of resident citizens on their incomes
entity has the power to tax. derived from abroad
• The government cannot tax a particular object of taxation which 2. Where tax laws do not operate within the territorial
is not within its territorial jurisdiction. jurisdiction of the State
• Some Basic Considerations Affecting Situs of Taxation a. When exempted by treaty obligations
1. Protection – a basic consideration that justifies the situs of b. When exempted by international comity
taxation
2. Double taxation and the situs of taxation D. EXEMPTION OF THE GOVERNMENT FROMTAXES
ü Double taxation is never invalid where it is • Is the government subject to tax?
imposed by different states. No, but it covers only gov’t entities engaged in sovereign
3. The maxim of Mobilia Sequuntur Personam and Situs of function.
Taxation • BUT in the case of Bisaya Land Transportation Corp, SC held
ü “Movables follow the person”. that there is no impediment for the given to tax even gov’t
ü The situs of personal property is the domicile of entities engaged in governmental function.
the owner. • Caban’s opinion: If the legislature says let’s not tax the gov’t
ü The doctrine of Mobilia Sequuntur Personam is entity engaged in governmental function, SC cannot do anything
not allowed to stand in the way of taxation of because the limitation of the SC is only to interpret and that
personalty in the place where it has its actual congress being the decision maker as to who will be taxed.
situs and the requisite legislative jurisdiction • Agencies performing governmental functions: TAX EXEMPT
exists. • Agencies performing proprietary functions: SUBJECT TO TAX
4. Legislative power to fix situs • Those with ORIGINAL CHARTERS (incorporated agencies)
ü If no constitutional provisions are violated, the • Those created by SPECIAL CHARTER (incorporated agencies) are
power of the legislature to fix situs is not covered by the exemption
undoubted. • The exemption applies only to governmental entities through
which the government immediately and directly exercises its
• Factors Affecting Territoriality sovereign powers.
a. Kind or classification of the tax being levied • Tax exemption of property owned by the Republic of the
b. Situs of the thing or property taxed Philippines refers to the property owned by the government and
c. Domicile or residence of the person taxed its agencies which do not have separate and distinct personality.
d. Citizenship or nationality of the person taxed
e. Source of the income taxed • GOVERNMENT ENTITIES EXEMPT FROM INCOMING TAX
f. Situs of the excise, privilege, business or occupation 1. GSIS
being taxed. 2. SSS
• RULE: 3. PHIC
The State where the subject to be taxed has a situs may 4. PCSO
rightfully levy and collect the tax 5. PAGCOR

• REASON FOR EXEMPTIONS • DUE PROCESS IN TAXATION DOES NOT REQUIRE
1. Government will be taxing itself to raise money for itself. 1. Determination through judicial inquiry of
2. Immunity is necessary in order that governmental functions a. property subject to tax
will not be impeded. b. amount of tax to be imposed
2. Notice of hearing as to:
• GROUNDS FOR TAX EXEMPTION OF FOREIGN GOVERNMENT a. amount of the tax
PROPERTY b. manner of apportionment
1. Sovereign equality of States
2. Usage among States • REQUISITES OF DUE PROCESS OF LAW
3. Immunity from suit of a State 1. There must be a valid law
2. Tax measure should not be unconscionable and unjust as to
E. INTERNATIONAL COMITY amount to confiscation of property
• What is international comity? 3. Tax statute must not be arbitrary as to find no support in the
The way to answer this accdg to Atty. Caban is, well constitution
international comity is one of the inherent limitations on
taxation (I know). This is a limitation that says that there • A tax law which denies a taxpayer a fair opportunity to assert his
are bilateral arrangements among countries whereby certain substantial rights before a competent tribunal is invalid
activities of persons will not be taxed by one country • A taxpayer must not be deprived of his property for non-payment of
because they are neighbors; they are friends subject to the taxes without
principles of international law. 1) notice of liability
• Based on tradition, practice or custom 2) sale of property at public auction
• DOCTRINE OF INCORPORATION • The validity of statute maybe contested only by one who will sustain
ü The Philippines adopts the generally accepted principles of a direct injury in consequence of its enforcement
international law as part of the law of the land
ü If a tax law violates certain principles of international law, • INSTANCES WHEN THE TAX LAW MAYBE DECLARED AS
then it is not only invalid but also unconstitutional UNCONSTITUTIONAL (CUNO – pag constitutional cuno, eh di
unconstitional yun.)
CONSTITUTIONAL LIMITATIONS ON THE TAXING POWER 1) If it amounts to Confiscation of property without due
process
A. DUE PROCESS OF LAW (Sec. 1, Art. III) 2) If a tax law which is applied retroactively, imposes Unjust
• Due process of law in taxation: Before a tax can be collected, and oppressive taxes.
there must be a law. 3) The law maybe declared as unconstitutional if it is imposed
• Before a tax is to be paid for: Not for a public purpose
1. There must be a law 4) If the subject of taxation is Outside of the jurisdiction of the
2. It must not be arbitrary taxing state

• A violation of the inherent limitations on taxation would contravene • TWO WAYS EQUAL PROTECTION CLAUSE CAN BE
the constitutional injunctions against deprivation of property without VIOLATED
due process of law 1. When classification is made where there should be none
• There must be proof of arbitrariness, otherwise apply the ex. When the classification does not rest upon
presumption of constitutionality substantial distinctions that make for real difference
• Due process requires hearing before adoption of legislative rules by 2. When no classification is made where a classification is
administrative bodies of interpretative rulings. (Misamis vs. DFA) called for
• Compliance with strict procedural requirements must be followed ex. When substantial distinctions exist but no
effectively to avoid a collision course between the states power to corresponding classification is made on the basis
tax and the individual recognized rights (CIR vs. Algue) thereof
• The due process clause may correctly be invoked only when there is
a clear contravention of inherent or constitutional limitations in the C. FREEDOM OF SPEECH AND OF THE PRESS (Sec. 4, Art. III)
exercise of tax power. (Tan vs. del Rosario) • The press is not exempt from taxation
• SUBSTATANTIVE DUE PROCESS requires that a tax statute must be • The sale of magazines or newspapers, maybe the subject of
within the constitutional authority of Congress to pass and that it be taxation
reasonable, fair and just • What is not allowed is to impose tax on the exercise of an
• PROCEDURAL DUE PROCESS requires notice and hearing or at least activity which has a connection with freedom of the press
an opportunity to be heard (license fee)
• The imposition of tax on persons before they can deliver or
B. EQUAL PROTECTION OF THE LAW (Sec. 1, Art. III) broadcast a particular news or information is the one which
• Taxation should be uniform and equitable. cannot be taxed.
• Equal protection of law means that under this guaranty, all • What is prohibited by the constitutional guarantee of free press
taxable objects or subjects of the same footing, should be are laws which single out the press or target a group belonging
treated ALIKE. to the press for special treatment or which in any way
• Class legislation is abhorred unless it is supported by substantial discriminates against the press on the basis of the content of the
distinction. publication. TOLENTINO vs. SEC. OF FINANCE
• It is inherent in the power to tax that a state be free to select
the subjects of taxation, and it has been repeatedly held that D. NON-INFRINGEMENT OF RELIGIOUS FREEDOM (Sec. 5, Art. III)
inequalities which result from a singling out of one particular • Religion is a constitutional guaranty that any person can join to
class for taxation or exemption infringe no constitutional any form of religion, for as long as the religion you joined in
limitation. The rule of uniformity does not call for perfect does not disturb public order.
uniformity or perfect equality, because this is hardly attainable. • A municipal license tax on the sale of bibles and religious articles
The taxing power has the authority to make reasonable and by a non-stock, non-profit missionary organization at a little
natural classifications for purposes of taxation. In this regard, profit constitutes a curtailment of religious freedom and worship
the Court constantly held that classification, if rational in which is guaranteed by the Constitution. (American Bible Society
character, is allowable.(Sison vs Ancheta) vs City of Manila)
• It is the activity which cannot be taxed
• activities which have connection with the exercise of religion

• The payment of license fees for the distribution and sale of • The non-impairment clause applies only to contracts and not to
bibles suppresses the constitutional right of free exercise of a franchise.
religion. AMERICAN BIBLE SOCIETY vs. MANILA ü Franchise is a privilege given to a private person to
• The Free Exercise of Religion Clause does not prohibit imposing engage in an activity that affects the public, whether
a generally applicable sales and use tax on the sale of religious it is electrification, water system, telecommunication
materials by a religious organization. JIMMY SWAGGART vs. or water utilities.
BOARD OF EQUALIZATION ü Franchise is a unilateral grant at the pleasure of the
• The Sale of religious articles can be the subject of the VAT granting power.
• What cannot be taxed is the exercise of religious worship or • The non-impairment clause applies to taxation but not to police
activity power and eminent domain. Furthermore, it applies only where
• The income of the priest derived from the exercise of religious one party is the government and the other, a private individual.
activity can be taxed. • As a rule, the obligation to pay tax is based on law. But when,
for instance, a taxpayer enters into a compromise with the BIR,
E. NON-IMPERMAINT OF CONTRACTS (Sec. 10, Art. III) the obligation of the taxpayer becomes one based on contract
• The parties to the contract cannot exercise the power of
taxation. F. NON-IMPRISONMENT FOR DEBT OR NON-PAYMENT OF
• They cannot agree or stipulate that this particular transaction POLL TAX (Sec. 20, Art. III)
may be exempt from tax- not allowed (except if government) • The non-imprisonment rule applies to non-payment of poll tax
• Police power prevails over the non-impairment clause. OPOSA which is punishable only by a surcharge, but not to other
vs. FACTORAN violations like falsification of community tax certificate or non-
• A lawful tax on a new subject or an increased tax on an old one payment of other taxes
does not interfere with a contract or impairs its obligation. LA • POLL TAX – tax of fixed amount imposed upon residents within
INSULAR vs. MANCHUCA a specific territory regardless of citizenship, business or
• The constitutional guarantee of the non-impairment clause can profession. A.K.A : community tax, residence tax, cedula
only be invoked in the grant of tax exemption. • Community tax certificate – proof of payment of poll tax
• RULES:
1. If the exemption was granted for valuable consideration and G. ORIGIN OF APPROPRIATION, REVENUE AND TARIFF BILLS
it is granted on the basis of a contract. (Sec. 24, Art. VI)
ü cannot be revoked • It is not the revenue statute but the revenue bill which is
2. If the exemption is granted by virtue of a contract, wherein required by the constitution to originate exclusively in the House
the government enters into a contract with a private of Representatives
corporation • REASON:
ü cannot be revoked unilaterally by the government 1. To insist that a revenue statute and not only the bill which
3. If the basis of the tax exemption is a franchise granted by initiated the legislative process culminating in the enactment
Congress and under the franchise or the tax exemption is of the law must substantially be the same as the House bill
given to a particular holder or person would be to deny the Senate’s power not only to “concur
ü can be unilaterally revoked by the government with amendments” but also to “propose amendments.” It
(Congress) would be to violate the co-equality of legislative power of

the two houses of Congress and in fact make the House • SYTEMS OF TAXATION
superior to the Senate. (Tolentino vs. Sec. of Finance) 1. PROPORTIONAL TAXATION - where the tax increases or
2. The Constitution simply requires that there must be that decreases in relation to the tax bracket
initiative coming from the House of Representatives relative 2. PROGRESSIVE or GRADUATED SYSTEM - where the tax
to appropriation, revenue and tariff bills. increases as the income of the taxpayer goes higher
3. The Constitution does not also prohibit the filing in the 3. REGRESSIVE SYSTEM - where the tax decreases as the
Senate of a substitute bill in anticipation of its receipt of the income of the taxpayer increases
bill from the House, as long as action by the Senate is
withheld until receipt of said bill (Tolentino vs. Sec. of • PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY
Finance) and EQUALITY
1. Uniformity does not require the things which are not
H. UNIFORMITY, EQUITABILITY AND PROGRESSIVITY OF different be treated in the same manner
TAXATION (Sec. 28[1], Art. VI) 2. Differentiation, which is not arbitrary and conforms to the
• Differentiate uniformity from equal protection of law? dictates of justice and equity is allowed. Progressivity is one
ü In equal protection of the law, all taxpayers or subjects way of classification.
or properties that are standing in equal footing should 3. The State has the inherent right to select subjects of
be treated alike while in uniformity, all taxable articles of taxation.
the same class shall be taxed at the same rate.
• The rule on uniformity means that for as long as all those • Resort to indirect taxes should be minimized but not to be
subjects and persons in the same class are taxed in the same avoided entirely because it is difficult, if not impossible to avoid
rate, it is uniform. them by imposing such taxes according to the taxpayers ability
to pay.
• UNIFORMITY • The mandate to Congress is not to prescribe, but to evolve, a
ü means that all taxable articles kinds of property of the progressive system of taxation
same class shall be taxed at the same rate
ü A tax is uniform when it operates with the same force • TOLENTINO vs. SEC. OF FINANCE
and effect in every place where the subject of it is found ü RA 7716 (EVAT), does not violate the constitutional mandate
that Congress shall “evolve a progressive system of
• EQUITABILITY taxation”
ü Taxation is said to be equitable when its burden falls on ü The Constitution does not really prohibit the imposition of
those better able to pay indirect taxes, which like the VAT, are regressive. The
constitutional provision means simply that indirect taxes
• PROGRESSIVITY shall be minimized.
ü Taxation is progressive when its rate goes up depending on
the sources of the person affected

I. DELEGATION OF LEGISLATIVE AUTHORITY TO FIX TARIFF are incidental to and reasonably necessary for the
RATES, IMPORT AND EXPORTS QUOTAS, etc (Sec. 28[2], Art. accomplishment of said purpose. [Abra Valley College v. Aquino,
VI) 162 SCRA 106].
• TARIFF POWER OF THE PRESIDENT • To be exempt from realty taxation, there must be proof of
• REQUISITES: actual, direct and exclusive use of lands, buildings and
1. There must be a law passed by Congress authorizing the improvements for religious or charitable purposes, [Province of
President to impose tariff rates and other fees. Abra v. Hernando 107 SCRA 104].
2. Under the law, there must be limitations and restrictions on
the exercise of such power K. VOTING REQUIREMENTS IN CONNECTION WITH THE
3. The taxes that may be imposed by the President are limited LEGISLATIVE GRANT OF TAX EXEMPTION (Sec. 28[4], Art. VI)
to: • LAW GRANTING TAX EXEMPTIONS
a. Tariff rates • RULES ON VOTE REQUIREMENT
b. Import and export quotas 1. Law granting any tax exemption
c. Tonnage and wharfage dues ü absolute majority
d. Other duties (customs duties) 2. Law withdrawing any tax exemption
4. The imposition of these tariff and duties must be within the ü Relative majority
framework of the National Development program of the • Tax exemption, amnesties, refunds are considered in the nature
government of tax exemptions
• A law granting such needs approval of the absolute majority of
• Congress “may not pass” a law authorizing the President to the Congress
impose income tax, donors tax, and other taxes which are not in
the nature of customs duties. L. NON-IMPAIRMENT OF THE SUPREME COURT’S
• The Constitution allows only the imposition by the President of JURISDICTION IN TAX CASES (Secs. 2 & 5, Art. VIII)
these custom duties • SUPREME COURT’S POWER OF REVIEW
• Congress cannot take away from the Supreme Court the power
J. TAX EXEMPTION OF PROPERTIES ACTUALLY, DIRECTLY AND given to it by the Constitution as the final arbiter of the tax
EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND cases.
EDUCATIONAL PURPOSES (Sec. 28[3], Art. VI)
• TAX EXEMPTION OF REAL PROPERTY M. TAX EXEMPTION OF REVENUE AND ASSETS, INCLUDING
• APPLICATION: GRANTS, ENDOWMENTS, DONATIONS OR CONTRIBUTION
ü The exemption only covers property taxes and not other TO EDUCATIONAL INSTITUTIONS (Sec. 4[3] & [4], Art. XIV)
taxes • TAX EXEMPTIONS OF EDUCATIONAL INSTITUTIONS
• TEST OF EXEMPTION: • REQUISITES FOR EXEMPTION:
ü It is the USE of the property and not ownership of the 1. It must be a private educational institution
property 2. It must be non-stock and non-profit
• The exemption in favor of property used exclusively for 3. It’s assets (property) and revenues (income) must be used
charitable or educational purpose is not limited to property actually, directly and exclusively for educational purposes
actually indispensable therefore, but extends to facilities which

• RULES: • REQUISITES for APPLICATION of 10% PREFERENTIAL
1. If the first requisite is absent (meaning, it’s a government RATE
educational institution), it is nonetheless exempt from 1. It is private;
income tax 2. It has permit to operate from the DECS, or CHED or TESDA;
2. If the second requirement is absent (meaning, it is stock and 3. It is non-profit;
profit) as long as the third requirement is present, it is 4. Its gross income from unrelated trade or business must not
nonetheless exempt from real estate tax exceed fifty percent (50%) of its total gross income from all
3. If the third requirement is absent, as long as it is non-stock sources.
and non-profit, it is nonetheless exempt from income tax
4. If the third requirement is absent, but it is private and non- • 10% PREFERENTIAL TAX RATE DOES NOT APPLY TO THE
profit, it is subject to income tax, but at the preferential rate FOLLOWING:
of ten percent (10%) 1. Passive incomes derived by the educational institution
(subject to final income tax) and
• Under the present tax code, for a private educational institution 2. Where the educational institution is engaged in unrelated
to be exempt from the payment of income tax, all it has to be is trade, business or other activity, and the gross income from
non-stock and non-profit. However, a governmental educational such unrelated trade, business or other activities exceeds
institution is exempt from income tax without any condition fifty percent (50%) of the total gross income derived by the
school from all sources
• EXEMPTION DOES NOT EXTEND TO:
1. Income derived by these educational institutions from their • Income derived by YMCA from leasing out a portion of its
property, real or personal, and premises to small shop owners, like restaurant and canteen
2. From activities conducted by them for profit regardless of operators, and from parking fees collected from non-members
the disposition made on such income are taxable income. YMCA is not an educational institution. CIR
vs. CA (298 SCRA 83)
• Proceeds of the sale of real property by the Roman Catholic • “Subject to conditions prescribed by law, all grants
church is exempt from income tax because the transaction was endowments, donations, or contributions used actually, directly
an isolated one. MANILA POLO CLUB vs. CTA and exclusively for educational purposes shall be exempt from
• Income derived from the hospital pharmacy, dormitory and tax.” (Sec. 4 (4) ART XIV)
canteen was exempt from income tax because the operation of • Where a donation is made in favor of an educational institution
those entities was merely incidental to the primary purpose of pursuant to sports competition and tournaments, the donor is
the exempt corporation. ST. PAUL HOSPITAL of ILOILO vs. CIR exempt from the payment of donor’s tax
• Where the educational institution is private and non-profit (but a
stock corporation) it is subject to income tax but at the
preferential rate of ten percent (10%)

OTHER CONSTITUTIONAL PROVISIONS RELATED TO TAXATION B. POWER OF THE PRESIDENT TO VETO ANY PARTICULAR
ITEMS IN AN APPROPRIATION, REVENUE OR TARIFF BILL
• The following are not actually limitations on the taxing • PRESIDENTIAL VETO (Sec. 27 (2), ART VI)
power but which have bearing on taxation: • “The President shall have the power to veto any particular item
or items in an appropriation, revenue or tariff bill, but the veto
A. CONSTITUTIONAL REQUIREMENT ON THE SUBJECT AND shall not affect the item or items to which he does not object”
TITLE OF BILLS (Sec 26 [1], Art VI)
1. SUBJECT – ONE TITLE RULE C. PROVISION WHICH REQUIRES THAT NO MONEY SHALL BE
Every bill passed by the Congress shall embrace only one PAID OUT OF THE TREASURY EXCEPT IN PURSUANCE OF AN
subject which shall be expressed in the title thereof (Sec. 26 (1) APPROPRIATION MADE BY LAW (Sec 29 [1] Art VI)
ART II) • “No money shall be paid out of the treasury except in pursuance
2. THREE READING RULE of an appropriation made by law.”
No bill passed by either House shall become a law unless it has
passed three readings on separate days and printed copies D. PROVISION AGAINST THE APPROPRIATION OF PUBLIC
thereof in its final form have been distributed to its members MONEY OR PROPERTY FOR THE BENEFIT OF ANY CHURCH,
three days before its passage, EXCEPT when the President SECT OR SYSTEM OF RELIGION, etc. (Sec 29 [2] Art VI)
certifies to the necessity of its immediate enactment to meet a • Public property may be leased to a religious group provided that
public calamity or emergency. (Sec. 26 (2) ART II) the lease will be totally under the same conditions as that to
ü A presidential certification dispenses with the private persons (amount of rent)
requirement not only of printing but also that of • Congress is without power to appropriate funds for a private
reading the bill on separate days. PHIL. JUDGES purpose.
ASSOC. vs. PRADO
ü It is within the power of a Bicameral Conference E. PROVISIONS WHICH MANDATES THAT MONEY COLLECTED
Committee to include in its report an entirely new ON A TAX LEVIED FOR A PUBLIC PURPOSE SHALL BE PAID
provision that is not found either in the House Bill or OUT FOR SUCH PURPOSE ONLY (Sec 29 [3] Art VI)
Senate Bill, so long as such amendment is germane • “ All money collected or any tax levied for a special purpose shall
to the subject of the bills before the committee. be treated as a special fund and paid out for such purpose only.
After all its report was not final but needed the If the purpose for which a special fund was created has been
approval of both houses of Congress to become fulfilled or abandoned, the balance, if any, shall be transferred
valid as an act of the legislative department. PHIL. to the general funds of the Government.” (Sec. 29 (3) ART VI)
JUDGES ASSOC. vs. PRADO • If a Pres. of the Philippines spent a special fund for a general
3. ENROLLED BILL DOCTRINE purpose, he can be charged with culpable violation of the Consti.
G.R. – An enrolled copy of a bill is conclusive not only of its
provisions but also of its due enactment F. PROVISION REGARDING ALLOTMENTS TO LOCAL
EXCEPTION: In ASTORGA vs. VILLEGAS, the Supreme Court GOVERNMENTS
“went behind” the enrolled bill and consulted the journal to • “ local government units shall have a just share, as determined
determine whether certain provisions of a state had been by law, in the national taxes which shall be automatically
approved by the Senate President’s admission of a mistake and released to them.” (Sec 6, Art X)
withdrawal of his signature.
EXERCISES: issuance, pawnshops would not be liable to pay the 5% percentage
tax, considering that they were not specifically included in the basic
Inherent Limitations of Territoriality and International Comity provisions of the law imposing such tax. In so doing, the CIR did not
May the Philippine government require tax withholding on the salaries of simply interpret the law. The due observance of the requirements of
Filipino employees working in the American Embassy in the Philippines? notice, hearing, and publication should not have been ignored. (CIR v.
Suggested Answer: M.J. Lhuiller Pawnshop, Inc. G.R. No. 150947)
No, because this will violate the principle of international comity. If the
Philippine government would impose the requirement of tax withholding Tax Avoidance vs. Tax Evasion (1996)
on the salaries of Filipino employees working in the American Embassy in Distinguish tax evasion from tax avoidance.
the Philippines, this would in effect require that the American SUGGESTED ANSWER:
government be constituted as the withholding agent of the Philippine Tax evasion is a scheme used outside of those lawful means
government insofar as the taxes on the salaries of the Filipino employees to escape tax liability and, when availed of, it usually subjects the
are concerned. This is obviously violative of the inherent limitation that taxpayer to further or additional civil or criminal liabilities. Tax
avoidance, on the other hand, is a tax saving device within the means
taxation is subject to the principle of international comity.
sanctioned by law, hence legal.
Due Process
Power of Taxation: Equal Protection of the Law (2000)
A law imposed a 5% percentage tax on the gross receipts of lending An executive Order was issued pursuant to law, granting tax and duty
investors. Without notice, hearing and publication, the CIR issued a incentives only to businesses and residents within the "secured area" of
Revenue Memorandum Order (RMO) applying the above-cited law to the Subic Economic Special Zone, and denying said incentives to those who
pawnshops, on the theory that the principal activity of pawnshops is live within the Zone but outside such "secured area". Is the
lending money at interest, and that such RMO is merely interpretative in constitutional right to equal protection of the law violated by the Executive
nature; thus, no notice, hearing and publication is required. Is the RMO Order? Explain.
valid? SUGGESTED ANSWER:
Suggested Answer: No. Equal protection of the law clause is subject to reasonable
It is not valid. When an administrative rule is merely interpretative classification. Classification, to be valid, must:(1) rest on substantial
in nature, its applicability needs nothing further than its bare distinctions, (2) be germane to the purpose of the law, (3) not be limited to
issuance, for it gives no real consequence more than what the law existing conditions only, (4) apply equally to all members of the same class.
itself has already prescribed. When, on the other hand, the
administrative rule goes beyond merely providing for the means that Taxpayer Suit; When Allowed (1996)
can facilitate or render least cumbersome the implementation of the law When may a taxpayer's suit be allowed?
but substantially increases the burden of those governed, it behooves SUGGESTED ANSWER:
the agency to accord at least to those directly affected a chance to A taxpayer's suit may only be allowed when an act complained of,
be heard, and thereafter to be duly informed, before that new issuance which may include a legislative enactment, directly involves the illegal
is given the force and effect of law. disbursement of public funds derived from taxation (Pascual vs. Secretary
The questioned RMO cannot be viewed simply as implementing rules of Public Works, 110 Phil. 331).
or corrective measures revoking in the process the previous rulings of
past Commissioners. Specifically, they would have been amendatory
provisions applicable to pawnshops. Without the disputed CIR

Chapter 3: DOUBLE TAXATION National Government as well as the local government. There is
nothing inherently obnoxious in the exaction of license fees or taxes
Double taxation in the strict sense and double taxation in the broad with respect to the same occupation, calling, or activity by both the
sense State and a political subdivision thereof. Further, a license tax may
• In its strict sense, referred to as direct duplicate taxation, double be levied upon a business or occupation although the land used in
taxation means: connection therewith is subject to property tax.
1. Taxing twice;
2. by the same taxing authority; Kinds of double taxation or duplicate taxation
3. within the same jurisdiction or taxing district; 1. Direct duplicate taxation (Obnoxious double taxation)
4. for the same purpose; Double taxation in the objectionable or prohibited sense
5. in the same year or taxing period; wherein the same property is taxed twice when it should be taxed
6. some of the property in the territory. only once.
2. Indirect duplicate taxation
• In its broad sense, referred to as indirect double taxation, double Opposite of direct double taxation. Not legally objectionable.
taxation is taxation other than direct duplicate taxation. It extends to
all cases in which there is a burden of two or more impositions. In order to constitute double taxation in the objectionable or
prohibited sense:
Constitutionality of double taxation 1. The same property must be taxed twice, when it should be
• Unlike in the United States Constitution, our Constitution does not taxed once.
prohibit double taxation. 2. Both taxes must be imposed on the same property or subject
• However, while it is not forbidden, it is something not favored. Such matter.
taxation should, whenever possible, be avoided and prevented. 3. It should be for the same purpose.
• In addition, where there is direct double taxation, there may be a 4. By the same State, government, or taxing authority.
violation of the constitutional precepts of equal protection and 5. Within the same jurisdiction or taxing district.
uniformity in taxation. 6. During the same taxing period.
• The argument against double taxation may not be invoked where 7. Of the same kind or character of tax.
one tax is imposed by the State and the other is imposed by the city,
it being widely recognized that there is nothing inherently obnoxious • At any rate, there is no unconstitutional prohibition against double
in the requirement that license fees or taxes be exacted with respect taxation in the Philippines. It is something not favored but is
to the same occupation, calling, or activity by both the State and a permissible, provided that some other constitutional requirement is
political subdivision thereof. And where the statute or ordinance in not thereby violated.
question, there is no infringement of the rule on equality, [City of
Baguio v. De Leon, 25 SCRA 938 ]. International juridical double taxation
• Tax conventions such as the RP-US tax treaty are drafted with a
Villanueva v. City of Iloilo, 265 SCRA 538 view towards the elimination of international juridical double
• An ordinance imposing a municipal tax on tenement houses was taxation, which is defined as the imposition of comparable taxes in
challenged because the owners already pay real estate taxes and two or more states on the same taxpayer in respect to the same
also income taxes under the NIRC. The Supreme Court held that subject matter and for identical periods.
there was no double taxation. The same tax may be imposed by the
Chapter 3: DOUBLE TAXATION AND TAX EXEMPTIONS. Page 1 of 7
Methods of eliminating double taxation (DT) Note: With the exception of evasion, all are legal means of escape.
• To eliminate DT, a tax treaty resorts to several methods:
1. Tax treaty preferential treatment - First, it sets out the SHIFTING
respective rights to tax of the state of source or situs and of the • Shifting is the transfer of the burden of a tax by the original payer or
state of residence with regard to certain classes of income or the one on whom the tax was assessed or imposed to someone else.
capital. In some cases, an exclusive right to tax is conferred on • It should be borne in mind that what is transferred is not the
one of the contracting states; however, for other items of payment of the tax but the burden of the tax.
income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the state of Taxes that can be shifted
source is limited. • Only indirect taxes may be shifted (e.g. VAT); direct taxes (e.g.
2. Tax exemption - The second method for the elimination of Income tax) cannot be shifted.
double taxation applies whenever the state of source is given a
full or limited right to tax together with the state of residence. In Ways of shifting the tax burden
this case, the treaties make it incumbent upon the state of 1. Forward shifting
residence to allow relief on order to avoid double taxation. When the burden of the tax is transferred from a factor of
production through factors of distribution until it finally settles on the
There are two methods of relief ultimate purchase or consumer.
1. In the exemption method, the income or capital which is taxable at Example: Manufacturer or producer may shift tax assessed to
the state of source or situs is exempted at the state of residence, wholesaler, who in turn shifts it to retailer, who also shifts it to the
although in some instances it may be taken into account in final purchaser or consumer.
determining the rate of tax applicable to the taxpayer’s remaining
income or capital. 2. Backward shifting
2. In the credit method, although the income or capital which is taxed When the burden of the tax is transferred from the
in the state of source is still taxable in the state of residence, the tax consumer or purchaser through the factors of distribution to the
paid in the former is credited against the tax levied in the latter. factor of production.
• The basic difference between the two methods is that in the Example: Consumer or purchaser may shift tax imposed on him to
exemption method, the focus is on the income or capital, whereas retailer by purchasing only after the price is reduced, and from the
the credit method focuses upon the tax. latter to the wholesaler, and finally to the manufacturer or producer.
MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF 3. Onward shifting

TAXATION When the tax is shifted two or more times either forward or
Six basic forms of minimizing or escape from taxation (CAVEETS – backward.
flee or escape from temptation – kaya iwasan ang mga kabit/caveets) Thus, a transfer from the seller to the purchaser involves
1. Shifting one shift; from the producer to the wholesaler, then to retailer, we
2. Capitalization have two shifts; and if the tax is transferred again to the purchaser
3. Evasion by the retailer, we have three shifts in all.
4. Exemption
5. Transformation
6. Avoidance
Impact and incidence of taxation Rationale for granting tax exemptions
• Impact of taxation is the point on which a tax is originally imposed. • Its avowed purpose is some public benefit or interest which the
In so far as the law is concerned, the taxpayer is the person who lawmaking body considers sufficient to offset the monetary loss
must pay the tax to the government. He is also termed as the entailed in the grant of the exemption.
statutory taxpayer – the one on whom the tax is formally assessed. • The theory behind the grant of tax exemptions is that such act will
He is the subject of taxation. benefit the body of the people. It is not based on the idea of
• Incidence of taxation is that point on which the tax burden finally lessening the burden of the individual owners of property.
rests or settles down. It takes place when shifting has been effected
from the statutory taxpayer to another. Grounds for granting tax exemptions
1. May be based on contract. In such a case, the public which is
Statutory taxpayer represented by the government is supposed to receive a full
• The statutory taxpayer is the person required by law to pay the tax equivalent therefore, i.e. charter of a corporation.
or the one on whom the tax us formally assessed. In short, he or 2. May be based on some ground of public policy, i.e., to encourage
she is the subject of the tax. new industries or to foster charitable institutions. Here, the
• In direct taxes, the statutory taxpayer is the one who shoulders the government need not receive any consideration in return for the tax
burden of the tax while in indirect taxes, the statutory taxpayer is exemption.
the one who pays the tax to the government but the burden can be 3. May be based on grounds of reciprocity or to lessen the rigors of
passed to another person or entity. international double or multiple taxation.
Relationship between impact, shifting, and incidence of tax Note: Equity is not a ground for tax exemption. Exemption is allowed
• The impact is the initial phenomenon, the shifting is the intermediate only if there is a clear provision therefore.
process, and the incidence is the result. Thus, the impact in a sales
tax (e.g. VAT) is on the seller (manufacturer) who shifts the burden Nature of tax exemption
to the customer who finally bears the incidence of the tax. 1. It is a mere personal privilege of the grantee.
• Impact is the imposition of the tax; shifting is the transfer of the tax; 2. It is generally revocable by the government unless the exemption is
while incidence is the setting or coming to rest of the tax. founded on a contract which is protected from impairment.
3. It implies a waiver on the part of the government of its right to
TAX EXEMPTION collect what otherwise would be due to it, and so is prejudicial
• It is the grant of immunity to particular persons or corporations of a thereto.
particular class from a tax which persons and corporations generally 4. It is not necessarily discriminatory so long as the exemption has a
within the same state or taxing district are obliged to pay. It is an reasonable foundation or rational basis.
immunity or privilege; it is freedom from a financial charge or
burden to which others are subjected.
• Exemption is allowed only if there is a clear provision therefore.
• It is not necessarily discriminatory as long as there is a reasonable
foundation or rational basis.

Kinds of tax exemption according to manner of creation Basco v. PAGCOR [196 SCRA 52] –
1. Express or affirmative exemption. The power to tax of municipal corporations must always yield to a
When certain persons, property or transactions are, by express legislative act of Congress which is superior, having been passed by the
provision, exempted from all or certain taxes, either entirely or in State itself. Municipal corporations are mere creatures of Congress which
part. has the power to create and abolish municipal corporations due to its
2. Implied exemption or exemption by omission. general legislative powers. If Congress can grant the power to tax, it can
When a tax is levied on certain classes of persons, properties or also provide for exemptions or even take back the power.
transactions without mentioning the other classes.
Every tax statute makes exemptions because of omissions. Chavez v. PCGG [GR No. 130716, Dec. 6, 1998]
• In a compromise agreement between the Philippine Government,
Kinds of tax exemptions according to scope or extent represented by the PCGG, and the Marcos heirs, the PCGG granted
1. Total tax exemptions to the assets which will be apportioned to the
When certain persons, property or transactions are exempted, Marcos heirs. The Supreme Court ruled that the PCGG has absolutely
expressly or impliedly, from all taxes. no power to grant tax exemptions, even under the cover of its
2. Partial authority to compromise ill gotten wealth cases. The grant of tax
When certain persons, property or transactions are exempted, exemptions is the exclusive prerogative of Congress.
expressly or impliedly, from certain taxes, either entirely or in part. • In fact, the Supreme Court even stated that Congress itself cannot
grant tax exemptions in the case at bar because it will violate the
Does the provision in a statute granting exemption from all taxes equal protection clause of the Constitution.
include indirect taxes?
• No. As a general rule, indirect taxes are not included in the grant of Interpretation of laws granting tax exemptions
such exemption unless it is expressly stated. • General rule
In the construction of tax statutes, exemptions are not favored an
Nature or power to grant tax exemptions are construed strictissimi juris against the taxpayer. The
1. National government fundamental theory is that all taxable property should bear its share
The power to grant tax exemptions is an attribute of in the cost and expense of the government.
sovereignty for the power to prescribe who or what persons or Taxation is the rule and exemption.
property shall be taxed implies the power to prescribe who or what He who claims exemption must be able to justify his claim or right
persons or property shall be taxed implies the power to prescribe thereto by a grant express in terms “too plain to be mistaken and
who or what persons or property shall not be taxed. too categorical to be misinterpreted.” If not expressly mentioned in
2. Local governments the law, it must be at least within its purview by clear legislative
Municipal corporations are clothed with no inherent power to intent.
tax or to grant tax exemptions. But the moment the power to • Exceptions
impose a particular tax is granted, they also have the power to grant 1. When the law itself expressly provides for a liberal
exemptions therefrom unless forbidden by some provision of the construction thereof.
Constitution or the law. 2. In cases of exemptions granted to religious, charitable and
The legislature may delegate its power to grant tax educational institutions or to the government or its
exemptions to the same extent that it may exercise the power to agencies or to public property because the general rule
exempt. is that they are exempted from tax.
Strict interpretation does not apply to the gov’t and its agencies thereby become a part of the new society with a clean slate,
• Petitioner cannot invoke the rule of strictissimi juris with respect to [Republic v. IAC, 196 SCRA 335].
the interpretation of statutes granting tax exemptions to the NPC. • Like tax exemption, tax amnesty is never favored nor presumed in
The rule on strict interpretation does not apply in the case of law. It is granted by statute. The terms of the amnesty must also be
exemptions in favour of a political subdivision or instrumentality of construed against the taxpayer and liberally in favour of the
the government, [Maceda v. Macaraig]. government.
Davao Gulf v. Commissioner, [293 SCRA 76(1998)] Tax amnesty, tax condonation, and tax exemption
• A tax cannot be imposed unless it is supported by the clear and • Tax amnesty, being a general pardon or intentional overlooking by
express language of a statute; on the other hand, once the tax is the State of its authority to impose penalties on persons otherwise
unquestionably imposed, “a claim of exemption from tax payments guilty of evasion or violation of a revenue or tax law, partakes of an
must be clearly shown and based on language in the law too plain to absolute forgiveness or waiver by the government from its right to
be mistaken.” Since the partial refund authorized under Sec. 5, RA collect what otherwise would be due it and, in this sense, prejudicial
1435, is in the nature of a tax exemption, it must be construed to itself. It is granted particularly to tax evaders who wish to relent
strictissimi juris against the grantee. Hence, petitioner’s claim for and are willing to reform, thus giving them a chance to do so and
refund based on specific taxes it actually paid must expressly be thereby become a part of the new society with a clean slate,
granted in a statute stated in a language too clear to be mistaken. [Republic v. IAC, 196 SCRA 335].
• Like tax exemption, tax amnesty is never favored nor presumed in
TAX REMISSION OR TAX CONDONATION law. It is granted by statute. The terms of the amnesty must also be
• The word “remit” means to desist or refrain from exacting, inflicting construed against the taxpayer and liberally in favour of the
or enforcing something as well as to restore what has already been government. Unlike a tax exemption, however, a tax amnesty has
taken. The remission of taxes due and payable to the exclusion of limited applicability as to cover a particular taxing period or
taxes already collected does not constitute unfair discrimination. transaction only
Such a set of taxes is a class by itself and the law would be open to • There is tax condonation or remission when the State desists or
attack as class legislation only if all taxpayers belonging to 1 class refrains from exacting, inflicting or enforcing something as well as to
were not treated alike,[JuanLunaSubdivision v. Sarmiento,91Phil370] restore what has already been taken. The condonation of a tax
• The condonation of a tax liability is equivalent to and is in the nature liability is equivalent to and is in the nature of a tax exemption.
of a tax exemption. Thus, it should be sustained only when expressly Thus, it should be sustained only when expressed in law.
provided in the law. [Surigao Consolidated Mining v. Commissioner • Tax exemption, on the other hand, is the grant of immunity to
of Internal Revenue, 9 SCRA 728]. particular persons or corporations of a particular class from a tax
which persons and corporations generally within the same state or
TAX AMNESTY taxing district are obliged to pay. Tax exemption is not favored and
• Tax amnesty, being a general pardon or intentional overlooking by is construed strictissimi juris against the taxpayer.
the State of its authority to impose penalties on persons otherwise
guilty of evasion or violation of a revenue or tax law, partakes of an
absolute forgiveness or waiver by the government from its right to
collect what otherwise would be due it and, in this sense, prejudicial
to itself. It is granted particularly to tax evaders who wish to relent
and are willing to reform, thus giving them a chance to do so and
TAX EVASION State the principle laid down in the case of UNGAB v. CUSI
• Tax evasion is the use by the taxpayer of illegal or fraudulent means Remedies for the collection of deficient taxes may be by either civil or
to defeat or lessen the payment of a tax. It is also known as “tax criminal action. In case of failure to file a return, the tax may be assessed or
dodging.” It is punishable by law. a proceeding in court may be begun without an assessment. An assessment
• Tax evasion is a term that connotes fraud through the use of is not necessary before a taxpayer may be prosecuted if there is prima facie
pretense or forbidden devices to lessen or defeat taxes, [Yutivo v. showing of wilful and deliberate attempt to file a fraudulent return with the
CTA 1 SCRA 160]. intent to evade and defeat tax. A criminal complaint is instituted not to
• Example: Deliberate failure to report a taxable income or property; demand payment, but to penalize the taxpayer for violation of the Tax Code,
deliberately reduction of income that has been received. [Ungab v. Cusi, 97 SCRA 877]
Elements of tax evasion TAX AVOIDANCE

• Tax evasion connotes the integration of three factors: • Tax avoidance is the exploitation by the taxpayer of legally
1. The end to be achieved. Example: the payment of less permissible alternative tax rates or methods of assessing taxable
than that known by the taxpayer to be legally due, or property or income in order to avoid or reduce tax liability. It is
in paying no tax when such is due. politely called, “tax minimization” and is not punishable by law.
2. An accompanying state of mind described as being • In the case of Delphers Traders Corp. v. IAC, 157 SCRA 349,
“evil, in bac faith, wilful, or deliberate and not the Supreme Court upheld the estate planning scheme resorted to
accidental.” by the Pacheco family in converting their property to shares of stock
3. A course of action (or failure of action) which is in a corporation which they themselves owned and controlled. By
unlawful. virtue of the deed of exchange, the Pacheco co-owners saved on
inheritance taxes. The Supreme Court said the records do not point
Evidence to prove evasion to anything wrong and objectionable about this estate planning
• Since fraud is a state of mind, it need not be proved by direct scheme resorted to. The legal right of the taxpayer to decrease the
evidence but may be proved from the circumstances of the case. amount of what otherwise could be his taxes or altogether avoid
• In the case of Republic v. Gonzales, 13 SCRA 633, the Supreme them by means which the law permits cannot be doubted.
Court affirmed the assessment of a deficiency tax against Gonzales,
a private concessionaire engaged in the manufacture of furniture TAX FRAUD
inside the Clark Air Base, for under declaration of his income. SC • Tax evasion may be exemplified by means of tax fraud, or the use of
held that the failure of the taxpayer to declare for taxation purposes deceit in order to evade taxes.
his true and actual income derived from his business for two • Fraud is a serious charge and to be sustained, it must be supported
consecutive years is an indication of his fraudulent intent to cheat by clear and convincing evidence.
the government of taxes due to it. • In determining whether fraud exists, substance and not form should
control.
Is an affidavit executed by revenue officers a tax assessment?
An affidavit executed by revenue officers stating the tax liabilities of a
taxpayer and attached to a criminal complaint for tax evasion, is not an
assessment that can be questioned before the CTA, [CIR v. PASCOR, 309
SCRA 402]

EXERCISES: SUGGESTED ANSWER:
There is tax avoidance. Mr.Pascual has exploited a fully permissive
Direct Tax vs. Indirect Tax (2006) alternative method to reduce his income tax by transferring part of his rental
Distinguish "direct taxes" from "indirect taxes." Give examples. income to a tax exempt entity through a donation of one-half of the income
SUGGESTED ANSWER: producing property. The donation is likewise exempt from the donor's tax.
DIRECT TAXES are demanded from the very person who The donation is the legal means employed to transfer the incidence of
should pay the tax and which he can not shift to another. An INDIRECT income tax on the rental income.
TAX is demanded from one person with the expectation that he can shift
the burden to someone else, not as a tax but as part of the Tax Exemptions: Nature & Coverage; Proper Party (2004)
purchase price. Examples of direct taxes are the income tax, the estate tax A. As an incentive for investors, a law was passed giving newly established
and the donor's tax. Examples of indirect taxes are the value-added tax, companies in certain economic zone exemption from all taxes, duties, fees,
the percentage tax and the excise tax on exciseable articles imposts and other charges for a period of three years. ABC Corp. was
organized and was granted such incentive. In the course of business,
Double Taxation: What Constitutes DT? (1996) ABC Corp. purchased mechanical equipment from XYZ Inc. Normally, the
X, a lessor of a property, pays real estate tax on the premises, a real sale is subject to a sales tax.
estate dealer's tax based on rental receipts and income tax on the rentals. X XYZ Inc. claims, however, that since it sold the equipment to ABC Corp.
claims that this is double taxation? Decide. which is tax exempt, XYZ
SUGGESTED ANSWER: should not be liable to pay the sales tax. Is this claim tenable?
There is no double taxation. DOUBLE TAXATION means taxing for the SUGGESTED ANSWER:
same tax period the same thing or activity twice, when it should be No. Exemption from taxes is personal in nature and
taxed but once, by the same taxing authority for the same purpose and covers only taxes for which the taxpayer-grantee is directly liable. The sales
with the same kind or character of tax. The REAL ESTATE TAX is a tax tax is a tax on the seller who is not exempt from taxes. Since XYZ Inc. is
on property; the REAL ESTATE DEALER'S TAX is a tax on the privilege to directly liable for the sales tax and no tax exemption privilege is ever given
engage in business; while the INCOME TAX is a tax on the privilege to to him, therefore, its claim that the sale is tax exempt is not tenable. A tax
earn an income. These taxes are imposed by different taxing authorities exemption is construed in strictissimi juris and it can not be permitted to
and are essentially of different kind and character (Villanueva vs. City of exist upon vague implications (Asiatic Petroleum Co V. Llanes, 49 Phil 466).
Iloilo, 26 SCRA 578).
B. Assume arguendo that XYZ had to and did pay the sales tax. ABC Corp.
Tax Avoidance vs. Tax Evasion (2000) later found out, however, that XYZ merely shifted or passed on to ABC the
amount of the sales tax by increasing the purchase price. ABC Corp. now
Mr. Pascual's income from leasing his property reaches the maximum rate
claims for a refund from the Bureau of Internal Revenue in an amount
of tax under the law. He donated one-half of his said property to a non-
corresponding to the tax passed on to it since it is tax exempt. Is the claim
stock, non-profit educational institution whose income and assets are
of ABC Corp. meritorious?
actually, directly and exclusively used for educational purposes, and
SUGGESTED ANSWER;
therefore qualified for tax exemption under Article XIV, Section 4 (3) of the
No. The claim of ABC Corp. is not meritorious. Although the tax was
Constitution and Section 30 (h) of the Tax Code. Having thus transferred shifted to ABC Corp. by the seller, what is paid by it is not a tax but part of
a portion of his said asset, Mr. Pascual succeeded in paying a lesser the cost it has assumed. Hence, since ABC Corp. is not a taxpayer, it has
tax on the rental income derived from his property. Is there tax no capacity to file a claim for refund. The taxpayer who can file a claim for
avoidance or tax evasion? Explain. refund is the person statutorily liable for the payment of the tax.

Chapter 4: TAX LAWS AND REGULATION INTERPRETATION/CONSTRUCTION OF TAX LAWS
1. Rule when legislative intent is clear.
• Tax statutes are to receive a reasonable construction with a view
NATURE OF INTERNAL REVENUE LAWS to carrying out their purpose and intent.
1. Internal revenue laws are not political in nature. • It should not be construed as to permit the taxpayer to evade
2. Tax laws are civil and not penal in nature. the payment of taxes easily.
2. Rule when there is doubt.
Not political in nature • No person or property is subject to taxation unless within the
• Internal revenue laws are not political in nature. They are deemed to terms or plain import of a taxing statute. In every case of doubt,
be the laws of the occupied territory and not of the occupying tax statutes are construed strictly against the government and
enemy. liberally in favour of the taxpayer. Taxes being burdens, are not
• Thus, our tax laws were in force during the Japanese occupation. to be presumed beyond what the statute expressly and clearly
declares.
Hilado v. CIR, [100 Phil 288] 3. Provisions granting tax exemptions
It is well known that our internal revenue laws are not political in • Such provisions are construed strictly against the taxpayer
nature and, as such, continued in force during the period of enemy claiming tax exemption.
occupation and in effect were actually enforced by the occupation
government. Income tax returns that were filed during that period APPLICATION OF TAX LAWS
and income tax payments made were considered valid and legal. • General rule: Tax laws are prospective in operation because the
Such tax laws are deemed to be the laws of the occupied territory nature and amount of the tax could not be foreseen and understood
and not of the occupying enemy. by the taxpayer at the time the transactions which the law seeks to
tax was completed.
Civil, not penal in nature • Exception: While it is not favored, a statute may nevertheless
• Tax laws are civil and not penal in nature, although there are operate retroactively provided it is expressly declared or is clearly
penalties provided for their violation. the legislative intent. But a tax law should not be given retroactive
• The purpose of tax laws in imposing penalties for delinquencies is to application when it would be harsh and oppressive.
compel the timely payment of taxes or to punish evasion or neglect
of duty in respect thereof. SOURCES OF TAX LAWS
1. Constitution
Republic v. Oasan, [99 Phil 934] 2. National Internal Revenue Code
The war profits tax is not subject to the prohibition on ex post facto 3. Tariff and Customs Code
laws as the latter applies only to criminal or penal matters. Tax laws 4. Local Government Code (Book II)
are civil in nature. 5. Local tax ordinances/ City or Municipal tax codes
6. Tax treaties and international agreements
7. Special laws
8. Decisions of the Supreme Court and the Court of Tax Appeals
9. Revenue rules and regulations and administrative rulings and
opinions
LEX LEONUM FRATERNITASChapter 4: TAX LAWS AND REGULATIONS. Page 1 of 4

DIRECTORY AND MANDATORY PROVISIONS OF TAX LAWS • This is without prejudice to the power of the Commissioner of
• Directory provisions are those designed merely for the information or Internal Revenue to make rulings or opinions in connection with the
direction of officers or to secure methodical and systematic modes of implementation of the provisions of the Internal Revenue laws,
proceedings. including rulings on the classification of articles for sales tax and
• Mandatory provisions are those intended for the security of the similar purposes.
citizens or which are designed to ensure equality of taxation or
certainty as to the nature and amount of each person’s tax. Purpose of rules and regulations
• The omission to follow mandatory provisions renders invalid the act 1. To properly enforce and execute the laws.
or proceeding to which it relates while the omission to follow 2. To clarify and explain the law
directory provisions does not involve such consequence, [Roxas v, 3. To carry into effect the law’s general provisions by providing details
Rafferty, 37 Phil 958]. of administration and procedure.
PUB LICATION REQUIREMENT Requisites for validity of rules and regulations]

• Not all sources of tax laws as enumerated above require publication. 1. They must not be contrary to law and the Constitution.
• Interpretative regulations and those which are merely internal in 2. They must be uniform
nature, i.e., those which regulate only the personnel of the 3. They must be applicable to both present and future circumstances.
administrative agency and not the public, need not be published. 4. They must be published in the Official Gazette or a newspaper of
• Examples: general circulation.
1. Revenue Memorandum Orders
2. Revenue Memorandum Circulars Commissioner v. CA, [240 SCRA 368]
3. Revenue Administrative Orders • The authority of the Minister of Finance, in conjunction with the
4. BIR Rulings Commissioner of Internal Revenue, to promulgate rules and regulations
for the effective enforcement of internal revenue rules cannot be
ARE TAX LAWS SPECIAL LAWS? controverted. Neither can it be disputed that such rules and regulations,
• Tax laws are special laws. The Tax Code is an example of a Tax law as well as administrative opinions and rulings, ordinarily should deserve
• The Tax Code is a special law and prevails over a general law such weight and respect by the courts. Much more fundamental than either of
as the Civil Code (Republic vs Gancayco, June 30, 1964) the above, however, is that all such issuances must not override, but
• In case the provisions of a special law are found to be deficient in a must remain consistent with, the law they seek to apply and implement.
particular situation, the Civil Code shall apply. Administrative rules and regulations are intended to carry out, neither to
supplant nor to modify, the law.
REVENUE RULES AND REGULATIONS AND ADMINISTRATIVE
RULINGS AND OPINIONS La Suerte v. CTA [134 SCRA 29]
• When an administrative agency renders an opinion by means of a
Authority to promulgate rules and regulations, and rulings and circular or memorandum, it merely interprets existing laws and no
opinions publication is necessary for its validity. Construction by an executive
• The Secretary of Finance, upon recommendation of the branch of the government of a particular law, although not binding upon
Commissioner of Internal Revenue, shall promulgate needful rules the courts, must be given weight as the construction came from the
and regulations for the effective enforcement of the provisions of the branch of the government which is called upon to implement the law.
NIRC.
EFFECTIVITY OF REVENUE RULES AND REGULATIONS • Administrative rulings, known as BIR rulings, are the less general
• Revenue Memorandum Circular 20-86 was issued to govern the drafting, interpretation of tax laws being issued from time to time by the
issuance, and implementation of revenue tax issuances, including: Commissioner of Internal Revenue. They are usually rendered on
1. Revenue Regulations; request of taxpayers to clarify certain provisions of a tax law. These
2. Revenue Audit Memorandum Orders; and rulings may be revoked by the Secretary of Finance if the latter finds
3. Revenue Memorandum Circulars and Revenue Memorandum them not in accordance with law.
Orders. • The Commissioner may revoke, repeal, or abrogate the acts or
previous rulings of his predecessors in office because the
• Except when the law otherwise expressly provides, the aforesaid construction of the statute by those administering it is not binding
revenue tax issuances shall not begin to be operative until after due on their successors if, thereafter, such successors are satisfied that a
notice thereof may be fairly assumed. different construction of the law should be given.
• Rulings in the form of opinions are also given by the Secretary of
• Due notice of the said issuances may be fairly presumed only after the Justice who is the Chief Legal Officer of the Government.
following procedures have been taken:
2 KINDS OF RULINGS:
1. Copies of the tax issuances have been sent through registered mail 1. Rulings of first impression (RFI)
to the following business and professional organizations: 2. Rulings of established precedents.
a. Philippine Institute of Certified Public Accountants
b. Integrated Bar of the Philippines EFFECTIVITY AND VALIDITY OF A TAX ORDINANCE
c. Philippine Chamber of Commerce and Industry • If the resolution is to be considered as a tax ordinance, it must be
d. American Chamber of Commerce shown to have been enacted in accordance with the requirements of
e. Federation of Filipino-Chinese Chamber of Commerce; and the Local Government Code. These would include the holding of a
f. Japanese Chamber of Commerce and Industry in the public hearing on the measure and its subsequent approval by the
Philippines. Secretary of Finance, in addition to the usual requisites for
publication of ordinances in general. Tuazon v. CA, [212 SCRA 739]
*however, other persons or entities may request a copy of
the said issuances. NON-RETROACTIVITY OF RULINGS
General Rule
2. The Bureau of Internal Revenue shall issue a press release covering • Rulings are not retroactive if they are prejudicial to the taxpayer.
the highlights and features of the new tax issuance in any Exceptions:
newspaper of general circulation. 1. Where the taxpayers deliberately misstates or omits material
facts from his return or any document required of him by the
3. Effectivity date for enforcement of the new issuance shall take place Bureau of Internal Revenue.
thirty (30) days from the date of the issuance had been sent to the 2. Where the facts subsequently gathered by the BIR are
above-enumerated organizations. materially different from the facts on which the ruling is based.
3. Where the taxpayer acted in bad faith.
BIR rulings
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN ADMINISTRATIVE Purpose of Taxation; Interpretation (2004)
INTERPRETATION THROUGH REENACTMENT Which of the following propositions may now be untenable:
• It means that where a statute is susceptible of the meaning placed 1) The court should construe a law granting tax exemption strictly against
upon in by a ruling of government agency charged with its the taxpayer.
enforcement and the legislature thereafter re-enacts the provisions 2) The court should construe a law granting a municipal corporation the
without substantial change, such action is to some extent power to tax most strictly.
confirmatory that the ruling carries out the legislative purpose. 3) The Court of Tax Appeals has jurisdiction over decisions of the Customs
• Legislative adoption of tax rulings Commissioner in cases involving liability for customs duties.
• Reenactment of a statute substantially unchanged is persuasive 4) The Court of Appeals has jurisdiction to review decisions
indication of the adoption by Congress of prior executive of the Court of Tax Appeals.
construction. (ABS-CBN vs CTA) 5) The Supreme Court has jurisdiction to review decisions of the Court of
Appeals. Justify your answer or choice briefly.
DOCTRINE OF IMPLICATIONS SUGGESTED ANSWER:
• What is plainly implied in the language of the statute is as much a 2. The court should construe a law granting a municipal corporation
part of it as that which is expressed the power to tax most strictly.
This proposition is now untenable. The basic rationale for the grant of tax
TAX TREATY power to local government units is to safeguard their viability and self-
• A tax treaty is one of the sources of our law on taxation. The sufficiency by directly granting them general and broad tax powers (Manila
Philippine government usually enters into tax treaties in order to Electric Company v. Province of Laguna et. al., 306 SCRA 750 [1999]).
avoid or minimize the effects of double taxation. A treaty has the Considering that inasmuch as the power to tax may be exercised by local
force and effect of law. legislative bodies, no longer by valid congressional delegation but by direct
authority conferred by the Constitution, in interpreting statutory provisions
EXERCISES on municipal fiscal powers, doubts will, therefore, have to be resolved in
favor of municipal corporations (City Government of San
Tax Laws; BIR Ruling; Non-Retroactivity of Rulings (2004) Pablo, Laguna v. Reyes, 305 SCRA 353 [1999]). This means that the court
Due to an uncertainty whether or not a new tax law is applicable to printing must adopt a liberal construction of a law granting a municipal corporation
companies, DEF Printers submitted a legal query to the Bureau of Internal the power to tax.
Revenue on that issue. The BIR issued a ruling that printing companies are Note: If the examinee chose proposition no. 4 as his
not covered by the new law. Relying on this ruling, DEF Printers did not pay answer, it should be given full credit considering that the present CTA Act
said tax. Subsequently, however, the BIR reversed the ruling and issued a (R.A. No. 9282) has made the CTA a coequal judicial body of the Court of
new one stating that the tax covers printing companies. Could the BIR now Appeals. The question "Which of the following propositions may now be
assess DEF Printers for back taxes corresponding to the years before the untenable" may lead the examinee to choose a proposition which is
new ruling? Reason briefly. untenable on the basis of the new law despite the cut-off date adopted by
SUGGESTED ANSWER: No. Reversal of a ruling shall not be given a the Bar Examination Committee. R.A. No. 9282 was passed on March 30,
retroactive application if said reversal will be prejudicial to the taxpayer. 2004.
Therefore, the BIR cannot assess DEF printers for back taxes because it
would be violative of the principle of non-retroactivity of rulings and doing so
would result in grave injustice to the taxpayer who relied on the first ruling
in good faith (Section 246, NIRC; CIR v. Burroughs, Inc.,142 SCRA 324).
Chapter 5: TAX ADMINISTRATION AND ENFORCEMENT Power to interpret tax laws
• The power to interpret the provisions of the NIRC and other tax laws
shall be under the exclusive and original jurisdiction of the
IN GENERAL Commissioner.
• This power is subject to review by the Secretary of Finance.
Agencies involved in tax administration
1. Bureau of Internal Revenue Jurisdiction of Commissioner re. tax cases
2. Bureau of Customs • The Commissioner has the power to decide:
3. Provincial, city and municipal assessors and treasurers 1. disputed assessments;
2. refunds of the internal revenue taxes, fees, or other charges;
Bureau of Internal Revenue 3. penalties imposed in relation thereto; or
• Headed by the Commissioner and two Deputy Commissioners 4. other matters arising under this Code or other laws or portions
• Assistant Commissioners and Division Chiefs thereof administered by the Bureau of Internal Revenue
• Regional Directors • This is subject to the exclusive appellate jurisdiction of the Court of
• Revenue District Officers Tax Appeals.
• Revenue Enforcement Officers or Examiners
Power of the Commissioner to obtain information, and to summon,
Sources of Revenue: The ff are deemed National Internal Revenue Taxes: examine, and take testimony of persons
• Income Tax • Commissioner has power to obtain information and to summon,
• Estate and Donor’s taxes examine and take testimony of persons in:
• Value-Added tax 1. ascertaining the correctness of any return; or
• Other percentage taxes 2. in making a return when none has been made; or
• Excise taxes 3. in determining the liability of any person for any internal
• Documentary stamp taxes revenue tax; or
• Such other taxes as are or hereafter may be imposed and collected 4. in collecting any such liability; or
by the BIR. 5. in evaluating tax compliance
• Such power includes:
POWERS OF THE COMMISSIONER OF INTERNAL REVENUE 1. To examine any book, paper, record or other data which may be
relevant or material to such inquiry.
General powers of the Commissioner of Internal Revenue 2. To obtain or a regular basis from any person other than the
1. Interpret tax laws and to decide tax cases. person whose internal revenue tax liability is subject to audit or
2. Obtain information and to summon, examine, and take testimony of investigation, or from any office or officer of the national and
persons. local governments, government agencies and instrumentalities
3. Make assessments and prescribe additional requirements for tax any information.
administration and enforcement. 3. To summon the person liable for tax or required to file a return,
or any officer or employee of such persons, or any person
having possession, custody, or care of the books of accounts
and other accounting records, or any other person, to appear
before the Commissioner or his duly authorized representatives.
Chapter 5: TAX ADMINISTRATION AND ENFORCEMENT. Page 1 of 8
4. To take such testimony of the person concerned, under oath, as • However, failure to file a return does not prevent the Commissioner
may be relevant or material to such inquiry. from authorizing the examination of the taxpayer.
5. To cause revenue officers and employees to make a canvass • Any return, statement or declaration filed in any office authorized to
from time to time of any revenue district or region and inquire receive the same shall not be withdrawn
after and concerning persons therein who may be liable to pay • However, such may be modified, changed or amended within three
any internal revenue tax. (3) years from the date of their filing provided no notice for audit or
investigation for such return, statement or declaration has been
Power of the Commissioner to make assessments and prescribe actually served upon the taxpayer.
additional requirements for tax administration and enforcement
1. Examination of returns and determination of the tax due. Assess the proper tax on the best evidence obtainable
2. Assess the proper tax on the best evidence obtainable. • A Commissioner is given the power to assess deficiency tax based on
3. Conduct inventory-taking, surveillance and to prescribe presumptive the best evidence obtainable:
gross sales and receipts. 1. when a report required by law as a basis for the assessment of
4. Issue jeopardy assessments and terminate the taxable period. any national internal revenue tax shall not be forthcoming within
5. Prescribe real property values. the time limit fixed by law or rules and regulations; or
6. Inquire into bank deposit accounts. 2. when there is reason to believe that any such report is false,
7. Accredit and register tax agents. incomplete or erroneous.
8. Prescribed additional procedural or documentary requirements. • In Bonifacia Sy Po V. CTA, the Supreme Court upheld the
assessment made by the Commissioner on the basis of the bottles of
Authority of the Commissioner to delegate power: wine seized and the worn statements of the former employees of the
• The Commissioner may delegate his powers to any or such Silver Cup Wine Factory for failure of the latter’s proprietor to submit
subordinate officials with the rank equivalent to a DIVISION CHIEF the factory’s book of accounts and related records despite repeated
OR HIGHER subject to certain limitations. Provided the ff CANNOT demands by the BIR.
be delegated:
1. The power to recommend the promulgation of rules and regulations Conduct inventory-taking, surveillance and to prescribe
by the Sec of Finance presumptive gross sales and receipts
2. The power to issue rulings of first impression or to reverse, revoke, • Commissioner may, at any time, during the taxable year, order
or modify any existing ruling of the Bureau inventory-taking of goods of any taxpayer as a basis for determining
3. The power to compromise or abate except liabilities less than his internal revenue tax liabilities.
P500,000. • Commissioner may also place the business operations of any person,
4. The power to assign or reassign internal revenue officers to natural or juridical, under observation or surveillance if there is
establishments where the articles subject to excise tax are produced reason to believe that such person is not declaring his correct
or kept. income, sales or receipts for internal revenue tax purposes.
• Commissioner may also prescribe presumptive gross sales and
Examination of returns and determination of the tax due receipts in the following instances:
• After the filing of the return, the Commissioner or his duly 1. When it is found that a person has failed to issue receipts and
authorized representative may authorize the examination of any invoices in violation of the NIRC; or
taxpayer and the assessment of the correct amount of tax.

2. When there is reason to believe that the books of accounts or Prescribe real property values
other records do not correctly reflect the declarations made or to • Commissioner is empowered to divide the Philippines into different
be made in a return. zones or areas and to determine the fair market value of real
• Under the presumptive gross sales or receipts method, the properties located in each zone or area after consultation with
Commissioner, after taking into account the sales, receipts, income, private and public appraisers.
or other taxable base of other persons engaged in similar situations • For purposes of computing any internal revenue tax, the value of the
or circumstances or after considering other relevant information, property shall be, whichever is higher of:
prescribe a minimum amount of such gross receipts, sales, and 1. the fair market value as determined by the Commissioner; or
taxable base. 2. the fair market value as shown by the schedule of values of the
• Such amount so prescribed shall be prima facie correct for purposes Provincial and City Assessors.
of determining the internal revenue tax liabilities of such person.
Inquire into bank deposit accounts
Issue jeopardy assessments and terminate the taxable period • Commissioner may inquire into the bank deposits of:
• A jeopardy assessment is one issued by the Commissioner if the 1. a decedent to determine his gross estate; and
believes that the collection of the tax is in jeopardy due to delay and 2. any taxpayer who has filed an application for compromise of his
other causes. tax liability by reason of financial incapacity to pay his tax
• The Commissioner may issue a jeopardy assessment when it comes liability.
to his knowledge that a taxpayer is: • There is really no conflict with RA 1405 or the Law on Secrecy of
1. retiring from business subject to tax; or Bank Deposit Act in case of compromises due to the financial
2. intending inability to pay of the taxpayer since an application for compromise
a. to leave the Philippines; or shall not be considered unless and until the taxpayer waives in
b. to remove his property therefrom; or writing his privilege under RA 1405. Such waiver constitutes the
c. to hide or conceal his property; or authority of the Commissioner to inquire into the bank deposits of
3. performing any act tending to obstruct the proceedings for the the taxpayer.
collection of the tax for the past or current quarter or year or to
render the same totally or partly ineffective. RULE ON ESTOPPEL AND SOME COMPLIANCE REQUIREMENTS
• In such cases, the Commissioner may assess and collected the tax Rule on no estoppel against the government
immediately without the usual formalities. Among others, the • It is settled rule of law that in the performance of its governmental
Commissioner shall: functions, the State cannot be estopped by the neglect of its agents
1. declare the tax period of such taxpayer terminated any time; and officers. Nowhere is this more true than in the field of taxation.
and [Commissioner v. Procter and Gamble Co., G.R. No. 66838,
2. send the taxpayer a notice such decision together with a request April 15, 1988]
for the immediate payment of the tax for the period so declared • Similarly, estoppel does not apply to deprive the government of its
terminated and the tax for the preceding year or quarter, or right to raise defenses even if these defenses are being raised for
such portion thereof as may be unpaid. the first time on appeal. [Commissioner v. Procter and Gamble
• Said taxes shall be due and payable immediately and shall be Co., G.R. No. 66838, April 15, 1988] However, this was reversed in
subject to all the penalties prescribed by law, unless paid within the a subsequent resolution issued by the Supreme Court in the same
time fixed in the demand made by the Commissioner. case. [Commissioner v. Procter and Gamble Co., G.R. No.
66838, December 2, 1991, Resolution)]
Estoppel against the taxpayer subject to tax, including the discovery, listing, classification, and
• While the principle of estoppel may not be invoked against the appraisal of properties.
government, this is not necessarily true in the case of the taxpayer. • The BIR assessment is usually embodied in a demand letter or in a
BIR form known as the assessment notice.
Some compliance requirements
• All corporations, companies, partnerships or persons required by law Letter of authority
to pay internal revenue taxes shall keep a journal and a ledger or • This is the authority issued by the Revenue Regional Director and
their equivalents. given to a revenue officer assigned to perform assessment functions
• Those earning below P50,000 quarterly may adopt a simplified set of to examine taxpayers within the jurisdiction of the district in order to
bookkeeping records. collect the correct amount of tax, or to recommend the assessment
• Those earning more than P150,000 quarterly shall have their books of any deficiency tax due in the same manner that the said acts
of accounts audited and examined yearly by independent certified could have been performed by the Revenue Regional Director
public accountants. himself.
• They have option to keep subsidiary books as the needs of their
business may require. Kinds of assessment
• All books or records must be in a native language, English or 1. Self assessment
Spanish, if not, translate to these languages. 2. Deficiency assessment
• All the books of accounts, including the subsidiary books and other 3. Illegal and void assessment
accounting records, shall be preserved for a period beginning from 4. Erroneous assessment
the last entry in such book until the last day prescribed by Section
203 within which the Commissioner is authorized to make an Self assessment
assessment. • One in which the tax is assessed by the taxpayer himself.
• Said books are records may be examined only once in a taxable • The amount of tax is reflected in the tax return that is filed by him
year, with some exceptions. and the tax assessed is paid at the time he files the return. This
system of filing of return and payment of tax is known as the “pay-
ASSESSMENT OF INTERNAL REVENUE TAXES as-you-file” system.
Tax assessment • Tax so assessed is known as self assessed tax.
• An assessment is the official action of an administrative officer in
determining the amount of tax due from a taxpayer, or it may be a Deficiency assessment
notice to the effect that the amount therein stated is due from a • This is an assessment made by the tax assessor himself whereby the
taxpayer as a tax with a demand for payment of the tax or correct amount of the tax is determined after an examination or
deficiency stated therein. investigation is conducted.
• An assessment is a finding by the taxing agency that the taxpayer • The liability is determined and is thereafter assessed for the
has not paid his current taxes. It is also notice to the effect that the following reasons:
amount stated therein is due as tax and is a demand for payment 1. The amount ascertained exceeds that which is shown as the tax
thereof. by the taxpayer in his return;
• The Local Government Code defines assessment as the act or 2. No amount of tax is shown in the return; or
process of determining the value of a property or portion thereof 3. The taxpayer did not file any return at all.

Illegal and void assessment The Confidentiality Rule:
• This is an assessment wherein the tax assessor has no power to act • Although Sec. 71 of the 1997 Tax Code provides that tax returns
at all. shall constitute public records, it is still “confidential in nature” and
may not be inquired into in unauthorized cases. Those employees of
Erroneous assessment the BIR found guilty are subject to penalty or imprisonment.
• This is an assessment wherein the assessor has the power to assess
but errs in the exercise of the power. Exceptions to the Confidentiality Rule:
1. When the inspection of the return is authorized upon the written
Principles governing tax assessments order of the President of the Philippines.
1. Assessments are prima facie presumed correct and made in good 2. When the inspection is authorized under Finance Regulation No. 33
faith. of the Sec of Finance.
2. It is the taxpayer and not the BIR who has the duty of proving 3. Whent the production of the tax return is MATERIAL EVIDENCE in a
otherwise. criminal case.
3. Assessments shld not be based on presumptions but on actual facts. 4. When authorized by the taxpayer himself.
4. Assessment is discretionary on the Commissioner who cannot
therefore be compelled to assess a tax when he or she believes that The net worth method
there is no basis for such assessment. • A very effective method of determining taxable income and the
5. The authority vested in the Commissioner to assess taxes may be deficiency income tax due thereon is the net worth method or what
delegated. However, it is settled that the power to make final is otherwise known as the “inventory method of income tax
assessment cannot be delegated. verification.”
6. Assessments must be directed to the right party. • The method is an extension of the accounting principle: Assets
minus liabilities equals net worth. The taxpayer’s net worth is
Investigative power of the Commissioner; factual basis of determined both at the beginning and at the end of the same
assessments taxable year. The increase or decrease in net worth is adjusted by
• Inasmuch as assessments are based on facts, the Commissioner is adding all non-deductible items and subtracting therefrom non-
given the power to obtain information which serves as basis for said taxable receipts.
assessments, and is also given the means to secure them. [See • The legal basis for the use of the net worth method is the authority
powers of the Commissioner] of the Commissioner to adopt an accounting method that clearly
reflects the income.
Means employed in the assessment of tax
1. Examination of returns and determination of the tax due Conditions for the use of the net worth method
2. Assess the proper tax on the best evidence obtainable 1. That the taxpayer’s books do not clearly reflect his income or the
3. Conduct inventory-taking, surveillance and to prescribe presumptive taxpayer has no books, or if the has books, he refuses to produce
gross sales and receipts them.
4. Issue jeopardy assessments and terminate the taxable period 2. That there is evidence of a possible source or sources of income to
5. Prescribe real property values account for the increases in net worth or the expenditures.
6. Inquire into bank deposit accounts 3. The there is a fixed starting point or opening net worth.
7. Accredit and register tax agents 4. That the circumstances are such that the method does reflect the
8. Prescribe additional procedural or documentary requirements. taxpayer’s income with reasonable accuracy and certainty and
proper and just additions of personal expenses and other non- Deficiency or delinquency
deductible expenditures were made and correct, fair and equitable • Deficiency is the amount by which the tax due exceeds the sum of
credit adjustments were given by way of eliminating non-taxable the amount of the tax shown on a taxpayer’s return plus amounts
items. previously assessed or collected as deficiency, less any credits,
refunds, or other payments due the taxpayer, i.e. the amount a
Requisites of a valid assessment taxpayer is deficient in his tax payments.
1. Post-reporting notice or notice for an informal conference after the • Delinquency is the state of a person upon whom the personal
tax audit. obligation to pay the tax has been fixed by lawful assessment and
2. Pre-assessment notice sent to the taxpayer, except in several he thereafter fails to pay the tax within the time prescribed by law.
instances.
3. The taxpayers shall be informed in writing of the law and the facts ADDITIONS TO THE TAX
upon which the assessment is made.
4. Assessment must be made within the prescribe period. Additions to the tax
• Additions to the tax are increments to the basic tax incident to the
Pre-assessment notice taxpayer’s non-compliance with certain legal requirements like the
• This is a notice in writing which is sent to the taxpayer at the taxpayer’s refusal or failure to pay taxes on time and/or violations of
address indicated in his return or at his last known address as stated taxing provisions in the law.
in his notice of change of address if the Commissioner or his duly What are the additions to the tax?
authorized representative finds that taxes should be assessed 1. Civil penalty or surcharge
against the taxpayer. As such, the taxpayer is first notified of said 2. Interest
findings before an assessment is issued. 3. Other civil penalties and administrative fines
When pre-assessment notice not required Civil penalty or surcharge

1. When the finding for any deficiency tax is the result of a • The civil penalty or surcharge may either be 25% or 50% of the tax
mathematical error in the computation of the tax as appearing on depending on the nature of the violation.
the face of the return; • The payment of the surcharge is mandatory and the Commissioner
2. When a discrepancy has been determined between the tax withheld is not vested with any authority to waive or dispense with the
and the amount actually remitted by the withholding agent; collection thereof.
3. When a taxpayer who opted to claim a refund or tax credit of excess • An extension of time to pay taxes granted by the Commissioner does
creditable withholding tax for a taxable period was determined to not excuse payment of the surcharge.
have carried over and automatically applied the same amount • The 50% surcharge is not a criminal penalty but a civil or
claimed against the estimated tax liabilities for the taxable quarter or administrative sanction provided primarily as a safeguard for the
quarters of the succeeding taxable year; protection of the State revenue and to reimburse the government for
4. When the excise tax due on excisable articles has not been paid; or the heavy expense of investigation and the loss resulting from the
5. When an article locally purchased or imported by an exempt person, taxpayer’s fraud.
such as, but not limited to, vehicles, capital equipment, machineries
and spare parts, has been sold, traded or transferred to non-exempt
persons.

Cases where the civil penalties or surcharges are imposed Deficiency interest
1. 25% • Any deficiency in the tax due shall be subject to the interest of 20%
a. Failure to file any return and to pay the tax due thereon as per annum which shall be assessed and collected from the date
required by the NIRC or rules. prescribed for its payment until the full payment thereof.
b. Filing a return with an internal revenue officer other than
those with whom the return is required to be fired. Not When delinquency interest imposed?
authorized officer. • Delinquency interest is imposed in case of failure to pay:
c. Failure to pay the deficiency tax within the time prescribed 1. The amount of the tax due on any return required to be filed; or
for its payment in the notice of assessment. 2. The amount of tax due for which no return is required; or
d. Failure to pay the full or part of the amount of tax shown on 3. A deficiency tax or any surcharge or interest thereon on the
any return, or the full amount of tax due for which no return issue date appearing in the notice and demand of the
is required to be filed, on or before the date prescribed for Commissioner.
its payment. • Rate is 20% per annum until the amount is fully paid which interest
2. 50% shall form part of the tax.
a. In case of willful neglect to file the return within the period
prescribed by the NIRC or rules Interest on extended payment
b. In case a false or fraudulent return is willfully made. • This is imposed when taxpayer has opted to pay by installment but
he fails to pay the tax or any installment on the prescribed date for
Substantial underdeclaration or overdeclaration payment.
• A substantial underdeclaration of taxable sales, receipts or income, • It is also imposed where Commissioner has authorized the extension
or a substantial overstatement of deductions shall constitute prima of the time for payment of the tax.
facie evidence of a false or fraudulent return.
• Failure to report sales, receipts or income in an amount exceeding Administrative fines or penalties
30% of that declared per return and a claim of deductions in an 1. Failure to file certain information returns
amount exceeding 30% of actual deductions shall render the 2. Failure of a withholding agent to collect and remit the tax
taxpayer liable for substantial underdeclaration of sales, receipts or 3. Failure of a withholding agent to refund excess withholding tax
income or for overstatement of the deductions.
STATUTORY OFFENSES AND THEIR PENALTIES
Interest General points re. crimes and offenses
• This is an increment on any unpaid amount of tax assessed at the • Any person convicted of a crime penalized by the NIRC shall, in
rate of 20% per annum or such higher rate as may be prescribed by addition to being liable for the payment of the tax, be subject to the
the regulations from the date prescribed for payment until the penalties imposed in the Code.
amount is fully paid. • Payment of the tax due after apprehension shall not constitute a
valid defense in any prosecution for violation of any provision of the
Classes of interest NIRC or in any action for the forfeiture of untaxed articles.
1. Deficiency interest • Any person who willfully aids or abets in the commission of a crime
2. Delinquency interest penalized in NIRC or who causes the commission of any such
3. Interest on extended payment offense by another shall be liable in the same manner as the
principal.
• If the offender is not a Filipino Citizen, he shall be deported When is informer’s reward given?
immediately after serving the sentence without further proceeding • An informer’s reward is given to persons instrumental in the:
for deportation. 1. discovery of violations of the NIRC; and
• If the offender is a public officer or employee, the maximum penalty 2. discovery and seizure of smuggled goods.
prescribed for the offense shall be imposed and in addition, he shall
be dismissed from the public service and perpetually disqualified Requisites for informer’s reward for violations of the NIRC
from holding any public office, to vote and to participate in any 1. This may be claimed by any person, except an internal revenue
election. official or employee or other public official or employee, or his
• If the Offender is a Certified Public Accountant, his certificate as a relatives within the sixth degree of consanguinity.
CPA, shall, upon conviction, be automatically revoked or cancelled. 2. Persons voluntarily gives definite and sworn information, not yet in
• In the case of associations, partnerships, or corporations, the the possession of the Bureau of Internal Revenue. Information
penalty shall be imposed on the partner, president, general should not refer to a case already pending or previously investigated
manager, branch manager, treasurer, officer-in-charge, and or examined by the Commissioner or any of his agents.
employees responsible for the violation. 3. Information leads to the discovery of frauds upon the internal
revenue laws or violations or any of the provisions thereof.
Give examples of crimes and offenses 4. There is recovery of revenues, surcharges and fees and/or
1. Attempt to evade or defeat tax conviction of the guilty party and/or the imposition of any fine or
Any person who willfully attempts in any manner to evade or defeat penalty. In the reverse, if no revenue, surcharges or fees be
any tax imposed under the NIRC or the payment thereof. actually recovered or collected, such person shall not be entitled to a
2. Failure to file return, supply correct information, pay tax, withhold reward.
and remit tax, and refund excess tax withheld on compensation. 5. Reward shall be equivalent to ten percent (10%) of the revenues,
3. Unlawful pursuit of business. surcharges or fees recovered and/or any fine or penalty imposed
4. Unlawful possession or removal of articles subject to excise tax and collected or P1,000,000 per case, whichever is lower.
without payment of the tax. • The same amount of reward shall be also given to an information
5. Failure or refusal to issue receipts or sales or commercial invoices, where the offender has offered to compromise the violation of law
violations related to the printing of such receipts or invoices and committed by him and his offer has been accepted by the
other violations. Commissioner and collected from the offender.
Prescription for violations of any provision of the NIRC Discovery and seizure of smuggled goods
• All violations of any provision of the NIRC shall prescribe in 5 years. • To encourage the public to extend full cooperation in eradicating
• Prescription shall begin to run from the day of the commission of the smuggling, a cash reward equivalent to 10% of the fair market value
violation of the law, and if the same be not known at the same time, of the smuggled and confiscated goods or P1,000,000 per case,
from the discovery thereof and the institution of judicial proceedings whichever is lower.
for its investigation and punishment.
• The prescription shall be interrupted when proceedings are instituted Reward subject to income tax
against the guilty persons and shall begin to run again if the The cash rewards of informers shall be subject to income tax collected as a
proceedings are dismissed for reasons not constituting jeopardy. final withholding tax, at the rate of ten percent (10%).
• The term of prescription shall not run when the offender is absent
from the Philippines.
Chapter 6: REMEDIES OF THE GOVERNMENT COMPROMISE
Compromise v. abatement
IN GENERAL • CIR may compromise both civil and criminal liability of the taxpayer
• Unlike compromise which involves a reduction of the taxpayer’s
Remedies of the government liability, abatement of tax means that the entire tax liability of the
1. Tax lien taxpayer is cancelled.
2. Compromise • Compromise and abatement have different grounds.
3. Distraint
4. Levy Grounds for compromise
5. Civil action 1. A reasonable doubt as to the validity of the claim against the
6. Criminal action taxpayer exists; or
7. Forfeiture 2. The financial position of the taxpayer demonstrates a clear
8. Suspension of business operations in violation of VAT inability to pay the assessed tax
9. Enforcement of administrative fine
Grounds for abatement
TAX LIEN 1. When the tax or any portion thereof appears to be unjustly or
excessively assessed.
Tax lien 2. When the administration and collection costs involved do not justify
• Only one property subject to tax the collection of the amount due.
• When a taxpayer neglects or refuses to pay his internal revenue tax
liability after demand, the amount so demanded shall be a lien in Cases that may be compromised
favor of the government from the time the assessment was made by 1. Delinquent accounts
the Commissioner until paid with interest, penalties, and costs that 2. Cases under administrative protest
may secure in addition thereto, upon all property and rights to 3. Cases disputed before the courts
property belonging to the taxpayer. [Section 219, NIRC] 4. Cases for collection already filed in courts
• Lien shall not be valid against any mortgagee, purchaser or 5. Criminal violations except those already filed, and those involving
judgment creditor until notice of such lien shall be filed by the fraud.
Commissioner in the Register of Deeds of the province or city where
the property of the taxpayer is located. Cases that cannot be compromised
• A tax lien created in favor of the government is superior to all other 1. Withholding tax cases
claims and preferences, even to that of a private litigant predicated 2. Criminal tax fraud cases
on a court judgment. 3. Criminal cases already filed in court
4. Delinquent accounts with duly approved schedule of installment
Tax lien and Distraint payments
• Tax lien is directed to the property subject to the tax, regardless of 5. Cases where reduction of payments had already been granted.
the owner. 6. cases already decided and are final and executory
• In distraint, property seized must be that of the taxpayer, although it
need not be the property in respect to which the tax is assessed.
LEXChapter
LEONUM 6:FRATERNITAS
TAX REMEDIES – REMEDIES OF THE GOVERNMENT. Page 1 of 7
Compromise of criminal violation • The remedy of distraint and levy may be made repeatedly until the
• In criminal violations, the compromise must be made prior to the full amount of the tax due including expenses is satisfied.
filing of the information in court. • Property in custodia legis may be distrained, subject to the outcome
• All criminal violations may be compromised except: and effects of the court’s final judgment.
1. those already filed in court; and
2. those involved in fraud. Actual v. constructive distraint
• Actual distraint is resorted to when delinquency in the payment sets
Limitations on compromise in, that is, when at the time required for payment, a person fails to
• In case of large taxpayers or excise taxpayers - not less than 50% pay his tax obligation. It consists of action seizure and distraint of
• For cases of financial incapacity, a minimum compromise rate personal property to the taxpayer.
equivalent to 10% of the basic assessed tax; and • In constructive distraint, no actual delinquency is necessary before it
• For other cases, a minimum compromise rate equivalent to 40% of may be resorted to. It may be availed of in the following instances:
the basic assessed tax a) Taxpayer is retiring from business subject to tax; b) He intends to
• Where the basic tax exceeds one million pesos (P1,000,000) or leave the Philippines; c) He removes his property therefrom; d) He
where the settlement offered is less than the prescribed minimum hides or conceals his property; or e) He performs any act tending to
rates, the compromise shall be subject to the approval of the obstruct the proceedings for collecting the tax due or which may be
Evaluation Board which shall be composed of the Commissioner and due from him. In addition, constructive distraint may also be
the four Deputy Commissioners. resorted to when the taxpayer is already delinquent.
• Constructive distraint is a preventive remedy whose aim is to
Delegation of the power of compromise forestall a possible dissipation of the taxpayer’s asset when
• The Commissioner may delegate his power to compromise to the delinquency takes place.
Deputy Commissioners and the Regional Directors subject to such • There are different procedures in enforcing actual and constructive
limitations and restrictions as may be imposed under rules and distraint.
regulations to be promulgated for the purpose.
How to effect constructive distraint?
DISTRAINT AND LEVY • It shall be effected by requiring the taxpayer or any person having
Collection by distraint and levy possession or control of such property to sign a receipt covering the
• Both are summary administrative enforcement remedies and cannot property distrained and obligate himself to preserve the same intact
be abailed of where the amount of tax involved is not more than and unaltered and not to dispose of the same in any manner
P100. whatever without the express authority of the Commissioner.
• Distraint is enforced on personal property of the taxpayer while levy • If the taxpayer or any other person refuses or fails to sign the
is enforced on real property. receipt, the revenue officer effecting the constructive distraint shall
• IN distraint, forfeiture by the government is not provided, while in proceed to prepare a list of such property and, in the presence of
levy, forfeiture is authorized. two witnesses, leave a copy thereof in the premises where the
• The taxpayer is not given them right of redemption with respect to property distrained is located, after which the said property shall be
distrained personal property, while such right is granted in case of deemed to have been placed under constructive distraint.
real property levied upon and sold, or forfeited, to the government.
• Levy may be made before, simultaneously or after distraint.
LEXChapter
Procedure for actual distraint Purchase by government at sale upon distraint
1. Commencement of distraint proceedings • The Commissioner or his deputy may purchase the property
2. Service of warrant of distraint distrained in behalf of the National Government when:
3. Notice of sale of distrained property – not less than 20 days 1. the amount bid for the property under distraint is not equal
4. Sale of property distrained – public auction to the amount of the tax; or
2. the amount is very much less than the actual market value
MANNER OF SERVING WARRANT OF DISTRAINT of the articles for sale.
1. Goods, chattels, effects or other personal property • Property so purchased may be resold by the Commissioner or his
The officer serving the warrant of distraint shall make or cause to be deputy.
made an account of goods, chattels, effects or other personal property
distrained, signed by himself, which includes a statement of the sum PROCEDURE ON LEVY OF REAL PROPERTY
demanded and note of the time and place of the sale. 1. Service of warrant of levy
The copy shall be left either with the owner or person from whose 2. Advertisement of the sale – 20 days after levy; period of at least 30
possession such goods, chattels, or effects or other personal property were days
taken, or at the dwelling of business of such person and with someone of 3. Public sale of the property under levy or forfeiture of the property to
suitable age and discretion. the government for want of bidder
2. Stocks and other securities 4. Redemption of property or consolidation of ownership and title in the
Stocks and other securities shall be distrained by serving a copy of purchaser
the warrant of distraint upon the taxpayer and upon the president, manager,
treasure or other responsible officer of the corporation, company or How to effect levy?
association, which issued the said stocks or securities. • Internal revenue officers shall prepare a duly authenticated
3. Debts and credits certificate showing the name of the taxpayer and the amount of the
Debts and credits shall be distrained by leaving with the person tax and penalty due from him.
owing the debts or having in his possession or under his control such credits, • Such certificate shall operate with the force of a legal execution
or with his agent, a copy of the warrant of distraint. throughout the Philippines
The warrant of distraint shall be sufficient authority to the person • Levy shall be effected by writing upon said certificate a description
owing the debts or having his possession or under his control any credits of the property upon which levy is made. At the same time, written
belonging to the taxpayer to pay to the Commissioner the amount of such notice of the levy shall me mailed to or served upon the Register of
debts or credits. Deeds to the province or city where the property is located and upon
4. Bank accounts the delinquent taxpayer, or if he is absent from the Philippines, to
Bank accounts shall be garnished by serving a warrant of his agent or manager, or to the occupant of the property in
garnishment upon the taxpayer and upon the president, manager, treasurer question.
or other responsible officer of the bank. • A failure of notice is a fatal defect.
Upon receipt of the warrant of garnishment, the bank shall turn over
to the Commissioner so much of the bank accounts as may be sufficient to
satisfy the claim of the Government.
LEXChapter
Advertisement of sale Fatal defects in the levy of real property
• Within 20 days after levy. 1. Failure of sending notice to parties.
• Posting a notice of sale at least 30 days at the main entrance of the 2. Mistake in the name of owner of the property
municipal or city hall and in public and conspicuous place in the city 3. Misdescription of the property
or municipality where the property is located. 4. Inaccurate date of sale as posted or published or sent in notice.
• Publication once a week for three weeks in a newspaper of general
circulation in the municipality or city where the property is located. Forefeiture and seizure or property
1. In seizure, a tax lien is being enforced. Any amount in excess of the
Redemption of real property sold tax lien shall be returned to the owner.
• Delinquent taxpayer have the right to redeem the real property sold 2. In forfeiture, the whole amount shall be forfeited in favor of the
by him or any one for him within one (1) year from the date of sale. government.
• Taxpayer must pay the amount of public taxes, penalties, and
interest from the date of delinquency to the date of sale, together FORFEITURE
with interest on said purchase price at the rate of 15% per annum
from the date of purchase to the date of redemption. Forfeiture
• The owner shall not, however, be deprived of the possession of the • The effect of forfeiture is to transfer the title to the specific thing
said property and shall be entitled to the rents and other income from the owner to the government. May be redeemed.
thereof until the expiration of the time allowed for its redemption. • In case of personal property: The forfeiture of chattels and
removable fixtures of any sort is enforced by seizure and sale or
Forfeiture to government for want of bidder in sale of real property destruction of the specific forfeited property.
• Internal revenue officer conducting the sale of real property levied • In case of real property: This forfeiture of real property is
shall declare the property forfeited to the Government in satisfaction enforced by a judgment of condemnation and sale in a legal action
of the claim when: or proceeding, civil or criminal, as the case may require.
1. here is no bidder for real property exposed for sale; or
2. the highest bid is for an amount insufficient to pay the taxes, Forfeiture of property used in unlicensed business or dies used for
penalties and costs. printing false stamps, etc
• All chattels, machinery, and removable fixtures of any sort used in
Resale of real estate taken for taxes the unlicensed production of articles subject to excise tax shall be
• The Commissioner shall have charge of any real estate obtained by forfeited.
the Government in payment or satisfaction of taxes, penalties or • Dies and other equipment used for the printing or making of any
costs arising under the NIRC or in compromise or adjustment or any internal revenue stamp, label or tag which is in imitation of or
claim thereof. purports to be a lawful stamp, label or tag shall also be forfeited.
• The Commissioner may, upon giving not less than 20 days notice,
sell and dispose of the said property at public auction or, with the Forfeiture of goods illegally stored or removed
prior approval of the Secretary of Finance, dispose of the same at • Unless otherwise specifically authorized by the Commissioner, all
private sale. articles subject to excise tax should not be stored or allowed to
remain in a distillery, distillery warehouse, bonded warehouse or
other place where made, after the tax thereon has been paid;
otherwise all such articles shall be forfeited.
LEXChapter
• Articles withdrawn from any such place or from customs custody or Supreme Court, the failure of the heirs to substantiate their claim
imported into the country without the payment of the required tax against the assessment due to the non-submission of their position
shall likewise be forfeited. paper justified the Commissioner in collecting the estate and
inheritance taxes in the settlement proceedings.
CIVIL AND CRIMINAL ACTIONS
• In Republic v. Ledesma [ L-9759, February 28, 1969], the
Civil and criminal actions Supreme Court held that the taxpayer’s failure to dispute the
• Civil and criminal actions and proceedings instituted in behalf of the assessment effectively by complying with the conditions laid down
Government under the authority of the NIRC or other law enforced by the Bureau of Internal Revenue provided a legal basis for the
by the Bureau of Internal Revenue shall be brought in the name of government to collect the taxpayer’s liability by ordinary civil action.
the Government of the Philippines and shall be conducted by legal
officers of the Bureau of Internal Revenue, but no civil or criminal Is Commissioner required to rule on a pending protest before filing
action for the recovery to taxes or the enforcement of any fine, a collection case?
penalty or forfeiture under this Code shall be filed in court without • No. In Republic v. Liam Tian Teng Sons, Inc. [16 SCRA
the approval of the Commissioner. [Section 220, NIRC] 584(1965)], the Supreme Court held that nowhere in the Tax Code
• In a fraud assessment which has become final and executory, the is the Commissioner required to rule first on a taxpayer’s request for
fact of fraud shall be judicially taken cognizance of in the civil or reinvestigation before he can to go court for the purpose of
criminal action for the collection thereof. collecting the tax assessed. According to the Supreme Court, the
legislative policy is to give the Commissioner much latitude in the
Civil action speedy and prompt collection of taxes because it is on taxation that
• Civil action, as a mode of tax collection, is resorted to when a tax the government depends to obtain the means to carry out its
liability becomes collectible. operations.
• Collectibility of a tax arises in the following instances: • Note however that civil or criminal case is tantamount to denial of
1. When a tax is assessed but the assessment becomes banal and the request for reinvestigation. Thus, the taxpayer may file an
unappealable because the taxpayer fails to file an administrative appeal with the Court of Tax Appeals. [Commissioner v. Union
protest within 30 days. Shipping]
2. When a protest against the assessment is filed by the taxpayer
and a decision is rendered by the Commissioner but said Criminal action
decision becomes final, executory and demandable for failure of • The filing of a criminal action is one of the recognized modes of
the taxpayer to file an appeal within 30 days. collecting delinquent taxes. Section 105 of the NIRC further states
• A civil action may also be filed in order to collect the so called self that the judgment in the criminal case shall not only impose the
assessed tax penalty but shall also order payment of the taxes subject of the
• No civil action for recovery of taxes shall be filed without the criminal case as finally decided by the Commissioner.
approval of Commissioner – also criminal. • Criminal action is, however, not resorted to as a collection remedy
only. There are other cases not involving non-payment of taxes
Insufficient protest allowing collection case where criminal action is utilized.
• In Dayrit v. Cruz [L-39910, September 26, 1988], the Supreme
Court ruled that the request for reconsideration cannot be
considered as a protest against the assessment. According to the
LEXChapter
Important considerations regarding criminal action Civil liability in tax criminal cases
1. No criminal action for the recovery of taxes or the enforcement of a • In ordinary criminal cases, the civil liability is incurred by reason of
fine shall be filed in court without the approval of the Commissioner. the offender’s criminal act.
[Section 220, NIRC] • In taxation, the civil liability to pay taxes arises not because of any
2. Criminal actions instituted in behalf of the government under the felony but upon the taxpayer’s failure to pay taxes. Criminal liability
authority of the NIRC or other law enforcement by the Bureau of in taxation arises as a result of one’s liability to pay taxes.
Internal Revenue shall be brought in the name of the government Consequently, the extinction of one’s criminal liability does not
and shall be conducted by legal officers of the Bureau of Internal necessarily result in the extinguishments of his civil liability to pay
Revenue. [Section 220, NIRC] taxes.
• “With regard to the tax proper, the state correctly points out in its
3. The acquittal of the taxpayer in a criminal action does not brief that the acquittal in the criminal case could operate to
necessarily result in the exoneration of said taxpayer form his civil discharge the petitioner from the duty to pay the tax since that duty
liability to pay taxes. is imposed by statute prior to and independent of any attempts on
4. IN a criminal action that was instituted against the taxpayer for the part of the taxpayer to evade payment. The obligation to pay
having filed a false and fraudulent return and failure to pay taxes, the tax is not amere consequence of the felonious acts charged in
the Supreme Court held that the subsequent satisfaction of the tax the information, nor is it a mere civil liability derived from crime that
liability by payment or prescription will not operate to extinguish the would be wiped out by the judicial declaration that the criminal acts
taxpayer’s criminal liability. charged did not exist.” [Castro v. Collector, 4 SCRA 1093]
Payment of the tax due after apprehension shall not constitute a
valid defense in any prosecution for violation of any provision of the NIRC or Need for assessment before criminal action
in any action for forfeiture of untaxed articles. [Section 253, NIRC]
5. Subsidiary imprisonment is provided for in cases of non-payment of Ungab v. Cusi [L-41919-24, May 30, 1980]
the fine due to the taxpayer’s insolvency but not for failure to pay • Quirico Ungab filed a motion to quash the criminal complaints
the tax due to the taxpayer’s insolvency. against him in view of his pending protest against the assessment
Section 280 provides that: “If the person convicted of violation of made by the Bureau of Internal Revenue. The Supreme Court ruled
any provisions of this Code has no property with which to meet the fine that his contention is without merit. What is involved here is not the
imposed upon him by the court or is unable to pay such fine, he shall be collection of taxes where the assessment of the Commissioner may
subject to a subsidiary personal liability.” be reviewed by the Court of Tax Appeals but a criminal prosecution
6. In Ungab v. Cusi, the Supreme Court held that no assessment is for violation of the NIRC which is within the cognizance of the Court
required before a criminal prosecution. This was modified in a later of First Instance (now RTC)
case, Commissioner v. Court of Appeals, where the Supreme • While there can be no civil action to enforce collection before the
Court ruled that assessment is necessary before the criminal assessment procedures in the NIRC have been followed, there is no
prosecution of Fortune Tobacco. The Supreme Court, however, requirement for the precise computation of the tax before there can
harmonized this decision with the earlier one. [See later discussion] be criminal prosecution under the NIRC.
7. In cases of violations committed by associations, partnerships, or • A crime is complete when the violator has knowingly and willfully
corporations, the penalty shall be imposed on the partner, president, filed a fraudulent return with intent to evade and defeat the tax.
general manager, branch manager, treasurer, officer-in-charge, and
employees responsible for the violation.
LEXChapter
Commissioner of Internal Revenue v. Court of Appeals (1997)
• Assessment required before criminal prosecution of Fortune for tax
evasion can be pursued.
• The Supreme Court differentiated this case from Ungab v. Cusi by
ruling that, even though this is also a criminal prosecution, there
must be a prima facie showing of a willful attempt to evade taxes
before one can proceed with such prosecution. In Ungab, there
was willful attempt to evade taxes while in the case at bar, there
was none, as Fortune was even paying taxes according to the BIR
requirements. Thus, there is still need for a final determination of
the tax due before criminal prosecution can be commenced against
Fortune.
LEXChapter
Chapter VII: TAX REMEDIES – REMEDIES OF THE RELEASE OF ASSESSMENT NOTICE OR DEMAND BEFORE THE LAPSE
GOVERNMENT – OF THE PRESCRIPTIVE PERIOD
• The assessment may be subject to revision by the BIR. If revised,
STATUTE OF LIMITATIONS the prescriptive period will commence to run from the safe when
such revised assessment is mailed, released or sent. So, it is not
ASSESSMENT:
from the date the original assessment is mailed etc. but from the
PRESCRIPTION OF GOVERNMENT’S RIGHT TO ASSESS TAXES date the revised assessment has been mailed.
General Rule (Sec 203, NIRC) ü The making of assessment is prescriptible.
• Assessment shall be made within three (3) years after the last day
• The Supreme Court held in case that so long as the release thereof
prescribed by law for the filing of the return or from the day the is effected before prescription sets in, the assessment is deemed
return was filed in case the return was filed beyond the period made on time even though the same is actually received by the
prescribed by law.
taxpayer after the expiration of the prescription period. [Basilan
• A return filed before April 15 shall be considered filed on such date. Estates, Inc. v. Commissioner, 21 SCRA 17]
Exceptions (Sec 222, NIRC) • The law does not require that the demand or notice be received
1. Also a proceeding in court for the collection of such tax may be filed
within the prescriptive period. (Republic vs Tan)
without assessment • Where the taxpayer-addressee makes a direct denial of receipt of a
2. Assessment may be made within ten (10) years after the discovery mailed demand letter, such denial shifts the burden to the
of the falsity, fraud or omission in the following cases:
government to prove that such letter was such indeed received by
a. in case of the false or fraudulent return with intent to the taxpayer. (Republic vs CA)
evade tax; or
b. failure to file a return
IMPORTANT CONSIDERATIONS RE PRESCRIPTION OF
c. by mutual agreement between government and
GOVERNMENT’S RIGHT TO ASSESS TAXES:
taxpayer (which must be in writing) before the lapse. A. DATE OF FILING TAX RETURNS – A MATERIAL FACTOR IN
ü In case the Commissioner and the taxpayer agree in writing to a
RESOLVING QUESTIONS ON PRESCRIPTION
different period before the expiration of the original prescriptive
• The date of the filing of tax return is important for
period. The period so agreed upon may be extended by purposes of determining whether or not the tax was
subsequent written agreement before the expiration of the
assessed within the prescriptive period.
period previously agreed upon.
• Since prescription is an affirmative defense, it is incumbent upon
the taxpayer to prove that a return had been filed by him,
WHEN IS A TAX ASSESSMENT DEEMED MADE?
otherwise, there is a basis for the BIR to assess the tax within
• It is not the issue date of the demand and/or notice that is the
the 10 year period, on the ground that no return was filed by
reckoning point in prescription but rather it is the date when the the taxpayer. (Republic vs Marsman Dev’t.)
demand letter is released, mailed or sent to the taxpayer that
constitutes an actual assessment. (Republic vs Limaco)
B. EFFECT OF FILING A AMENDED RETURN
• Example: If it was received by the taxpayer in a particular date
• The Supreme Court held that where the amended return is
(Dec. 5, 1997), you should count the prescriptive period for making
substantially different from the original return, the right of the
an assessment from the date it was mailed, released or sent by the
Bureau of Internal Revenue to assess the tax is counted from
BIR and not from the receipt of the notice of assessment by the the filing of the amended return. [Commissioner v. Phoenix
taxpayer.
Assurance Co. Ltd. L-19127, May 20, 1965].
Chapter 7: TAXLEX LEONUM FRATERNITAS
REMEDIES OF THE GOVERNMENT – STATUTE OF LIMITATIONS. Page 1 of 6
C. EFFECT OF FILING A WRONG RETURN False vs. Fraudulent return
• If what was filed was a wrong return, the 10 year period still • False return is a deviation from the truth or fact whether
applies. This is true even if the information embodied in the intentional or not.
wrong return could enable the BIR to assess the tax liability of • Fraudulent return is intentional and deceitful with the aim of
the taxpayer. (Butuan Sawmill vs CTA) evading the correct tax due.
• Distinction must be made between false returns due to
D. PRESCRIPTIVE PERIOD FOR MAKING AN ASSESSMENT & mistakes, carelessness or ignorance and fraudulent returns with
COLLECTION intent to evade taxes.
With prior Without prior • The fraud contemplated by law is actual and not constructive. It
assessment assessment must amount to intentional wrong doing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake
I. Return filed is not false 3 years from the 3 years from the
cannot be considered as fraudulent intent. Thus, if both the
or fraudulent date of actual date of actual
petitioner and the respondent Commissioner committed
filing. If it was filed filing or from the
a. Return was file but mistakes in making the entries in the returns and the
earlier than the date last day fixed by law
there exist a assessment respectively under the inventory method of
fixed by the Tax Code. for filing such return.
deficiency determining tax liability, it would be unfair to treat the mistakes
b. Return was filed of the petitioner and the respondent, as tainted with fraud for
but no payment each year from 1946 to 1951, inclusive. [Aznar v. Commissioner,
COLLECTION: Within
has been made Aug. 23, 1974]
5 years from the date
of assessment
Fraud
II. • Fraud is a question of fact and the circumstances constituting
Failure/Falsify/Fraudulent fraud must be alleged and proved.
10 years from the Taxes may be
• Fraud must be a product of a deliberate intent to evade taxes.
a. Intentional failure discovery of such collected even Hence, mere under-declaration does not necessarily imply fraud.
to file a return omission of failure, without prior
• Fraud must be actual and not constructive. It must amount to
b. False return falsity or fraud assessment and
intentional wrong doing with the sole purpose of avoiding the
c. Fraudulent return prescriptive period is
tax. A mere mistake cannot be considered as fraudulent intent.
10 years from the
COLLECTION: 5 discovery of failure
years from the date or omission, falsity or
of assessment. fraud.
Notes: The rule is if prior assessment has been made, the BIR can avail of
the administrative and judicial remedy. But if without prior assessment, the
BIR can only avail of the judicial remedies.
Return must be the one prescribed by the BIR. SO, if you file your
Books of Accounts in lieu of that return, that does not constitute return.

ASSESSMENT PROCEDURE b. IF he appeal the decision of the BIR of the Commissioner to the CTA
1. File tax return but he did not appeal the decision of the CTA to CA, the decision of
2. Letter of authority to examine the CTA shall be final and executory.
If satisfied, collection. c. If he appeal to the CA but the CA decision affirming that decision of
3. Notice of Informal Conference the BIR was not appealed to the SC, CA decision shall be final and
If satisfied with explanation, collection. executory.
4. Pre-assessment notice d. If appealed to SC but SC affirm the decision of the CA, SC decision is
5. Response – 15 days final and executory.
6. Notice of assessment and letter of demand Ø If the decision of the BIR is final and executory, the
7. Administrative protest – Reconsideration or reinvestigation assessment made cannot be questioned. The issue of
Submission of all relevant supporting documents – within 60 prescription can no longer be raised except if the BIR
days from protest submitted the particular issue for the resolution of the Court,
8. Denial or non-action of the Commissioner – 180 days that is considered as waiver on the part of the BIR and such
9. Appeal to the CTA – within 30 days from decision or the lapse of issue of prescription may be subject to resolution.
180 days Ø There is no provision in the TAX Code that prohibits the BIR
10. Appeal to the CA – within 15 days from notice from filing an action for collection even if the resolution on
CA decides within 12 months the motion for reconsideration on the assessment made is
11. Petition for review on certiorari to the Supreme Court still pending.
Ø When the case is pending before the CTA, collection may
COLLECTION also be made by filing of an answer to the petition for
General Rule review with the CTA. This is tantamount to a filing of
• Collection may be instituted within 5 years following the assessment collection of tax. This will also stop the running of the
of the tax [Sec. 222C] prescriptive period for collection of taxes.
Ø Collection of taxes is prescriptible.
Exception
• A proceeding in court for collection, without assessment, may be When does the five year prescriptive period start to run?
instituted within ten years after the discovery of falsity, fraud, or • The period of limitation to collect is counted from the assessment of
omission in the case of a false or fraudulent return with intent to the tax.
evade tax or failure to file a return [Sec. 222A] • Assessment is deemed made at the time the demand or assessment
notice has been sent, released or mailed to the taxpayer.
PRINCIPLES GOVERNING THE FILING OF AN ACTION FOR • The actual sending or release to the taxpayer of the assessment
COLLECTION BY THE BIR notice or demand is, therefore, necessary in order to determine the
actual date when the tax being collected was assessed.
Collection is proper under the following situations:
a. BIR assessment is considered final and executory, if no protest or
dispute has been made by the taxpayer. IF protested by the
taxpayer but he did not appeal, the BIR decision on such protest,
the effect is that the BIR decision shall be considered final and
executory.

When is the tax deemed collected for purposes of the prescriptive Procedure for waiver of prescription period under Rev. M.O. 20-90
period 1. Waiver must be in accordance with the prescribed form;
• Collection through summary remedies is effectuated by summary 2. Waiver must be signed by the taxpayer himself or his authorized
methods when the government avails of the distraint and levy representative;
procedure. 3. The Commissioner of his duly authorized agent must sign the
• If collection is to be effected through judicial remedies, the collection waiver indicating the BIR’s acceptance of the waiver.
of the tax is begun by the filing of the complaint with the proper
court. Prescription of the government’s right to recover an erroneously
• However, if the decision of the Commissioner on a protested refunded tax ([Guagua Electric Co., Inc. v. Commissioner 19 SCRA 790]
assessment is appealed to the CTA, the collection of the tax is • Same as the three-year prescriptive period for making assessments.
considered begun when the government files its answer to the
taxpayer’s petition for review. Equitable recoupment and prescription
• The rule in this jurisdiction is not to allow the setting off the
May there be a judicial action to collect a tax liability even if there prescribed tax against a tax refund; for if that were so, this would
is no previous assessment? only encourage negligence on the part of our collecting officers who
• Yes. A proceeding in court for collection-without-assessment may be would feel despite prescription in the thought that they could always
instituted within ten years after the discovery of falsity, fraud, or collect the prescribed tax through the expedient of set-off (CIR vs
omission in the case of a false or fraudulent return. UST)
• Two possibilities that could arise:
1. Taxpayer files a false or fraudulent return with intent to evade Suspension of the running of the Statute of limitations
taxes. • The running of the Statute of Limitations provided in Sec. 203 and
2. Tax payer does not file any return at al. 222 on the making of assessment and the beginning of distraint or
levy or a proceeding in court for collection, in respect of any
Tax obligation secured by bond deficiency, shall be suspended under any of the following
• Where the tax obligation is secured by a bond, the prescriptive circumstances:
period for the action for the forfeiture of the bond is governed by 1. When the Commissioner is prohibited from making the
the Civil Code: 10 years to enforce a written contractual obligation. assessment or beginning the distraint, levy, or proceeding in
court and for sixty days thereafter;
Waiver of the Statute of Limitations 2. When the taxpayer requests for a reinvestigation which is
• Sec. 222B of the NIRC allows the taxpayer and the government granted by the Commissioner;
to extend by mutual agreement the prescriptive periods for the 3. When the taxpayer cannot be located in the address given
assessment and collection of taxes. Such an agreement must be by him in the return filed upon which tax is being assessed
in writing. or collected, unless the taxpayer has informed the
• The waiver must be signed by the parties before the lapse of the Commissioner of any change in address;
three-year prescriptive period. A waiver is ineffectual if it is 4. When the warrant of distraint or levy is duly served upon
executed beyond the original prescriptive period. the taxpayer, his authorized representative, or a member of
• The extended period may again be extended provided the new his household with sufficient discretion, and no property
period be agreed upon before the lapse of the extended period. could be located; and
5. When the taxpayer is out of the Philippines.
Examples when the Commissioner is prohibited from assessing or Rule of prescription in criminal cases (SEC. 281. ,NIRC)
collecting the tax • All violations of any provision of this Code shall prescribe after Five
1. The filing of a petition for review in the Court of Tax Appeals from (5) years.
the decision of the Commissioner on a protested assessment • Prescription shall begin to run from the day of the commission of the
interrupts the running of the prescriptive period for collection. violation of the law, and if the same be not known at the time, from
[Republic v. Ker & Co., Ltd. 18 SCRA 207] the discovery thereof and the institution of judicial proceedings for
2. When the CTA enjoins the collection of the tax under Sec. 11 of RA its investigation and punishment.
1125. • The prescription shall be interrupted when proceedings are instituted
against the guilty persons and shall begin to run again if the
Request for reinvestigation which should be granted or acted upon proceedings are dismissed for reasons not constituting jeopardy.
by the Commissioner • The term of prescription shall not run when the offender is absent
• It should be emphasized that a mere request for reinvestigation from the Philippines.
without any corresponding action on the part of the Commissioner
does not interrupt the running of the prescriptive period. When defense of prescription may be raised even on appeal
• Criminal Case involving tax violations
Will an extra-judicial demand interrupt the prescription period? Ø The defense of prescription can be raised or invoked by the
• No. Sec. 22 of the NIRC enumerates the instances when the accused even if the case had already been decided by the
prescription is interrupted, and an extra-judicial demand is not one lower court but pending decision on appeal.
of them. • Civil Action for the collection of Taxes
Ø The defense of prescription, if not raised in the lower court,
GROUNDS FOR THE SUSPENSION OF PRESCRIPTIVE PERIOD IN is barred permanently.
THE COLLECTION OF TAXES: (Code: N.A.P.O.C.A.R. –sounds Ø Reason: Issues or defenses not raised in the administrative
like NAPOCOR. Pag may NAPOCOR may kuryente, pag may kuryente may proceeding and/or in the lower court cannot be raised for
ground) the first time on appeal.
1. No property could be allocated;
Prescriptive Period in Criminal Cases – when does it start to run?
2. Agreement between the BIR and the taxpayer to the effect that the
• It is important to note that the reckoning point for purposes of
prescriptive period shall be suspended pending the negotiation;
prescription will depend on the nature of the tax avoidance.
3. If the BIR is Prohibited from a distraint or levy of real property;
• By its nature, the violation could only be committed after service of
4. If the taxpayer is Out of the Philippines;
notice and demand for payment of the deficiency taxes upon the
5. If the address of the taxpayer Cannot be located;
taxpayer. This is so because prior to the finality of the assessment,
6. The filing of an Answer to the petition for review executed by a
the taxpayer has not committed any violation for nonpayment of the
taxpayer with the CTA;
tax. The offense was committed only after the finality of the
7. When a Request for reinvestigation has been granted by the BIR.
assessment coupled with the taxpayer’s willful refusal to pay the
taxes within the allotted period. (Lim, Sr. vs CA)

EXERCISES: A taxpayer requested for reinvestigation of his tax liability. Did it
suspend the period to assess and collect?
Taxpayer: Prescriptive Period: Suspended (2000) SUGGESTED ANSWER:
Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his No. A mere request for reinvestigation does not suspend the period to
1994 income tax return on March 20, 1995. On December 15, 1995, he left assess and collect. Section 223 of the NIRC provides that the period shall
the Philippines as an immigrant to join his family in Canada. After the be suspended “when the taxpayer requests for a reinvestigation which is
investigation of said return, the BIR issued a notice of deficiency income tax granted by the Commissioner.” Thus, it is not only the request for
assessment on April 15, 1998. Mr. Reyes returned to the Philippines as a reinvestigation which will toll the period. There must be a showing that the
balikbayan on December 8, 1998. Finding his name to be in the list of same was granted by the CIR. (BPI v. CIR, GR No. 139736, 17 October
delinquent taxpayers, he filed a protest against the assessment on 2005)
the ground that he did not receive the notice of assessment and that the
assessment had prescribed. Will the protest prosper? Explain. Collection of Taxes: Prescription (2001)
SUGGESTED ANSWER: May the collection of taxes be barred by prescription? Explain your answer.
No. Prescription has not set in because the period of SUGGESTED ANSWER:
limitations for the Bureau of Internal Revenue to issue an assessment was Yes. The collection of taxes may be barred by prescription.
SUSPENDED during the time that Mr. Reyes was out of the Philippines or The prescriptive periods for collection of taxes are governed by the tax law
from the period December 15, 1995 up to December 8, 1998.(Sec. 223 in imposing the tax. However, if the tax law does not provide for prescription,
relation to Sec. 203, both of the NIRC of 1997) the right of the government to collect taxes becomes imprescriptible.
What is the purpose of a waiver of the statute of limitations to Imprescriptibility of Tax Laws (1997)
assess and collect internal revenue taxes? Taxes were generally imprescriptible; statutes, however, may provide
SUGGESTED ANSWER otherwise. State the rules that have been adopted on this score by The
A waiver of the statute of limitations under the NIRC, to a certain extent, is a National Internal Revenue Code.
derogation of the taxpayers' right to security against prolonged and SUGGESTED ANSWER:
unscrupulous investigations and must therefore be carefully and strictly The statute of limitation for assessment of tax if a return is filed is within
construed. The waiver of the statute of limitations is not a waiver of the right three (3) years from the last day prescribed by law for the filing of the return
to invoke the defense of prescription. It is an agreement between the or if filed after the last day, within three years from date of actual filing. If
taxpayer and the BIR that the period to issue an assessment and collect the no return is filed or the return filed is false or fraudulent, the period to
taxes due is extended to a date certain. The waiver does not mean that the assess is within TEN YEARS from discovery of the omission, fraud or falsity.
taxpayer relinquishes the right to invoke prescription unequivocally The period to collect the tax is within FIVE YEARS from date of assessment.
particularly where the language of the document is equivocal. For the In the case, however, of omission to file or if the return filed is false or
purpose of safeguarding taxpayers from any unreasonable examination, fraudulent, the period to collect is within TEN YEARS from discovery without
investigation or assessment, our tax law provides a statute of limitations in need of an assessment.
the collection of taxes. Thus, the law on prescription, being a remedial
measure, should be liberally construed in order to afford such protection.
As a corollary, the exceptions to the law on prescription should perforce be
strictly construed. (Philippine Journalists, Inc. v. CIR, G.R. No. 162852,
December 16, 2004)

Chapter VII: TAX REMEDIES – REMEDIES OF THE RELEASE OF ASSESSMENT NOTICE OR DEMAND BEFORE THE LAPSE
GOVERNMENT – OF THE PRESCRIPTIVE PERIOD
• The assessment may be subject to revision by the BIR. If revised,
STATUTE OF LIMITATIONS the prescriptive period will commence to run from the safe when
such revised assessment is mailed, released or sent. So, it is not
ASSESSMENT:
from the date the original assessment is mailed etc. but from the
PRESCRIPTION OF GOVERNMENT’S RIGHT TO ASSESS TAXES date the revised assessment has been mailed.
General Rule (Sec 203, NIRC) ü The making of assessment is prescriptible.
• Assessment shall be made within three (3) years after the last day
• The Supreme Court held in case that so long as the release thereof
prescribed by law for the filing of the return or from the day the is effected before prescription sets in, the assessment is deemed
return was filed in case the return was filed beyond the period made on time even though the same is actually received by the
prescribed by law.
taxpayer after the expiration of the prescription period. [Basilan
• A return filed before April 15 shall be considered filed on such date. Estates, Inc. v. Commissioner, 21 SCRA 17]
Exceptions (Sec 222, NIRC) • The law does not require that the demand or notice be received
1. Also a proceeding in court for the collection of such tax may be filed
within the prescriptive period. (Republic vs Tan)
without assessment • Where the taxpayer-addressee makes a direct denial of receipt of a
2. Assessment may be made within ten (10) years after the discovery mailed demand letter, such denial shifts the burden to the
of the falsity, fraud or omission in the following cases:
government to prove that such letter was such indeed received by
a. in case of the false or fraudulent return with intent to the taxpayer. (Republic vs CA)
evade tax; or
b. failure to file a return
IMPORTANT CONSIDERATIONS RE PRESCRIPTION OF
c. by mutual agreement between government and
GOVERNMENT’S RIGHT TO ASSESS TAXES:
taxpayer (which must be in writing) before the lapse. A. DATE OF FILING TAX RETURNS – A MATERIAL FACTOR IN
ü In case the Commissioner and the taxpayer agree in writing to a
RESOLVING QUESTIONS ON PRESCRIPTION
different period before the expiration of the original prescriptive
• The date of the filing of tax return is important for
period. The period so agreed upon may be extended by purposes of determining whether or not the tax was
subsequent written agreement before the expiration of the
assessed within the prescriptive period.
period previously agreed upon.
• Since prescription is an affirmative defense, it is incumbent upon
the taxpayer to prove that a return had been filed by him,
WHEN IS A TAX ASSESSMENT DEEMED MADE?
otherwise, there is a basis for the BIR to assess the tax within
• It is not the issue date of the demand and/or notice that is the
the 10 year period, on the ground that no return was filed by
reckoning point in prescription but rather it is the date when the the taxpayer. (Republic vs Marsman Dev’t.)
demand letter is released, mailed or sent to the taxpayer that
constitutes an actual assessment. (Republic vs Limaco)
B. EFFECT OF FILING A AMENDED RETURN
• Example: If it was received by the taxpayer in a particular date
• The Supreme Court held that where the amended return is
(Dec. 5, 1997), you should count the prescriptive period for making
substantially different from the original return, the right of the
an assessment from the date it was mailed, released or sent by the
Bureau of Internal Revenue to assess the tax is counted from
BIR and not from the receipt of the notice of assessment by the the filing of the amended return. [Commissioner v. Phoenix
taxpayer.
Assurance Co. Ltd. L-19127, May 20, 1965].
C. EFFECT OF FILING A WRONG RETURN False vs. Fraudulent return
• If what was filed was a wrong return, the 10 year period still • False return is a deviation from the truth or fact whether
applies. This is true even if the information embodied in the intentional or not.
wrong return could enable the BIR to assess the tax liability of • Fraudulent return is intentional and deceitful with the aim of
the taxpayer. (Butuan Sawmill vs CTA) evading the correct tax due.
• Distinction must be made between false returns due to
D. PRESCRIPTIVE PERIOD FOR MAKING AN ASSESSMENT & mistakes, carelessness or ignorance and fraudulent returns with
COLLECTION intent to evade taxes.
With prior Without prior • The fraud contemplated by law is actual and not constructive. It
assessment assessment must amount to intentional wrong doing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake
I. Return filed is not false 3 years from the 3 years from the
cannot be considered as fraudulent intent. Thus, if both the
or fraudulent date of actual date of actual
petitioner and the respondent Commissioner committed
filing. If it was filed filing or from the
a. Return was file but mistakes in making the entries in the returns and the
earlier than the date last day fixed by law
there exist a assessment respectively under the inventory method of
fixed by the Tax Code. for filing such return.
deficiency determining tax liability, it would be unfair to treat the mistakes
b. Return was filed of the petitioner and the respondent, as tainted with fraud for
but no payment each year from 1946 to 1951, inclusive. [Aznar v. Commissioner,
COLLECTION: Within
has been made Aug. 23, 1974]
5 years from the date
of assessment
Fraud
II. • Fraud is a question of fact and the circumstances constituting
Failure/Falsify/Fraudulent fraud must be alleged and proved.
10 years from the Taxes may be
• Fraud must be a product of a deliberate intent to evade taxes.
a. Intentional failure discovery of such collected even Hence, mere under-declaration does not necessarily imply fraud.
to file a return omission of failure, without prior
• Fraud must be actual and not constructive. It must amount to
b. False return falsity or fraud assessment and
intentional wrong doing with the sole purpose of avoiding the
c. Fraudulent return prescriptive period is
tax. A mere mistake cannot be considered as fraudulent intent.
10 years from the
COLLECTION: 5 discovery of failure
years from the date or omission, falsity or
of assessment. fraud.
Notes: The rule is if prior assessment has been made, the BIR can avail of
the administrative and judicial remedy. But if without prior assessment, the
BIR can only avail of the judicial remedies.
Return must be the one prescribed by the BIR. SO, if you file your
Books of Accounts in lieu of that return, that does not constitute return.

ASSESSMENT PROCEDURE b. IF he appeal the decision of the BIR of the Commissioner to the CTA
1. File tax return but he did not appeal the decision of the CTA to CA, the decision of
2. Letter of authority to examine the CTA shall be final and executory.
If satisfied, collection. c. If he appeal to the CA but the CA decision affirming that decision of
3. Notice of Informal Conference the BIR was not appealed to the SC, CA decision shall be final and
If satisfied with explanation, collection. executory.
4. Pre-assessment notice d. If appealed to SC but SC affirm the decision of the CA, SC decision is
5. Response – 15 days final and executory.
6. Notice of assessment and letter of demand Ø If the decision of the BIR is final and executory, the
7. Administrative protest – Reconsideration or reinvestigation assessment made cannot be questioned. The issue of
Submission of all relevant supporting documents – within 60 prescription can no longer be raised except if the BIR
days from protest submitted the particular issue for the resolution of the Court,
8. Denial or non-action of the Commissioner – 180 days that is considered as waiver on the part of the BIR and such
9. Appeal to the CTA – within 30 days from decision or the lapse of issue of prescription may be subject to resolution.
180 days Ø There is no provision in the TAX Code that prohibits the BIR
10. Appeal to the CA – within 15 days from notice from filing an action for collection even if the resolution on
CA decides within 12 months the motion for reconsideration on the assessment made is
11. Petition for review on certiorari to the Supreme Court still pending.
Ø When the case is pending before the CTA, collection may
COLLECTION also be made by filing of an answer to the petition for
General Rule review with the CTA. This is tantamount to a filing of
• Collection may be instituted within 5 years following the assessment collection of tax. This will also stop the running of the
of the tax [Sec. 222C] prescriptive period for collection of taxes.
Ø Collection of taxes is prescriptible.
Exception
• A proceeding in court for collection, without assessment, may be When does the five year prescriptive period start to run?
instituted within ten years after the discovery of falsity, fraud, or • The period of limitation to collect is counted from the assessment of
omission in the case of a false or fraudulent return with intent to the tax.
evade tax or failure to file a return [Sec. 222A] • Assessment is deemed made at the time the demand or assessment
notice has been sent, released or mailed to the taxpayer.
PRINCIPLES GOVERNING THE FILING OF AN ACTION FOR • The actual sending or release to the taxpayer of the assessment
COLLECTION BY THE BIR notice or demand is, therefore, necessary in order to determine the
actual date when the tax being collected was assessed.
Collection is proper under the following situations:
a. BIR assessment is considered final and executory, if no protest or
dispute has been made by the taxpayer. IF protested by the
taxpayer but he did not appeal, the BIR decision on such protest,
the effect is that the BIR decision shall be considered final and
executory.

When is the tax deemed collected for purposes of the prescriptive Procedure for waiver of prescription period under Rev. M.O. 20-90
period 1. Waiver must be in accordance with the prescribed form;
• Collection through summary remedies is effectuated by summary 2. Waiver must be signed by the taxpayer himself or his authorized
methods when the government avails of the distraint and levy representative;
procedure. 3. The Commissioner of his duly authorized agent must sign the
• If collection is to be effected through judicial remedies, the collection waiver indicating the BIR’s acceptance of the waiver.
of the tax is begun by the filing of the complaint with the proper
court. Prescription of the government’s right to recover an erroneously
• However, if the decision of the Commissioner on a protested refunded tax ([Guagua Electric Co., Inc. v. Commissioner 19 SCRA 790]
assessment is appealed to the CTA, the collection of the tax is • Same as the three-year prescriptive period for making assessments.
considered begun when the government files its answer to the
taxpayer’s petition for review. Equitable recoupment and prescription
• The rule in this jurisdiction is not to allow the setting off the
May there be a judicial action to collect a tax liability even if there prescribed tax against a tax refund; for if that were so, this would
is no previous assessment? only encourage negligence on the part of our collecting officers who
• Yes. A proceeding in court for collection-without-assessment may be would feel despite prescription in the thought that they could always
instituted within ten years after the discovery of falsity, fraud, or collect the prescribed tax through the expedient of set-off (CIR vs
omission in the case of a false or fraudulent return. UST)
• Two possibilities that could arise:
1. Taxpayer files a false or fraudulent return with intent to evade Suspension of the running of the Statute of limitations
taxes. • The running of the Statute of Limitations provided in Sec. 203 and
2. Tax payer does not file any return at al. 222 on the making of assessment and the beginning of distraint or
levy or a proceeding in court for collection, in respect of any
Tax obligation secured by bond deficiency, shall be suspended under any of the following
• Where the tax obligation is secured by a bond, the prescriptive circumstances:
period for the action for the forfeiture of the bond is governed by 1. When the Commissioner is prohibited from making the
the Civil Code: 10 years to enforce a written contractual obligation. assessment or beginning the distraint, levy, or proceeding in
court and for sixty days thereafter;
Waiver of the Statute of Limitations 2. When the taxpayer requests for a reinvestigation which is
• Sec. 222B of the NIRC allows the taxpayer and the government granted by the Commissioner;
to extend by mutual agreement the prescriptive periods for the 3. When the taxpayer cannot be located in the address given
assessment and collection of taxes. Such an agreement must be by him in the return filed upon which tax is being assessed
in writing. or collected, unless the taxpayer has informed the
• The waiver must be signed by the parties before the lapse of the Commissioner of any change in address;
three-year prescriptive period. A waiver is ineffectual if it is 4. When the warrant of distraint or levy is duly served upon
executed beyond the original prescriptive period. the taxpayer, his authorized representative, or a member of
• The extended period may again be extended provided the new his household with sufficient discretion, and no property
period be agreed upon before the lapse of the extended period. could be located; and
5. When the taxpayer is out of the Philippines.
Examples when the Commissioner is prohibited from assessing or Rule of prescription in criminal cases (SEC. 281. ,NIRC)
collecting the tax • All violations of any provision of this Code shall prescribe after Five
1. The filing of a petition for review in the Court of Tax Appeals from (5) years.
the decision of the Commissioner on a protested assessment • Prescription shall begin to run from the day of the commission of the
interrupts the running of the prescriptive period for collection. violation of the law, and if the same be not known at the time, from
[Republic v. Ker & Co., Ltd. 18 SCRA 207] the discovery thereof and the institution of judicial proceedings for
2. When the CTA enjoins the collection of the tax under Sec. 11 of RA its investigation and punishment.
1125. • The prescription shall be interrupted when proceedings are instituted
against the guilty persons and shall begin to run again if the
Request for reinvestigation which should be granted or acted upon proceedings are dismissed for reasons not constituting jeopardy.
by the Commissioner • The term of prescription shall not run when the offender is absent
• It should be emphasized that a mere request for reinvestigation from the Philippines.
without any corresponding action on the part of the Commissioner
does not interrupt the running of the prescriptive period. When defense of prescription may be raised even on appeal
• Criminal Case involving tax violations
Will an extra-judicial demand interrupt the prescription period? Ø The defense of prescription can be raised or invoked by the
• No. Sec. 22 of the NIRC enumerates the instances when the accused even if the case had already been decided by the
prescription is interrupted, and an extra-judicial demand is not one lower court but pending decision on appeal.
of them. • Civil Action for the collection of Taxes
Ø The defense of prescription, if not raised in the lower court,
GROUNDS FOR THE SUSPENSION OF PRESCRIPTIVE PERIOD IN is barred permanently.
THE COLLECTION OF TAXES: (Code: N.A.P.O.C.A.R. –sounds Ø Reason: Issues or defenses not raised in the administrative
like NAPOCOR. Pag may NAPOCOR may kuryente, pag may kuryente may proceeding and/or in the lower court cannot be raised for
ground) the first time on appeal.
1. No property could be allocated;
Prescriptive Period in Criminal Cases – when does it start to run?
2. Agreement between the BIR and the taxpayer to the effect that the
• It is important to note that the reckoning point for purposes of
prescriptive period shall be suspended pending the negotiation;
prescription will depend on the nature of the tax avoidance.
3. If the BIR is Prohibited from a distraint or levy of real property;
• By its nature, the violation could only be committed after service of
4. If the taxpayer is Out of the Philippines;
notice and demand for payment of the deficiency taxes upon the
5. If the address of the taxpayer Cannot be located;
taxpayer. This is so because prior to the finality of the assessment,
6. The filing of an Answer to the petition for review executed by a
the taxpayer has not committed any violation for nonpayment of the
taxpayer with the CTA;
tax. The offense was committed only after the finality of the
7. When a Request for reinvestigation has been granted by the BIR.
assessment coupled with the taxpayer’s willful refusal to pay the
taxes within the allotted period. (Lim, Sr. vs CA)

EXERCISES: Collection of Taxes: Prescription (2001)
May the collection of taxes be barred by prescription? Explain your answer.
BIR: Prescriptive Period; Assessment & Collection (1999) SUGGESTED ANSWER:
A Co., a Philippine Corporation, filed its 1995 Income Tax Return (ITR) on April 15, 1996 Yes. The collection of taxes may be barred by prescription.
showing a net loss. On November 10, 1996, it amended its 1995 ITR to show more The prescriptive periods for collection of taxes are governed by the tax law imposing the
losses. After a tax investigation, the BIR disallowed certain deductions claimed by A Co., tax. However, if the tax law does not provide for prescription, the right of the government
putting A Co. in a net income position. As a result, on August 5, 1999, the BIR issued a to collect taxes becomes imprescriptible.
deficiency income assessment against A Co. A Co. protested the assessment on the ground
that it has prescribed: Decide. Imprescriptibility of Tax Laws (1997)
SUGGESTED ANSWER: Taxes were generally imprescriptible; statutes, however, may provide otherwise. State the
The right of the BIR to assess the tax has not prescribed. rules that have been adopted on this score by The National Internal Revenue Code.
The rule is that internal revenue taxes shall be assessed within three SUGGESTED ANSWER:
The statute of limitation for assessment of tax if a return is filed is within three (3) years from
years after the last day prescribed by law for the filing of the return. (Section 203, NIRC),
However, if the return originally filed is amended substantially, the counting of the three- the last day prescribed by law for the filing of the return or if filed after the last day, within
year period starts from the date the amended return was filed. (CIR v. Phoenix Assurance three years from date of actual filing. If no return is filed or the return filed is false or
Co., Ltd., 14 SCRA 52). There is a substantial amendment in this case because a new return fraudulent, the period to assess is within TEN YEARS from discovery of the omission, fraud or
was filed declaring more losses, which can only be done either (1) in reducing gross income falsity.
or (2) in increasing the items of deductions, claimed. The period to collect the tax is within FIVE YEARS from date of assessment. In the case,
however, of omission to file or if the return filed is false or fraudulent, the period to collect is
within TEN YEARS from discovery without need of an assessment.
What is the purpose of a waiver of the statute of limitations to assess and collect
internal revenue taxes?
SUGGESTED ANSWER Taxpayer: Prescriptive Period: Suspended (2000)
A waiver of the statute of limitations under the NIRC, to a certain extent, is a Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his 1994 income tax
return on March 20, 1995. On December 15, 1995, he left the Philippines as an immigrant to
derogation of the taxpayers' right to security against prolonged and unscrupulous
join his family in Canada. After the investigation of said return/the BIR issued a notice of
investigations and must therefore be carefully and strictly construed. The waiver of the
deficiency income tax assessment on April 15, 1998. Mr. Reyes returned to the Philippines as a
statute of limitations is not a waiver of the right to invoke the defense of prescription. It
balikbayan on December 8, 1998. Finding his name to be in the list of delinquent taxpayers,
is an agreement between the taxpayer and the BIR that the period to issue an assessment he filed a protest against the assessment on the ground that he did not receive the
and collect the taxes due is extended to a date certain. The waiver does not mean that notice of assessment and that the assessment had prescribed. Will the protest prosper? Explain.
the taxpayer relinquishes the right to invoke prescription unequivocally particularly SUGGESTED ANSWER:
where the language of the document is equivocal. For the purpose of safeguarding No. Prescription has not set in because the period of
taxpayers from any unreasonable examination, investigation or assessment, our tax law limitations for the Bureau of Internal Revenue to issue an assessment was SUSPENDED
provides a statute of limitations in the collection of taxes. Thus, the law on prescription, during the time that Mr. Reyes was out of the Philippines or from the period December 15,
being a remedial measure, should be liberally construed in order to afford such 1995 up to December 8, 1998.(Sec. 223 in relation to Sec. 203, both of the NIRC of 1997)
protection. As a corollary, the exceptions to the law on prescription should perforce be
strictly construed. (Philippine Journalists, Inc. v. CIR, G.R. No. 162852, December 16, BIR: Criminal Prosecution: Tax Evasion (1998)
2004) Is assessment necessary before a taxpayer may be prosecuted for willfully
attempting in any manner to evade or defeat any tax imposed by the Internal Revenue Code?
A taxpayer requested for reinvestigation of his tax liability. Did it SUGGESTED ANSWER:
suspend the period to assess and collect? No. Assessment is not necessary before a taxpayer maybe prosecuted if there is a prima
SUGGESTED ANSWER: facie showing of a willful attempt to evade taxes as in the taxpayer's failure to declare a
No. A mere request for reinvestigation does not suspend the period to assess specific item of taxable income in his income tax returns (Ungab v. Cusi 97 SCRA 877). On
and collect. Section 223 of the NIRC provides that the period shall be suspended
the contrary, if the taxes alleged to have been evaded is computed based on reports
“when the taxpayer requests for a reinvestigation which is granted by the
approved by the BIR there is a presumption of regularity of the previous payment of
Commissioner.” Thus, it is not only the request for reinvestigation which will toll the
taxes, so that unless and until the BIR has made a final determination of what is supposed to
period. There must be a showing that the same was granted by the CIR. (BPI v. CIR, GR
be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution
No. 139736, 17 October 2005)
(CIR v. Fortune Tobacco Corp., GR No. 119322, June 4, 1996).

Chapter 8: TAXPAYER’S REMEDIES *** Motion for reconsideration must raise new grounds, meaning grounds
which have not been raised in that request for reconsideration or
In General reinvestigation. Otherwise, it is just a pro-forma motion, it will not suspend
the period within which to appeal the BIR decision to the CTA which is 30
Remedies of the taxpayer days from receipt of the BIR decision.
1. Remedies before payment of tax: Protest of assessment
a. Protest of pre-assessment notice – 15 days upon receipt ISSUES that may be raised on appeal with the CTA
b. Protest of Final Assessment – 30 days upon receipt 1. Questions of law or fact OR both
c. Appeal to CTA of the decision of the Commissioner – 30 2. Questions of fact
days from receipt of decision of the Commissioner, or from 3. both
the lapse of 180 days. If CTA affirms the decision of the BIR:
d. Appeal decision of the CTA to the CA – 15 days Ø Appeal the CTA decision to CA.
2. Remedy after payment of tax: Claim for tax refund or credit ISSUES: Questions of law
2 years from payment of tax. WHEN: Within 15 days from receipt of the CA decision.
REMEDIES OF THE TAXPAYER PROTEST OF ASSESSMENT

* BEFORE PAYMENT, the taxpayer may dispute or protest the assessment. Procedure
He ma also invoke the power of the BIR Commissioner to compromise tax 1. Taxpayer may file an administrative protest by filing a request for
liability. reconsideration or reinvestigation within 30 days from the receipt of
the assessment.
* If you RECEIVED AN ASSESSMENT by the BIR, the remedies are: 2. Within 60 days from the filing of the protest, the taxpayer, shall
a. File a request for reconsideration of the assessment or this is a claim submit all relevant supporting documents, otherwise the assessment
for re-evaluation of the assessment based on the existing records. becomes final.
b. File a request for investigation of the assessment --- it is also a claim 3. If protest is denied in whole or in part, or is not acted upon within
for a re-evaluation of the assessment on the basis of newly 180 days from the submission of documents, the taxpayer adversely
discovered evidence, or additional evidence that the taxpayer affected by the decision or inaction may appeal to the CTA within 30
intends to present in the reinvestigation. days from the receipt of the decision or from the lapse of the 180
day period, otherwise, the decision becomes final, executory, and
WHERE TO FILE: BIR Commissioner demandable [Sec. 228 NIRC]
WHEN: Within 30 days from receipt the final assessment 4. Decision of the CTA may be appealed to the CA through a verified
WHO MAY FILE: Taxpayer or authorized representative petition for review within 15 days from the receipt of the decision of
the CTA. This may be extended for another 15 days upon proper
IF the request for investigation or reconsideration has been denied motion and the payment of the full amount of the docket fee before
by the BIR: the expiration of the reglementary period. No further extensions
1. File a motion for reconsideration of the decision with the BIR; OR shall be granted except for the most compelling of reasons and in no
2. Appeal the decision with the CTA. case shall exceed 15 days.
LEX LEONUM FRATERNITAS Chapter 8: TAXPAYER’S REMEDIES. Page 1 of 4

Disputed Assessment 4. It must be shown that the payment or the amount stated in the return
• This is an assessment which has been protested by the taxpayer. was received by the government.
• Only disputed assessments may be made subject of an appeal to the
CTA. A taxpayer who receives an assessment and does not protest WHO MAY FILE: Taxpayer or withholding agent
the same, cannot file an appeal to the CTA, since it is the decision of WHERE TO FILE REFUND: BIR
the Commissioner, and not the assessment itself, which is ISSUES: Questions of law or fact OR both OR
reviewable by the CTA. the taxes are illegally or erroneously collected
Decisions of the Regional Director ILLEGALLY COLLECTED TAX vs. ERRONEOUSLY COLLECTED TAX:
• It should be noted that the Regional Director may also render Illegally collected tax means it violates certain provision of the
decisions on protests. law. It may not be authorized by a peculiar Tax Law or statute.
• Revenue Regulations 12-85 authorizes appeals to the CTA from
Erroneously collected tax means there may be a law passed but
decisions of the Regional Director on administrative protests within
there was a mistake in the collection.
the same 30 day period. Sec. 7 of RA 1125, however, mentions only
decisions of the Commissioner. WHEN TO FILE: Within 2 years from the date of payment
• Be that as it may, it is very well within the perimeter of correct
ü Payment must be proven in contemplation of Tax Law, there is
procedure if the taxpayer, instead of going directly to the CTA,
payment when the tax liability is fully paid. So, if it is payable in
appeals the decision of the Regional Director to the Commissioner,
installment, there can only be payment when the final installment
since it is the Commissioner who has the final authority to decide,
has been paid.
assessment protests.
REFUND AND CREDIT
Two ways of protesting administratively • These are remedies of the taxpayer after payment of tax.
1. Request for reconsideration: This refers to a plea for re-evaluation of • Both are modes of recovering taxes which are either erroneously or
an assessment on the basis of existing records without the need of illegally paid to the government.
additional evidence. It may involve a question of fact or law or both. • Tax refund is when there is actually a reimbursement of the tax,
2. Request for reinvestigation: This refers to a plea for re-evaluation of improperly collected and paid. In tax credit, the government applies
an assessment on the basis of newly-discovered or additional the amount determined to be improperly collected, after proper
evidence. It may also involve a question of fact or law or both. verification, against any sum that may be due and collectible from
the taxpayer.
CLAIMS FOR REFUND AND CREDIT OF TAXES
ü The taxpayer may, instead of filing a protest, file a written When may claim for refund or credit be filed?
claim for refund. 1. When tax has been erroneously or illegally collected.
ü By virtue of solutio indebiti principle 2. When any penalty is claimed to have been collected without
authority.
REQUISITES FOR FILING REFUND: 3. When any sum is alleged to have been excessively or in any manner
1. This must be filed within the two (2) year period from the date of wrongfully collected, [Sec. 229, NIRC].
payment; 4. Commissioner is also given the authority to refund the value of
2. The fact of withholding must be proven; Internal Revenue Stamps when they are returned in good condition
3. This must be included in the income tax return of the taxpayer; by the purchaser, and in his discretion redeem or change unused
stamps that have been rendered unfit for use and refund their value 2. If claim is denied or is not acted upon by the Commissioner, the
upon proof of destruction. [Sec. 204, NIRC] taxpayer must file an appeal to the CTA within 30 days after the
receipt of the decision of the Commissioner.
Requisites for refund or credit 3. Both the written claim and the appeal to the CTA must be filed
1. A written claim for refund or credit must be filed with the within the two-year prescriptive period.
Commissioner.
2. The claim for refund or credit must be a categorical demand for The two-year prescriptive period for overpaid quarterly corporate
reimbursement; and income tax
3. It must be filed within two years from the date of payment of the • In case of an overpaid quarterly income tax for corporations, the
tax or penalty regardless of any supervening event that may arise prescriptive period of two years within which a claim for refund
after the payment. should be filed is counted, not from the time the corporation files its
4. The tax should have been paid in full. quarterly income tax return and pays the tax thereon, but from the
• Payment under protest is not required. Sec. 229 of the NIRC date the final adjustment return is filed after the end of the taxable
provides that a suit or proceeding for refund or credit may be year.
maintained whether or not such tax, penalty, or sum has been paid
under protest or duress. Prescriptive period for taxes withheld
• In the case of taxes withheld under the withholding tax system, the
When payment under protest required two-year prescriptive period for refunds is counted not from the date
1. In real property protest cases the tax is withheld and remitted to the Bureau of Internal Revenue
2. Protest in customs cases but from the end of the taxable year.
Why is a written claim for refund is necessary? Taxes payable in installments

1. To afford the Commissioner an opportunity to correct the action of • In cases of taxes which are payable in installments, the two-year
subordinate officers. prescriptive period is counted from the payment of the last
2. To notify the government that the taxes sought to be refunded are installment. [Commissioner v. Palanca 18 SCRA 496].
under question and that, therefore, such notice should be born in • Quarterly income taxes are considered installments, until the final
mind in estimating the revenue available for expenditure. adjustment return.
Two things to be established before refund or credit is granted Corporate dissolution

1. There was an actual collection and receipt by the government of the • The two year prescription period should be counted from 30 days
tax sought to be recovered. This needs factual proof. after the approval of the SEC of its plan for dissolution.
2. There is legal basis for granting the refund or credit.
Tax credit granted by law
PROCEDURE FOR REFUND OR CREDIT • A tax credit granted by law, is not considered a refund, and
1. File claim in writing with the Commissioner. This is a condition prescribes in 10 years under Art. 1144 of the Civil Code.
precedent before one can file action with the CTA for refund or
credit.

Suspension of the two-year prescriptive period • The Supreme Court ruled that a withholding agent should be allowed
The period for claiming claims for refund is suspended provided two to claim the tax refund because, under the law, it is the one who is
conditions are present: held liable for any violation of the withholding tax law should such a
1. There is pending litigation between the government and the violation occur. [Commissioner v. Wander Phils. Inc. April 15,
taxpayer as to the proper tax to be paid and of the proper 1988]
interpretation of the taxpayer’s charter in relation to the disputed
tax; and Interest on tax refunds
2. The Commissioner in that disputed case agreed to abide by the • The general rule is that the government cannot be required to pay
decision of the Supreme Court as to the collection of the tax relative interest on taxes refunded to taxpayer. [Sweeney v.
thereto. [Panay Electric Co. v. Collector May 28, 1958] Commissioner Aug. 21, 1959]
• Exceptions
Refund without claim 1. When the Commissioner acted with patent arbitrariness.
• The Commissioner may, even without a written claim therefore, Arbitrariness presupposes inexcusable or obstinate disregard
refund or credit any tax, where on the face of the return upon which of legal provisions. [Commissioner v. Victorias Milling
payment was made, such payment appears clearly to have been Corp. Nov. 29, 1966]
erroneously made. 2. In cases of refunds or credits made after three months from
April 15 to employees for any excess of the taxes withheld,
Forfeiture of refund and tax credit the rate of which is 6 percent per annum [Sec. 79C, NIRC]
• A refund check or warrant which shall remain unclaimed or
uncashed within 5 years from the date said warrant or check was
mailed or delivered shall be forfeited in favor of the government and
the amount thereof shall revert to the general fund.
• A tax credit certificate which shall remain unutilized after 5 years
from the date of issue, shall, unless revalidated, be considered
invalid.
EQUITABLE RECOUPMENT
• It is a principle which allows a taxpayer whose claim for refund has
been barred due to prescription to recover said tax by setting off the
prescribed refund against a tax that may be due and collectible from
him.
• This rule is not applicable in the Philippines.
Legal capacity of withholding agents to claim a tax refund

• Corporate withholding agents in the Philippines of non-resident
foreign corporations are entitled to claim the refund of excess
withholding tax paid on income of said corporations in the
Philippines.

4. To punish for contempt
Chapter 9: COURT TAX APPEALS 5. To prescribe the form of writs and other processes
6. To promulgate rules and regulations for the conduct of its
Law creating the CTA business
• Republic Act No. 1125, JUNE 16, 1954
Jurisdiction of the CTA
Why was the CTA created? • CTA shall exercise exclusive appellate jurisdiction to review by
1. To have a centralized body well versed in tax matters – a regular appeal the following:
court forming part of the judicial system which could exclusively hear 1. Decisions of the Commissioner of Internal Revenue,
and determine tax cases. involving disputed assessments; refunds of internal revenue
2. To prevent delay in the disposition of tax cases in view of the taxes, fees or other charges; penalties imposed in relation
backlog of civil and criminal cases in the regular courts. [Ursal v. thereto; or other matters arising under the NIRC or other
Court of Appeals 101 Phil 209] law or part of law administered by the BIR.
2. Decisions of the Commissioner of Customs in cases involving
Nature of the CTA liability for customs duties, fees or other money charges;
1. It is a judicial and not an administrative body. seizure, detention or release of property affected; fines,
2. It is a court of special jurisdiction, and as such can only take forfeitures, or other penalties imposed in relation thereto; or
cognizance of such matters as are clearly within its jurisdiction. other matters arising under the Customs law or other law or
3. It is not governed strictly by the technical rules of evidence. part of law administered by the Bureau of Customs.
3. Decision of the Sec. of Finance, on an assessment which the
Organization, quorum, and disposition of cases by the CTA Commissioner of Customs decided in favor of the taxpayer.
• The CTA is composed of a Presiding Judge and two Associate (Decisions of the Commissioner of Customs which are
Judges, each of whom is appointed by the President form a list of adverse to the government, may be raised on appeal to the
nominees prepared by the Judicial and Bar Council. Such Sec. of Finance, whose decision is appealable to the CTA).
appointments need no confirmation. • Jurisdiction over decisions of the Local Board of Assessment Appeals
• Any two judges of the CTA shall constitute a quorum and the is now lodged with the Central Board of Assessment Appeals.
concurrence of two judges shall be necessary to promulgate any
decision thereof. [Sec. 1 and 2, RA 1125] Necessity of decisions in order to vest the CTA with jurisdiction
• Cases brought before the CTA shall be decided within 30 days after • Decisions of either the Commissioner or Internal Revenue or the
the submission thereof for decision, which shall be in writing, stating Commissioner of Customs is of the essence in appeal of cases to the
clearly and distinctly the facts and the law on which they are based, CTA for it is axiomatic in taxation that mere assessments of the
and signed by the judges who concurred therewith. [Sec. 12, RA Commissioner are not appealable to the CTA. It is settled that
1125]. This requirement, however, is merely directory. assessments are not decisions of the Commissioner.
• In a case, the Supreme Court held that the word “decision” in Sec. 7
Powers of the CTA of RA 1125 means decisions of the Commissioner on the protest of
1. To administer oaths the taxpayer against the assessments. Definitely, the word does not
2. To receive evidence signify the assessment itself. [Commissioner v. Villa, Jan. 20,
3. To summon witnesses by subpoena and subpoena duces 1968]
tecum
LEX LEONUM FRATERNITAS Chapter 9: COURT OF TAX APPEALS. Page 1 of 3
Compromise penalties and the CTA Prescription of assessment and action
• Compromise Penalties – are amounts collected by the BIR in lieu of • The defense of prescription of assessment should be raised while the
CRIMINAL PROSECUTION for violations committed by taxpayers, the case is pending with the BIR, whereas, the defense of prescription of
payment of which is based on a compromise agreement validly action may be raised for the first time, even on appeal to the CTA,
entered into between the taxpayer and the Commissioner. but not for the first time in an appeal with the SC.
• Collection of compromise penalties comes within the scope of Sec. 7
of RA 1125 which speaks of “penalties imposed in relation thereto” Who may appeal to the CTA?
and that therefore follows that the CTA has jurisdiction thereon. [US • Any person, association or corporation affected by a decision of the
Life Insurance Co. v. Commissioner CTA Case No. 1267 Dec. Commissioner of Internal Revenue or the Collector of Customs.
29, 1964]
Collection case in RTC while appeal is pending in the CTA
What decision is appealable? • If the Bureau of Internal Revenue, during the pendency of an appeal
• When it constitutes the final action taken by him, or his authorized in the CTA, files a civil action in the RTC, for the collection of the tax
deputies with respect to the taxpayer’s liability. liability, the taxpayer may file a motion in the RTC for the dismissal
• The appealable decision is that letter of denial where the of the case on the ground that there is no basis for collecting the tax
Commissioner not only demanded payment of the tax but wherein due where the assessment thereof is still under dispute in the CTA.
he also gave the warning that in the event that the taxpayer fails to
pay the same, the Commissioner would be constrained to enforce Tax collection not suspended during appeal
the collection thereof by means of the remedies prescribed by law. • An appeal to the CTA from a decision of the Commissioner shall not
[Surigao Electric Co. v. Commissioner 85 SCRA 547] suspend the collection of the payment or collection of the tax liability
• However, the filing of a judicial action for collection, i.e., criminal of the taxpayer, unless a motion to the effect, shall have been
and civil action during the pendency of an administrative protest, presented to the CTA and granted by it on the ground that such
constitutes a denial of the protest. [Commissioner v. Union collection jeopardizes the interest of the government and/or the
Shipping ]. In such a situation, the taxpayer may file an appeal taxpayer.
with the Court of Tax Appeals.
No injunction to restrain tax collection
Whose decisions are appealable?? • General rule: No court shall have the authority to grant an injunction
• Decisions of the Commissioner of Internal Revenue are by statutory to restrain the collection of any national internal revenue tax, fee or
provision appealable to the CTA, but it appears that under Rev. REg. charge imposed by the NIRC, [Sec. 218, NIRC].
12-85, decisions of the Regional Director of a revenue region of the • Exception: CTA may suspend or restrain the collection of the tax
BIR is also appealable. when, in its opinion, the collection of the tax may jeopardize the
• There is a court ruling to the effect that the decisions of a Regional interest of the government and/or the taxpayer, [Sec. 11, RA1125]
Director may be appealable to the CTA, [Fortalez, Jr. v. Collector,
Resolution, CTA Case no. 1257, Dec. 22, 1964]
• Appeals on customs cases seem to be limited only to decisions of the
Commissioner of Customs

Requisites for injunction • Appeals period is fifteen (15) days from receipt of the decisions or
1. That the collection of the tax may jeopardize the interest of the judgment. The Court of Appeals may grant an additional period of
government and/or the taxpayer. fifteen (15) days only within which to file the petition for review. No
2. That the taxpayer is willing to deposit the amount equal to the taxes further extension shall be granted except for the most compelling
assessed or to a bond amounting to not more than twice the value reasons and in no case to exceed fifteen (15) days. [Section 4, Rule
of the tax being assessed. 43, Rules of Court]
3. That the CTA may issue an injunction only in the exercise of its
appellate jurisdiction. Ancillary Jurisdiction of the CTA
• The ancillary jurisdiction of the CTA such as the power to issue writs
The thirty-day prescriptive period of appeal of prohibition and injunction is only SUPPLEMENTARY to its appellate
• The thirty-day prescriptive period starts to run from the date the jurisdiction. The power to issue writs exists only in cases appealed to
taxpayer receives the appealable decision of the Commissioner. it. There has to be a main action first pending before it.
• The 30 day period is jurisdictional. The failure of the taxpayer to
appeal from a decision of the Commissioner on time renders the When decision of the CTA is adverse to the Government
assessment final, executory and demandable. • The Solicitor General, being the chief legal officer of the
• Requests or motions filed by the taxpayer with the BIR for the government, is aptly the officer who should appeal to the CA or SC.
reconsideration of the Commissioner’s decision operate to suspend
the running of the 30 day prescriptive period. Findings of fact of CTA not reviewable
• However, mere reiterations of previous petitions for reconsideration • Findings of fact of the CTA, when supported by substantial evidence,
do not suspend the running of the prescriptive period. Pro forma is final.
motions, which do not raise new issues, will not suspend the period.
Damages in CTA proceedings
Remedy if taxpayer fails to appeal within the 30 day period • Section 16 of RA 1125 provides that “where an appeal is found to be
• None. Failure to appeal renders the assessment FINAL and frivolous or that proceedings have been instituted merely for delay,
EXECUTORY since the period to appeal is jurisdictional and non- the CTA may assess damages against the appellant in an amount
extendible . not exceeding P500 which shall be collected in the same manner as
fine or other penalties authorized by law.”
Interlocutory orders
• Interlocutory orders of the CTA are not appealable. Other Matters:
The tax court has no advisory jurisdiction. Hence, advisory opinions such as
Appeal from decisions of the CTA those relating to actions for declaratory relief are outside its jurisdiction. It
• One motion for reconsideration may be allowed for decisions of the does NOT have criminal jurisdiction either.
CTA.
• Pro Forma Request for Reconsideration – one that is submitted only
for purposes of delay and will NOT interrupt the running of the
prescriptive period.
• Decisions of the CTA are appealed to the Court of Appeals through a
verified petition for review. [Sections 1 and 5, Rule 43, Rules of
Court]
LOCAL TAXATION State itself which has the “inherent power to tax.” LGU cannot
tax instrumentalities of the National Government, in this case,
Local taxation as decentralization PAGCOR.
• The principles of local taxation under the 1987 Consititution Authority to prescribe penalties for tax violations and limitations
simply means “Decentralization”. It does not mean that local
governments are sovereigns within the state or “imperium in • Limited as to the amount of fine that they may impose as well as
imperio”. the length or period of imprisonment that they may provide.
IN GENERAL Fees and charges
Two aspects of local taxation • Fees means a charge fixed by law or ordinance for the regulation
or inspection of a business or activity. [Section 131(i), Local
1. Levy of taxes, fees, charges and other impositions Government Code]
2. Real property taxation
• Charges refer to pecuniary liability, as rents or fees against
POWER TO LEVY TAXES, FEES, CHARGES AND OTHER persons or property. [Section 131(g), Local Government Code]
IMPOSITIONS
Authority to grant tax exemption privileges
POWER OF LOCAL TAXATION
• With the grant of the power of taxation, local government units
Power of local taxation not inherent have also been given the power to grant tax exemptions
corresponding to its taxing powers.
• Each local government unit shall have the power to create its
own sources of revenues and to levy taxes fees and charges • Local government units may, through ordinances duly approved,
subject to such guidelines are limitations as the Congress may grant tax exemptions, incentives or reliefs under such terms and
provide, consistent with the basic policy of local autonomy. Such conditions as they may deem necessary.
taxes, fees, and charges shall accrue exclusively to the local
governments. [Section 5, Article X, Constitution] Guidelines of Sanggunians
• On the grant of tax exemptions or tax reliefs
• The power of local taxation is not inherent and is conferred on 1. May be granted in cases of natural calamities, civil
local government units by the Constitution. This is reiterated in disturbance, general failure of crops, or adverse
Section 129 of the Local Government Code of 1991. economic conditions such as substantial decrease in
prices of agricultural or agri-based products.
• Power is not plenary and absolute as it is subject to guidelines 2. Shall be through ordinance.
and limitations as may be provided by Congress. 3. Shall take effect only during the next calendar year for a
period not exceeding 12 months.
• Basco v. PAGCOR; A municipal corporation has no inherent 4. Any exemption or relief granted to a type or kind of
right to impose taxes. The “power to tax” must always yield to a business shall apply to all businesses similarly situated.
legislative act which is superior for having been passed by the
LEX LEONUM FRATERNITAS Chapter 10: LOCAL TAXATION. Page 1 of 10
• On the grant of tax incentives • Limitations:

1. Shall be granted only to new investments. 1. Constitutional Limitation
2. Shall be for a definite period not exceeding one calendar year 2. Common limitations on the taxing power of LGU as
3. Shall be by ordinance passed prior to the first day of January prescribed in Sec. 133 of the LGC.
of any year. 3. Fundamental principles governing the exercise of the
4. Any tax incentive granted to a type or kind of business shall taxing power by local governments as prescribed under
apply to all businesses similarly situated. Sec. 130 of LGC.
4. The requirement prescribed in Sec. 186 of the LGC which
Withdrawal of tax exemption privileges direct that the ordinance levying such residual taxes shall
not be enacted without any prior public hearing
• Unless otherwise provided in the Local Government Code, tax conducted for the purpose.
exemptions or incentives granted to, or presently enjoyed by all 5. The principle of pre-emption.
persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, Preemption or exclusionary rule
cooperatives duly registered under Republic Act No. 6938, non-
stock and non-profit hospitals and educational institutions, are • Preemption in taxation refers to an instance wherein the National
hereby withdrawn upon the effectivity of the Code. Government elects to tax a particular area, impliedly withholding
from the local government the delegated power to tax the same
Authority of LGUs to adjust rates of tax ordinances field. (Victorias Milling Co. Vs Municipality of Victorias Negros
Occidental, Sept 27, 1968)
• Local government units shall have the authority to adjust the tax • Principally rests upon the intentions of the Congress.
rates as prescribed in the Local Government Code not oftener • Inapplicability of the Doctrine:
than once every five (5) years, but in no case shall such 1. When congress allows municipal corporation to cover fields of
adjustment exceed 10% of the rates fixed under the Code. taxation it already occupies.
2. Beyond certain level of sales or receipts for the preceding
Residual Taxing Powers of Local Governments year.
3. If the subjects of the taxes levied by the National and Local
• Local Governments can also impose those taxes, fees and Governments are different from each other.
charges which do not fall within the scope of taxes which are
enumerated under the LGC, as well as those which are levied on Double taxation
subject or bases which are not taxed under the NIRC or other
applicable laws. • Double taxation is not prohibited, except those between:
1. Provinces and municipalities;

2. Barangay and Cities, municipalities or provinces.

SCOPES AND EXERCISE OF LOCAL TAXING POWER in at least two (2) conspicuous and publicly accessible places. [Section
188, Local Government Code]
Local authority that shall exercise taxing power
4. Furnishing of copies to local treasurer
• The power shall be exercised by the appropriate sanggunian or
the sangguniang panlalawigan in the case of provinces, the Copies of all provincial, city and municipal tax ordinances or
sangguniang panglungsod in the case of cities, the sangguniang revenue measures shall be furnished to the respective local treasurers for
bayan in the case of municipalities or the sangguniang barangay public dissemination. [Section 189, Local Government Code]
in the case of barangays, through an appropriate ordinance.
[Section 132, Local Government Code]
• The exercise of the power to tax by the local legislative assembly Procedure for protest of tax ordinances
is subject to the veto power of the local chief executive.
• Any question on the constitutionality of tax ordinances or revenue
1. Ultra Vires measures may be raised on appeal within 30 days from the
2. Prejudicial to the public welfare effectivity thereof to the Sec. of Justice. [Sec. 187, Local
Government Code].
• However, the sanguniang may override the veto by a 2/3 vote of
all its members. • After the lapse of 30 days and declaratory relief – before
assessment; before payment
Procedure for approval and effectivity of tax ordinances and Note: Appeal from where? The provision is not really clear but
revenue measures presumably after going through the same process of appealing legality of
ordinances, i.e. from municipal to provincial sanggunian before going to
1. Enactment and approval by sanggunian. the Secretary of Justice. Otherwise, direct appeal to the Secretary may
be made.
The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of the Local • The Secretary of Justice shall render a decision within sixty (60)
Government Code. [Section 187, Local Government Code] days from the date of receipt of appeal. [Section 187, Local
Government Code]
2. Mandatory public hearings
• Such appeal shall not have the effect of suspending the
Public hearings shall be conducted for the purpose prior to the effectivity of the ordinance and the accrual and payment of the
enactment thereof. [Section 187, Local Government Code] tax, fee, or charge levied therein. [Section 187, Local
Government Code]
3. Publication requirements
• Within thirty (30) days after receipt of the decision or the lapse of
Within ten (10) days after their approval, certified true copies of the 60-day period without the Secretary of Justice acting upon
all provincial, city and municipal tax ordinances or revenue measures shall the appeal, the aggrieved party may file appropriate proceedings
be published in full for three (3) consecutive days in a newspaper of local with a court of competent jurisdiction. [Section 187, Local
publication or, in the absence of newspapers of local publication, posted Government Code]
Prescription for filing of review 6. The collection of local taxes, fees, charges, and other impositions
shall, in no case, be let to any person. Note: This overrules the
• Barangay ordinance – file petition for review to municipal/city Bagatsing ruling [Bagatsing v. Ramirez 7 SCRA 306]
sangunian within 10 days from enactment.
• Asiatic v. Alikpala – The mere collection of market stall
• Municipal or Component city ordinance – file with Provincial fees may be let to a private entity, the same not being taxes.
sanggunian within 3 days from approval.
• This is a doubtful decision since Sec. 130 of the LGC covers
• Chartered City/Provincial sanggunian – file with Sec. of Justice not only the collection of taxes but likewise all other
within 30 days from effectivity. impositions under the LGC.
• Review powers, of local treasurers and the Sec. of Finance, on 7. The revenue collected under the local Government Code shall
the validity of revenue ordianances have been abrogated by the inure solely to the benefit of, and subject to disposition by, the
Local Government Code. local government unit levying the tax, fee, charge or other
imposition unless specifically provided therein.
No power of control by Secretary of Justice over LGUs
8. Each local government unit shall, as far as practicable, evolve a
• Section 187 of the Local Government Code, which authorizes the progressive system of taxation. [Section 130, Local Government
Secretary of Justice to review the constitutionally or legality of a Code]
tax ordinance – and, if warranted, to revoke it on either or both
grounds – is valid, and does not confer the power of control over 9. The interpretation of laws on the grant of taxing power to LGU’s
local government units in the Secretary of Justice; as even if the shall be liberally interpreted in favor of the LGU, But, doubts on
latter can set aside a tax ordinance he cannot substitute his own the liability of the taxpayer under a valid tax ordinance is
judgment for that of the local government units. [Drillon v. construed strictly against the LGU, except as regards to tax
Lim, 253 SCRA 135] exemptions, incentives or reliefs.
Fundamental principles governing local taxation 10. The National Government cannot deprive LGU’s of their taxing
power as this power is expressly granted and mandated by the
1. Taxation shall be uniform in each local government unit. Constitution. The laws may provide limitations, but they cannot
totally abrogate the taxing power of the LGU’s
2. Taxes, fees, charges and other impositions shall be equitable and
based as much as possible on the taxpayer’s ability to pay. 11. Congress cannot enact local tax law, only guidelines and
limitations.
3. They shall be levied and collected only for public purposes.
4. They shall not be unjust, excessive, oppressive or confiscatory.
5. They shall not be contrary to law, public policy, national

economic policy, or in restraint of trade.

Common limitations on the taxing powers of LGUs

9. Percentage or value-added tax on sales, barters or exchanges
• Unless otherwise provided therein, the exercise of the taxing or similar transactions on goods or services except as
powers of provinces, citites, municipalities, and barangays shall otherwise provided herein;
not extend to the levy of the following:
10. Taxes on the gross receipts of transportation contractors and
1. Income tax, except when levied on banks and other financial persons engaged in the transportation of passengers of
institutions; freight by hire and common carriers by air, land or water,
except as provided in this Code;
• A 5% tax on gross receipts of rentals or lease of
spaces in a privately owned public market constitutes 11. Taxes on premiums paid by way of reinsurance or
a valid “license tax or fee” for the regulation of the retrocession;
business rather than as “Income tax”.
12. Taxes, fees or charges for the registration of motor vehicles
2. documentary stamp tax; and for the issuance of all kinds of licenses or permits for the
driving thereof, except tricycles;
3. taxes or estates, inheritance, gifts, legacies and other
acquisitions mortis causa, except as otherwise provided 13. Taxes, fees, or other charges on Philippine products actually
herein; exported, except as otherwise provided herein;
4. Customs duties, registration fees of vessels and wharfage on 14. Taxes, fees or charges on Countryside and Barangay
wharves, tonnage dues, and all other kinds of customs fees, Business Enterprises and cooperatives duly registered under
charges and due, except wharfage on wharves constructed Republic Act No. 6810 and Republic Act No. 6938, otherwise
and maintained by the LGU concerned; known as the Cooperative Code of the Philippines;
5. Taxes, fees and charges and other impositions upon goods 15. Taxes, fees or charges of any kind of the National
carried into or out of, or passing through, the territorial Government, its agencies and instrumentalities, and local
jurisdictions of LGUs in the guise of charges for wharfage, government units. [Section 133, Local Government Code]
tolls for bridges or otherwise, or other taxes, fees or charges
in any form whatsoever upon such goods or merchandise; Common limitations may be classified into the following
categories
6. Taxes, fees or charges on agricultural and aquatic products
when sold by marginal farmers or fishermen; 1. Taxes which are levied by the NIRC
2. Taxes, fees and charges which are imposed under the Tariff and
7. Taxes or business enterprises certified to by the Board of Customs Code and other custom laws
Investments as pioneer or non-pioneer for a period of six (6) 3. Taxes, fees and charges the imposition of which contravenes
and four (4) years, respectively from the date of registration; existing governmental policies or which are violative of the
fundamental principles of taxation
8. Excise taxes on articles enumerated in the NIRC, as 4. Taxes, fees and charges imposed under special laws
amended, and taxes, fees or charges on petroleum products;
Scope of taxing power of provinces • A broker is an agent of the company, a dealer is not.
1. Tax on the transfer of real property ownership – ½ or 1% within • A city can validly tax the sales to customers outside the city as
60 days long as the orders were booked and paid for in the company’s
2. Tax on the business of printing and publication branch office in the city.
3. Franchise tax
Scope of taxing power of cities
• A local franchise tax may only be imposed on companies
with legislative franchises that do not have the “ In lieu 1. The city may levy the taxes, fees and charges which the province
of all taxes” proviso. or municipality may impose. [Section 151, Local Government
Code]
4. Tax on sand, gravel and other quarry resources
5. Professional tax – P300 Note: The rates of taxes that the city may levy may exceed the
maximum rates allowed for the province of municipality by not more than
• Professional exclusively employed in the government shall be fifty percent (50%) except the rates of professional and amusement
exempt from the payment of tax. taxes.
6. Amusement tax – 30% of gross receipts Scope of taxing power of barangays

7. Annual fixed tax per delivery truck or van of manufacturers or
producers and wholesalers of, or dealers in certain products. 1. Taxes on stores or retailers are fixed business establishments
[Section 134-141, Local Government Code] with gross sales or receipts of the preceding calendar year of
P50,000 or less for barangays in the cities and P30,000 of less for
Scope of taxing power of municipalities barangays in municipalities
2. Service fees or charges for services rendered or use of barangay-
1. Taxes, fees and charges not otherwise levied by provinces owned properties or service facilities
2. Fees and charges on business and occupation and practice of any 3. Barangay clearance
profession or calling 4. Other fees and charges [Section 152, Local Government Code]
3. Fees for sealing and licensing of weights and measures
4. Fishery rentals, fees and charges [Section 142-149, Local
government Code] Other fees and charges by barangays
Business • The barangay may levy reasonable fees and charges:
• Business means trade or commercial activity regularly engaged in 1. On commercial breeding of fighting cocks, cockfights and
as a means of livelihood or with a view to profit. cockpits;
2. On places of recreation which charge admission fees; and
• A manufacturer or producer which sells its products through a 3. On billboards, signboards, neon signs, and outdoor
broker, is subject to excise tax (business tax) in the city or advertisements.
municipality where the broker conducts its business.

Common revenue-raising powers of LGUs

• For manufacturers, assemblers, contractors, producers,
1. Service fees and charges and exporters with factories, project offices, palnts and
2. Public utility charges plantations in pursuit of their business.
3. Toll fees or charges [Section 153-155, Local Government Code]
Sales Allocation
SITUS OF LOCAL TAXATION Prorated
among the
Situs according to the cases
• Excise or privilege tax is not dependent on the domicile of the 30% for 70% for municipalit
taxpayer, but on the place in which the act is performed or the the city the city ies when
occupation is engaged in; not upon the location of the office, but where the where the factories
the place where the sale is perfected. (Allied Thread Co vs City principal factory or or
Mayor of Manila, November 21, 1984). office is plantation plantation
• It is the place of consummation of the sale, associated with the be more
located. is located
delivery of the things which are the subject matter of the than one
contract that determines the situs of the contract for purposes of
taxation, and not merely the place of perfection of the contract.
(Shell Co. V Municipality of Sipocot Camarines Sur, 105 Phil 1263)
• The city of Cebu can validly tax the sale of matches and paid for
the company’s branch office in the city. The matches can be 60% to the city 40 % to the city
regarded as sold in the city because the matches were delivered where the factory where the
to the carrier in Cebu City (Phil. Match Co. Vs City Of Cebu, is located when plantation is
January 18, 1978) location of located when
plantation is location of
Situs according to the LGC, Sec. 150
• For manufacturers, assemblers, packers, brewers,
diferrent factory is
distillers, rectifiers, and compounders of liquor, distilled diferrent
spirit and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks and • Sales allocation shall be applied irrespective whether or not sales
other financial institutions, and other businesses are made in the locality where the factory, project office, plant or
maintaining or operating branch or sales outlet plantation is located.
elsewhere.
General Rule: Tax shall accrue and shall be paid to the

municipality where such branch or sales outlet is located.
Exception: To the municipality of the principal office if there is

no such branch or sales outlet in the city or municipality where
the transaction was made.
COMMUNITY TAX Juridical persons liable to community tax
Community tax • Every corporation, no matter how created or organized, whether

domestic or resident foreign, engaged in or doing business in the
• The community tax, which replaced the residence tax is Philippines, shall pay an annual community tax of P500.
essentially a poll or capitation tax. It is of a fixed amount
imposed upon certain inhabitants of the Philippines “without • An annual additional ax of P2.00 shall be imposed for every
regard to their property or the occupation in which they may be P5,000 worth of real property in the Philippines owned by it or for
engaged.” every P5,000 of gross receipts or earnings received by it form its
business in the Philippines in the preceding year, but total
• It is imposed both on individuals and juridical persons. amount must not exceed P10,000. [Section 158, Local
Government Code]
Individuals liable to community tax
• Every inhabitant of the Philippines, 18 years of age or over: Who are exempt from community tax?
1. who has been regularly employed on a wage or salary basis 1. Diplomatic and consular representatives
for at least 30 consecutive working days during any calendar
year; or 2. Transient visitors when their stay in the Philippines does not
exceed three (3) months. [Section 159, Local Government Code]
2. who is engaged in any business or occupation; or
Accrual and payment of community tax
3. who owns real property with an aggregate assessed value of • Community tax shall accrue on the first day of January which
P1,000 or more; or shall be paid not later than the last day of February each year.
4. who is required by law to file an income tax return.

TAX REMEDIES AND ADMINISTRATIVE MATTERS IN LOCAL
• Annual community tax for individuals is P5.00 and an annual TAXATION
additional tax of P1.00 for every P1,000 of income or from
property wichi in no case shall exceed P5,000. [Section 157, Local Accrual of taxes
Government Code]
• Unless otherwise provided in the Code, all local taxes, fees and
Inhabitant charges shall accrue on the first day of January of each year.
• Means any person, irrespective of his or her citizenship or • New taxes, fees or charges, or charges in the rates thereof, shall
nationality, who dwells or resides in the Philippines for a period accrue on the first day of the quarter of the next following the
exceeding three (3) months. effectivity of the ordinance imposing such new levies or rates.
[Section 166, Local Government Code]

Tax period and time of payment Period of assessment
• Calendar year unless otherwise provided • Local taxes, fees, or charges shall be assessed within five (5)
years from the date they became due. [Section 194(a), Local
• Taxes shall be paid within the first twenty (20) days of January Government Code]
or of each subsequent quarter, as the case may be.
• In case of fraud or intent to evade the payment of taxes, fees, or
• The sanggunian concerned may, for a justifiable reason or charges, the same may be assessed within ten (10) years from
cause, extend the time for payment of such taxes, fees, or discovery of the fraud or intent to evade payment. [Section
charges without surcharges or penalties, but only for a period 194(b), Local Government Code]
not exceeding six (6) months. [Section 165 and 167, Local
Government Code] Period of collection
Local government lien • Local taxes, fees, or charges may be collected within five (5)
years from the date of assessment of administrative or judicial
• Local taxes, fees, charges and other revenues constitute a lien, action. [Section 194 ©, Local Government Code]
superior to all liens, charges or encumbrances in favor of any
person, enforceable by appropriate administrative or judicial Suspension of period of assessment and collection
action, not only upon any property or rights therein which maybe
subject to the lien but also upon property used in business, 1. The treasurer is legally prevented from making the assessment or
occupation or calling, or exercise of privilege with respect to collection.
which the lien is imposed.
2. The taxpayer requests for a reinvestigation and executes a
• The lien is extinguished upon payment of the tax, fee or charge, waiver in writing before expiration of the period within which to
including the interest and surcharges. [Section 173, Local assess or collect.
Government Code]
3. The taxpayer is out of the country or otherwise cannot be
Civil remedies for collection located. [Section 194(d), Local Government Code]
1. By administrative action
REMEDIES OF THE TAXPAYER IN LOCAL TAXATION
a. Distraint of personal property
1. Protest by means of appeal to the secretary of Justice.
b. Levy upon real property 2. Protest against the assessment
3. Claim for refund or tax credit
2. By judicial action [Section 174, Local Government Code]

Protest against a newly enacted ordinance within which to appeal with the court of competent jurisdiction;
• May be raised on appeal within 30 days from the effectivity otherwise, the assessment becomes conclusive and unappealable.
thereof to the Secretary of Justice. [Section 195, Local Government Code]
• Shall NOT have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee or charge Claim for refund or tax credit
levied therein.
• Appeal from the decision of of the Sec of Justice is filed with the • Remedy after payment in cases where tax was erroneously or
regular court. illegally collected.
• CTA has no jurisdiction over said appeal.
• No case or proceeding shall be maintained in any court for the
PROCEDURE FOR PROTEST OF ASSESSMENT recovery of any tax, fee, or charge erroneously or illegally
collected until a written claim for refund or credit has been filed
1. Notice of Assessment with local treasurer. [Section 196, Local Government Code]
When the local treasurer or his duly authorized representative • Written claim for refund or credit must be filed with the treasurer
finds that correct taxes, fees, or charges have not been paid, he shall within two (2) years form the date of payment of the tax, fee or
issue a notice of assessment stating the nature of the tax, fee or charge, charge or from the date the taxpayer is entitled to a refund or
the amount of deficiency, the surcharge, interests and penalties. [Section credit (doctrine of supervening cause therefore applies). [Section
195, Local Government Code] 196, Local Government Code]
2. Written protest Note: There is no provision governing the procedure in case the claim
for refund or credit is denied or not acted upon by the local treasurer.
Within sixty (60) days from the receipts of the notice of The same procedure for protest of assessment may be followed and, as
assessment, the taxpayer may file a written protest with the local such, the taxpayer may appeal with the court of competent jurisdiction.
treasurer contesting the assessment; otherwise, the assessment shall
become final and executory. [Section 195, Local Government Code] Injuction on the collection of local taxes
3. Decision • Unlike in the NIRC, the LGC does not specifically prohibit the
issuance of injunctions on the collection of local taxes.
The local treasurer shall decide the protest within sixty (60) days
from the time of its filing. If the treasurer finds the protest to be wholly • However, injunctions cannot be issued on the basis of the alleged
or partly meritorious, he shall issue a notice canceling wholly or partially unconstitutionality of the tax ordinance. Until the tax ordinance is
the assessment. However, if the local treasurer finds the assessment to declared to be unconstitutional, it is presumed to be valid and
be wholly or partly correct, he shall deny the protest wholly or partly with constitutional.
notice to the taxpayer. [Section 195, Local Government Code]
4. Appeal
The taxpayer shall have thirty (30) days from the receipt of the
denial of the protest or from the lapse of the sixty-day period prescribed
Chapter 11: REAL PROPERTY TAXATION Ad valorem tax

• Ad valorem tax is a levy on real property on the basis of a fixed
IN GENERAL proportion of the value of the property. [Section 199©, Local
Government Code]
Real property tax and special levies
Nature and scope of power to impose realty tax
1. Basic real property tax • The taxing power of local governments in real property taxation is a
2. Additional levy on real property for the Special Education Fund – 1% delegated power.
3. Additional ad valorem tax on the idle lands – 5% • The real estate tax is not a local tax. It has always been imposed by
4. Special levy by local government units. the law- making body before the 1973 Constitution, and later, the
defunct Batasang Pambansa before the advent of Aquino
IMPOSITION OF REAL PROPERTY TAX Administration in 1986. The tax is imposed throughout the
Philippines, levied on every real property that is located thereat
Real property tax (Meralco Securities Industrial Corp. Vs Central Board of Assessment,
• Real property tax has been defined as “a direct tax on the ownership Mar 31, 1982).
of lands and buildings or other improvements thereon not specially • However, there seems to be no question that the realty tax is
exempted and is payable regardless or whether the property is used veritably a local tax.
or not, although the value may vary in accordance with such factor.” • The previous case was ruled that way because Real Property Tax
• Real property tax “is a fixed proportion of the assessed value of the Code (PD 464, as amended) provides that real property tax were not
property being taxed and requires, therefore, the intervention of levied by local government.
assessors.”
• Note however that the Supreme Court decided that taxing real Who has the power to impose realty tax?
property is on the basis of actual use, even if the user is not the 1. provinces
owner of the property. 2. cities
3. municipalities within the Metro Manila area [Section 232, Local
Real property tax receipts Government Code]
• Real property tax receipts are not evidence of ownership, but merely
evidence of rightful possession. Rates of levy
• A province or city or a municipality within the Metro Manila area shall
Characteristics of real property tax fix a uniform rate of basic real property tax applicable to their
1. It is a direct tax on the ownership or use of real property. respective localities as follows:
2. it is an ad valorem tax. Value is the tax base. 1. In the case of a province, at the rate not exceeding 1% of the
3. It is proportionate because the tax is calculated on the basis of a assessed value of real property; and
certain percentage of the value assessed. 2. In the case of a city or a municipality within the Metro Manila
4. It creates a single, indivisible, obligation. area, at the rate not exceeding 2% of the assessed value of real
5. It attaches on the property (lien) and is enforceable only against property. [Section 233, Local Government Code]
property.
6. It is a local tax
LEX LEONUM FRATERNITAS Chapter 11: REAL PROPERTY TAXATION. Page 1 of 10

Power to prescribe penalties for tax violations gov’t seems to be bereft of this authority insofar as realty taxes are
• Local governments have the power to impose penalties for tax concerned.
violations. • By specifying in Sec 234 of LGC on what particular properties are
• Penalty: exempt, it follows by clear implication that the law has withheld the
Fine: not less than 1000 but not more than 5000 local gov’ts the power to exempt.
Imprisonment:not less than 1 month but not more than 6mo • The Latin maxim “expressio unius est exclusion alterius” applies.
• Power to fix penalties applies only to provinces, cities and
municipalities of Metro Manila. Properties exempt from real property taxes (Sec 234, LGC)
Reason: 1. Real property owned by the Republic of the Philippines or any of its
It is only the Sanggunians of these local government units political subdivisions except when the beneficial use thereof has
that can levy real property taxes (Sec. 232, LGC) been granted for consideration or otherwise to a taxable person.
2. Charitable institutions, churches, parsonages, or convents
Fundamental principles governing real property taxation appurtenant thereto, mosques, non-profit or religious cemeteries,
1. Real property shall be appraised at its current and fair market value and all lands, buildings, and improvements actually, directly and
2. Real property shall be classified for assessment purposes on the exclusively used for religious, charitable, or educational purposes.
basis of its actual use. 3. All machineries and equipment that are actually, directly and
3. Real property shall be assessed on the basis of a uniform exclusively use by local water utilities and government-owned or
classification within each local government unit. controlled corporations engaged in supply and distribution of water
4. The appraisal, assessment, levy and collection of real property tax and/or generation and transmission of electric power.
shall not be let to any private person. 4. All real property owned by duly registered cooperatives as provided
5. The appraisal and assessment of real property shall be equitable. for under Republic Act No. 6938.
[Section 197, Local Government Code] 5. Machinery and equipment used for pollution control and
environmental protection. [Section 234, Local Government Code]
Ty, et al vs Trampe (December 1, 1995)
• The Supreme Court declared illegal the 400% to 570% increase in Property owned by the Republic of the Philippines and its political
real estate taxes imposed on landowners in Pasig City because the subdivisions
new schedule of taxes did not comply with the provision of PD 921 • MCIA v. Marcos : MCIA, which is a government owned or
which mandates that “real estate taxes shall not unduly burden the controlled corporation, mandated to control, manage and supervise
taxpayers”. the Mactan International Airport, is not exempt from real property
• The exhaustion of administrative remedies was not necessary before tax. It is a GOCC and not an instrumentality of the government.
they could raise the issue judicially because the complainants raised
purely legal issues which the Board of Assessment Appeals has no • National Development Co. V. Cebu City : It may therefore be
competence to decide since it can deal only with findings of facts. stated that tax exemption of “property owned by the Republic of the
Philippines” refers to properties owned by the government and by its
Do local governments have the power to exempt real property from agencies which do not have separate and distinct personalities, as
taxation? distinguished from GOCC’s which have separate and distinct
• Unlike in the case of local taxes where Sec 192 of LGC explicitly personalities.
authorizes them “to grant tax exemptions, incentives, or reliefs
under such terms and conditions as they may deem necessary,” local • City of Baguio V. Busuego : While the GSIS may be exempt from
real estate tax under its charter and Real Property Tax Code, said
property is taxable of the beneficial use or actual possession thereof by right of accession, [Board of Assessment Appeals of
is granted for a consideration or otherwise to a taxable person. Zamboanga del Sur v Samar Mining Co.]
• Province of Nueva Ecija V. Imperial Mining Co. : The policy of

taxing real property is on the basis of actual use even if the user is Proof of exemptions
not is not the owner. Although real property owned by the RP, any • Taxpayer claiming exemption must submit sufficient documentary
of its political subdivisions, and any government-owned corporation evidence to the local assessor within 30 days from the date of the
is exempt from tax but the exemption shall not apply to real declaration of real property; otherwise, it shall be listed as taxable in
property of the abovenamed entities, the beneficial use of which has the assessment roll (Sec 206, LGC).
been granted for consideration or otherwise to a taxable person.
Real properties subject to tax
• National Development Co. V. Province of Nueva Ecija : The • Real property tax is imposed on lands, buildings, machineries and
NDC is neither the government nor the Republic nor a branch or other improvements.
subdivision thereof but a government-owned and controlled • The Local Government Code contains no definition of “real property”.
corporation, which cannot be said to exercise a sovereign function. Therefore, it is necessary to fall back on the definition of real
It does not exercise sovereign powers and, hence, cannot invoke the property of Art. 415 of the Civil Code.
exemptions thereof, but is an agency for the performance of purely
corporate, proprietary or business function. It is therefore subject to Improvement
real estate tax. • It is a valuable addition made to a property or an amelioration in its
condition amounting to more than a repair or replacement of parts
Exempt government property involving capital expenditures and labor which is intended to
• The exemption from tax of property owned by the government enhance its value, beauty, or utility or to adopt it for a new or
obtains even as to properties owned in a private, proprietary or further purposes. [Section 199(m), Local Government Code]
patriamonial character. The law makes no distinction between
property held in government capacity and those possessed in a Machinery
proprietary capacity, [Board of Assessment Appeals of Laguna • Machinery embraces machines, equipment, mechanical contrivances,
v CTA] instruments, appliances or apparatus, which may or may not be
attached, permanently or temporarily, to the real property. [Section
• Properties of government agencies, whether exercising purely 199(o), Local Government Code]
sovereign, political or constituent functions or only ministrant or
proprietary functions, like the SSS are tax exempt. What is decisive SOME COURT RULINGS ON THE QUESTION OF THE TAXABILITY OF
is that properties possessed by the SSS although devoted to private REAL PROPERTY
or proprietary purposes are in fact owned by the Government. It is
axiomatic that when public property is involved, exemption is the • Mindanao Bus Co. V City Assessor and Treasurer and the
rule and taxation is the exception, [SSS v City of Bacolod] Board of Tax Appeals of Cagayan de Oro City: Machineries and
equipment sitting on cement which can be moved around and about
• A 42 km road constructed by respondent from its mining claim to the in the repair shop maintained by a land transportation company in
loading pier which is on public land, is not subject to the real order to service its buses that are in need of repairs are not taxable.
property tax. The ownership of the road belongs to the government They are not immobilized by destination, being only incidental to the
taxpayer’s business of transportation.
• Caltex Phils Inc V Central Board of Assessment Appeals: “USE” AND “OWNERSHIP” IN REAL PROPERTY TAXATION
Underground tanks, elevated water tanks, gasoline pumps, • Two interrelated concepts that are important factors in determining
computing pumps, water pumps, car washer, truck hoists, air whether real property tax is tax-exempt or not.
compressors and tireflators of a gasoline station located on leased • Tax-exempt properties enumerated in Sec. 28(3) art VI of the
land are taxable as necessary fixtures to the gasoline station witgout Constitution, the tax exemptions thereunder rest on the premise that
which the gasoline station would be useless. The ruling in Davao they are actually, directly and exclusively used by said entities or
Sawmill v Castillo which states that machinery which is movable by institutions for their stated purposes, and not necessarily because
nature becomes immobilized when placed by the owner of the they are owned by religious, charitable or educational institution.
property but not so when placed by a tenant, a usufructuary or a • Once the use of those properties lose their tax-exempt character
person having a temporary right is not applicable. Machinery because they are neither essentially nor incidentally used for
installed by the lessee of leased land is not real property for religious, charitable or educational purposes, their tax exempt status
purposes of execution of a final judgment only. The issue on the likewise ceases even if there is no corresponding change in
taxability of improvements is, however, a different matter. ownership.
• If property is tax exempt at the beginning of the year because its
• Manila Electric Co. V Central Board of Assessment of use at the time is confined actually, directly and exclusively to
Appeals: Oil storage tanks while not embedded in the land or religious, charitable or educational purposes, the exemption covers
attached to any part of the foundation by bolts, screws or similar the entire year, even assuming that sometime during that year the
devices are nevertheless be considered as improvements on the land use of that property ceases to be for the above-mentioned purposes.
enhancing its utility and rendering it useful to the oil industry. • If at the beginning of the year, the property is taxable because at
Hence, taxable. that point in time, the use is for non-exempt purpose, the taxable
status continues for that entire year even if at a certain time during
• Fernandez v Shearer: Sugar mills with appropriate machinery on that year it is used for religious, charitable or educational purposes.
real estate are improvements subject to real estate tax.
• Meralco Securities Industrial Corp v CBAA: Pipeline system RULE APPLIED WHERE THE PERSON ASSESSED IS NEITHER
consisting of cylindrical steel pipes to carry oil from Batangas to OWNER NOR USER – CONCORDIA LIM CASE
Manila is taxable. The court applying Art 415 par 1 and 3 of the civil • In the case of Testate Estate of Concordia Lim V. City of Manila, it
code, ruled that the pipeline system is a construction adhering to the was held that the unpaid tax attaches to the property and is
soil because it is attached to the land in such a way that it cannot be chargeable against the person who had actual or beneficial use and
separated therefrom without breaking the material or deterioration possession of it regardless of whether or not he is the owner. To
of the object. impose the real property tax on the subsequent owner who was
neither the owner nor the beneficial user of the property during the
• Board of Assessment Appeals v Manila Electric Co: Steel designated periods would not only be contrary to law but also
towers constructed by Manila electric on land belonging to it at unjust.
intervals from its hydroelectric plant in Laguna to the City of Manila • Therefore the tax liability that was paid by the heir of Concordia Lim
are not subject to real estate tax. They do not constitute buildings under protest maybe refunded by the city government, however
or constructions adhered to the soil under Art 415 par 1 of the CC, they are not entitled to reimbursement from respondent GSIS
nor are they attached to an immovable in a fixed manner under par because 1. GSIS is exempt from payment of real property tax and 2.
3. They are also cannot be considered as immobilized by destination The tax should be on actual use of the property. If there is anyone
under par 5 of the same article. liable, the law and applicable jurisprudence point to the lessees of
land owned by the government-owned and controlled corporations. • Real property shall be listed, valued, and assessed in the name of
In this case, the court can only declare the non-liability of a right to the owner or administrator, or anyone having legal interest in the
refund. The court cannot rule on the liability of the lessees whose property.
identities are not even clear because they were never impleaded.
Schedule of fair market values
APPRAISAL AND ASSESSMENT • Local assessors shall prepare a schedule of fair market values for the
different classes of property situated in their respective LGU’s for
Appraisal enactment by ordinance of the sanggunian concerned.
• Appraisal is the act or process of determining the value of property • The schedule shall be published in a newspaper of general
as of a specific date for a specific purpose, [Sec. 199(e), Local circulation in the locality or, in the absence thereof, posting in two
Government Code] conspicuous and publicly accessible places, [Sec. 212, Local
Government Code].
Appraisal of real property • Assessment is the act or process of determining the value of a
• All Real property, whether taxable or exempt, shall be appraised at property, or proportion thereof, subject to tax, including the
the current and fair market value prevailing in the locality where discovering, listing, classification, and appraisal of properties, [Sec.
such property is situated. 199(f), Local Government Code].
Declaration of Real property Assessment level

1. Declaration by owner or administrator once every three years during • Assessment level is the percentage applied to the fair market value
the period from January 1 to June 30, [Sec. 202, Local Government to determine the taxation value of the property, [Sec. 199(g), Local
Code]. Government Code].
2. Declaration of property by assessor when taxpayer refuses or fails
for any reason to make declaration within the time prescribed, [Sec. Assessment value
204, Local Government Code]. • Assessed value is the fair market value of the real property
3. Declaration covering acquired real property or improvements within multiplied by the assessment level. It is synonymous to taxable
60 days after the acquisition of such property or upon completion or value. [Sec. 199(h) Local Government Code].
occupancy of the improvement, whichever comes earlier, [Sec. 203,
Local Government Code]. Fair Market Value
4. Notice of transfer of real property ownership within 60 days from • Fair market value is the price at which a property may be sold by a
date of transfer, [Sec. 208, Local Government Code]. seller who is not compelled to sell, and bought by buyer who is not
5. Other administrative requirements. compelled to buy, [Sec. 199 (l) Local Government Code].
Assessment Roll • Reyes v. Almanzo: Both the income approach and the comparative
• This is a listing of all real property, whether taxable or exempt, sales approach are valid methods of ascertaining proper tax.
located within the territorial jurisdiction of the local government unit However, in the case at bar, the income approach should have been
concerned. used due to the effect of the Rent Control Law on the lease of the
• All provincial, city, or municipal assessors are required to prepare involved properties. The use of the comparative sales approach
and maintain in every province and city an Assessment Roll. would lead to inequitable results.

Actual use as basis for assessment Mineral land

• Real property shall be classified, valued, and assessed on the basis • Lands in which minerals, metallic, or non-metallic, exist in sufficient
of its actual use regardless of where located, whoever owns it, and quantity or grade to justify the necessary expenditures to extract
whoever uses it, [Sec. 217, Local Government Code]. and utilize such materials, [Sec. 199(p) Local Government Code].
Actual use Special classes of real property

• Actual use refers to the purpose for which the property is principally • All lands, buildings, and other improvements thereon actually,
or predominantly utilized by the person in possession thereof,[Sec. directly, and exclusively used for hospitals, cultural or scientific
199(b) Local Government Code]. purposes, and those owned and used by local water districts, and
government-owned and controlled corporations rendering essential
Classes of real property for assessment purposes public services in the supply and distribution of water and/or
1. Residential generation and transmission of electric power shall be classified as
2. Agricultural special,[Sec. 216, Local Government Code].
3. Commercial
4. Industrial Assessment of property subject to back taxes
5. Mineral • Real property declared for the first time shall be assessed for taxes
6. Timberland for the period during which it would have been liable but in no case
7. Special for more than 10 years prior to the date of initial assessment.
Residential land Assessment of machinery

• Land principally devoted to habitation, [Sec. 199(u) Local • The fair market value of a brand new machinery is its acquisition
Government Code]. cost.
• In other cases, its adjusted value (depreciation).
Agricultural land
• Land devoted principally to the planting of trees, raising of crops, Lopez v City of Manila enumerated the procedural steps in computing real
livestock and poultry, dairying, salt making, inland fishing and similar property tax, as follows:
aquacultural activities, and other agricultural activities, [Sec. 199(d) 1. Ascertain the assessment level of the property
Local Government Code]. 2. Multiply the market value by the applicable assessment level of the
property
Commercial land 3. Find the tax rate which corresponds to the class of the property and
• Land devoted principally for the object of profit and is not classified multiply the assessed value by the applicable tax rates.
as agricultural, industrial, mineral, timber, or residential land, [Sec.
199(i) Local Government Code]. FORMULAE:
Market Value x Assessment Level = Assessed Value
Industrial Land Assessed Value x Rate of Tax = Real Property Tax
• Land devoted principally to industrial activity as a capital investment
and is not classified as agricultural, commercial, timber, mineral or
residential land, [Sec. 199(n) Local Government Code].

COLLECTION OF TAX Remedies for collection
Date of accrual of tax and tax lien 1. administrative action through levy
• The real estate tax for any year shall accrue on the first day of • The remedy of levy can be pursued by putting up for sale only the
January and from that date it shall constitute a lien on the property real property subject to tax. The personal liability is on the owner of
which shall be superior to any other lien, mortgage or encumbrance the real property at the time the tax accrues.
of any kind whatsoever and shall be extinguished only upon the
payment of the delinquent tax. [Section 246, Local Government 2. judicial action
Code] • A formal demand for the payment of the delinquent tax is not
required for the initiation of either remedy.
Payment of real property tax in installments • The collection of local taxes may be enforced through either or both
• The owner of the real property or the person having legal interest the above mentioned remedies, alternatively or simultaneously, and
therein may pay the basic real property tax and the additional tax for the use or non-use of either remedy shall not be a bar to avail of the
the special education fund thereon without interest in four (4) equal other remedy.
installments; except the special levy, the payment of which shall be
governed by an ordinance of the sanggunian concerned. [Section Procedure for levy
250, Local Government Code] 1. Notice of delinquency- Posted and published
2. Warrant of levy – Mailed and served
Tax discount 3. Advertisement – After 30 days from service of Warrant of Levy
• In case of payment in advance of the basic real property tax and - Posting and Publication
additional SEF tax, sanggunian may grant a discount in an amount 4. Auction sale
not exceeding 20% of the annual tax due. [Section 251, Local
Government Code] Notes on levy on real property
• Notices and publication, as well as the legal requirement for the sale
Prescriptive periods of collection are mandatory, the failure of which can invalidate the sale.
• The basic real property tax and any other tax levied under the Local • An auction sale, even if preceded by posting, publication and
Government Code shall be collected within five (5) years from the advertisement, but without actual notice to the delinquent taxpayer,
date they become due. is void. The notice must be given to the person who had therefore
• In case of fraud or intent to evade payment of the tax, such action declared the property for tax purposes.
may be instituted for the collection of the same within ten (10) years • Redemption of one who is not entitled thereto is ineffectual.
from the discovery of such fraud or intent to evade payment.
Interruption of the prescriptive period for collection

1. The local treasurer is legally prevented from collecting the tax.
2. The owner of the property or the person having legal interest therein
requests for reinvestigation and executes a waiver in writing before
the expiration of the period within which to collect.
3. The owner of the property or the person having legal interest therein
is out of the country or otherwise cannot be located.

REMEDIES OF THE TAXPAYER Tax refund or credit

Assessment appeals • Taxpayer may file tax refund or credit when assessment is illegal or
Procedure for protest of imposition of real property tax erroneous and the tax is accordingly reduced or adjusted.
1. Payment under protest • File a written claim for refund or credit for taxes and interests with
No protest shall be entertained unless the taxpayer first pays the local treasurer within two (2) years from the date the taxpayer is
tax. [Section 252(a), Local Government Code] entitled to such reduction or adjustment.
The protest in writing must be filed with the local treasurer within • The treasurer must decide the claim for refund or credit within 60
thirty (30) days from payment of the tax. [Section 252(a), Local days from receipt thereof.
Government Code] • If denied, taxpayer has same remedies as protest. (LBAA, CBAA,
Treasurer must decide the protest within sixty (60) days from receipt CA, SC)
thereof. [Section 252(a), Local Government Code]
ADDITIONAL LEVIES ON REAL PROPERTY
2. Appeal to the Local Board of Assessment Appeals (LBAA)
Section 252(d) provides that “In the event that the protest is denied Special levies authorized
or upon the lapse of the sixty-day period prescribed in subparagraph (a), the
taxpayer may avail of the remedies as provided for in Chapter 3, Title Two, 1. Additional levy on real property for the special education fund or SEF
Book II of this Code,” which refers to the procedure for assessment appeals. [Section 235, Local Government Code]
Any owner or person having legal interest in the property who is not 2. Additional ad valorem tax on idle lands [Section 236, Local
satisfied with the action of the local treasurer may, within sixty (60) days Government Code]
from date to receipt of the written notice of assessment, file a petition under 3. Special levy by local government units [Section 240, Local
oath with the Local Board of Assessment Appeals. [Section 226, Local Government Code]
Government Code]
The LBAA shall decide the appeal with one hundred twenty (120) Additional levy on real property for the special education fund
days from the date of receipt of such appeal. [Section 229, Local
Government Code] • A province, city or a municipality within the Metro Manila area may
levy and collect an annual tax of one percent (1%) on the assessed
3. Appeal to the Central Board of Assessment Appeals (CBAA) value of real property which shall be in addition to the basic real
Owner or person having legal interest may appeal decision of the property tax.
LBAA to the CBAA within thirty (30) days from receipt of the decision of the • The proceeds thereof shall exclusively accrue to the Special
LBAA. [Section 229, Local Government Code] Education Fund created under Republic Act NO. 5447.
4. Appeal to the Court of Appeals Additional ad valorem tax on idle lands

Decision of the CBAA may be appealed, through a verified petition • A province or city or a municipality within the Metro Manila area may
for review, to the Court of Appeals within fifteen (15) days from receipt of levy an annual tax on idle lands at the rate not exceeding five
CBAA decision. [Rule 43, Rules of Court] percent (5%) of the assessed value of the property which shall be in
addition to the basic real property tax.
5. Appeal to the Supreme Court
Decision of the Court of Appeals may be appealed, through a verified
petition for review, to the Supreme Court within fifteen (15) days from
receipt of decision of the CA. [Rule 45, Rules of Court]
What are considered idle lands?

1. For agricultural lands Who may remit tax? (Condonation of Real Property Taxes)
a. One hectare and one half (1/2) of which remain
uncultivated or unimproved is considered idle land. 1. President – public interest so requires
b. However, agricultural land with at least 50 planted trees to 2. Sanggunian – resolution
a hectare or used for grazing purposes are not considered a. failure of crops
idle lands. b. substantial decrease in the price of products
2. Non-agricultural lands c. calamity
a. Where land is more than 1,000 square meters and one half
(1/2) of which remain unutilized or unimproved, it is EXERCISES (LOCAL TAXATION AND REAL PROPERTY TAXATION):
considered idle land. Local Taxation: Power to Impose (2003)
b. The same is applicable to residential lots in subdivisions In order to raise revenue for the repair and maintenance of the newly
which remain unutilized and unimproved. constructed City Hall of Makati, the City Mayor ordered the collection of P1.00,
called "elevator tax", every time a person rides any of the high-tech elevators in
the city hall during the hours of 8:00 a.m. to
Exemption from idle lands tax 10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is the "elevator tax"
• Exemptions are given due to: a valid imposition? Explain.
1. force majeure, No. The imposition of a tax, fee or charge or the generation of revenue under
2. civil disturbance; the Local Government Code shall be exercised by the SANGUNIAN of the
3. natural calamity; or local government unit concerned through an appropriate ordinance (Section
132 of the Local Government Code). The city mayor alone could not order the
4. any cause or circumstances which physically or legally prevents collection of the tax; as such, the "elevator tax" is an invalid imposition.
the owner or person having legal interest from improving,
Considering the provisions of Article X, Section 5 of the 1987 Constitution,
utilizing or cultivating the same. can we now say that in the Philippines, local government units have the
inherent power to tax? Discuss
Special levy by local government units No. While the power of local government units to tax is a power that is
• A province, city or municipality may impose a special levy on the expressly granted, vested, and guaranteed by the 1987 Constitution, still, the
lands compromised within its territorial jurisdiction specially power of local government units to tax could not be considered as inherent.
Inherent taxing power belongs only to the State, not to its political subdivisions.
benefited by public works projects or improvements by the LGU
It is only the State which may exercise the power of taxation even absent any
concerned. Constitutional grant.
• The special levy shall not exceed (60%) of the actual cost of such What is the principle of pre-emption in local taxation?
projects and improvements, including the costs of acquiring land and The principle of pre-emption states that when the national government
such other real property in connection therewith. (through Congress) elects to tax a particular area, it is impliedly withholding from
• It shall not apply to lands exempt from basic real property tax and the local government the power to tax the same field (Victorias Milling Co., Inc.
v. Municipality of Victorias, Negros Occidental, No. L-21183, 27 September
the remainder of the land, portions of which have been donated to
1968).
the LGU concerned for the construction of such projects or Under the present local government code, the principle of pre-emption
improvements. was explicitly made to apply, as evidenced by Section 133 thereof (Common
• Need for public hearing and publication before enactment of Limitations of the Local Taxing Power).
ordinance imposing special levy. What is the Residual Power to Tax of Local Government Units?
• Special levy accrue on the first day of the quarter next following the The residual power to tax is provided under Section 186 of the
Local Government Code, viz.:
effectivity of the ordinance imposing the levy. [Section 240, Local
Local government units may exercise the power to levy taxes, fees or charges
Government Code] on any base or subject not otherwise specifically enumerated herein or taxed
under the provisions of the National Internal Revenue Code, as amended, or SUGGESTED ANSWER:
other applicable laws: Provided, That the taxes, fees, or charges shall not be The following properties are exempt from the real property
unjust, excessive, oppressive, confiscatory or contrary to declared national tax (Section 234, Local Government Code):
policy: Provided, further, That the ordinance levying such taxes, fees or (1) Real property owned by the REPUBLIC OF THE PHILIPPINES or any of its
charges shall not be enacted without any prior public hearing conducted for political subdivisions except when the beneficial use thereof has been granted for
the purpose. consideration or otherwise to a taxable person;
The City of Cebu passed an ordinance imposing a tax of P5.00 on every (2) CHARITABLE INSTITUTIONS, churches, parsonages or convents appurtenant
kilo of lechon taken out of the City. Is the tax valid? thereto, mosques,
No, it is not valid. Section 133 of the Local Government Code clearly non-profit or religious cemeteries, and all lands, buildings, and improvements
proscribes the imposition of a tax by local government units concerning all articles actually, directly and exclusively used for religious, charitable or educational
that are going in or out, or passing through, the territorial jurisdiction of the local purposes;
government unit. (3) All machineries and equipment that are actually, directly and exclusively used by
K is engaged in the business of producing mineral water. In order to trim LOCAL WATER UTILITIES and government-owned or controlled corporations
down the cost of operations, K decided to produce her own plastic bottles engaged in the supply and distribution of water and/or generation and transmission of
for her mineral water. K is producing the said plastic bottles exclusively electric power;
for her mineral water business. (4) All real property owned by duly REGISTERED COOPERATIVES as provided
The City of Cebu, where K has her principal place of business, enacted an for under R.A. 6938; and
ordinance levying taxes on the business of producing mineral water. It also (5) Machinery and equipment used for POLLUTION CONTROL and
enacted an ordinance levying taxes on the production of plastic bottles. K ENVIRONMENTAL PROTECTION.
asked your learned advice whether or not she should pay the said taxes. Property Tax; Req’ts; Auction Sales of Property for Tax Delinquency (2006)
Discuss your advice. Quezon City published on January 30, 2006 a list of delinquent real property
I would advise K to pay the tax on her business of producing taxpayers in 2 newspapers of general circulation and posted this in the main lobby
mineral water, but not on her production of plastic bottles. This is because her of the City Hall. The notice requires all owners of real properties in the list to pay
main line of business is the production of mineral water, for which she is liable for the real property tax due within 30 days from the date of publication, otherwise the
the local business tax. On the other hand, her production of plastic bottles is properties listed shall be sold at public auction.
done exclusively for her mineral water business; hence, the same should not be Joachin is one of those named in the list. He purchased a real property in 1996 but
treated as a separate business. It is well-settled that where a taxpayer is failed to register the document of sale with the register of Deeds and secure a new
engaged in a distinct business and, as a feature thereof, in an activity merely real property tax declaration in his name. He alleged that the auction sale of his
incidental which serves no other person or business, the incidental activity property is void for lack of due process considering that the City Treasurer did not
should not be separately or additionally taxed. send him personal notice. For his part, the City Treasurer maintains that the
Real Property Taxation: Fundamental Principles (1997) publication and posting of notice are sufficient compliance with the requirements of
State the fundamental principles underlying real property taxation in the the law.
Philippines. 1. If you were the judge, how will you resolve this issue?
SUGGESTED ANSWER: SUGGESTED ANSWER:
The following are the fundamental principles governing I will resolve the issue in favor of Joachin. In auction sales
real property taxation: of property for tax delinquency, notice to delinquent landowners and to the public in
1) Real property shall be appraised at its current and general is an essential and indispensable requirement of law, the non-fulfillment of
fair market value; which vitiates the same (Tiongco v. Phil. Veterans ). The failure to give notice to the
2) Real property shall be classified for assessment purposes on the basis of its right person i.e., the real owner, will render an auction sale void (Tan v. Bantegui,
actual use: City Treasurer of Q.C. v. CA).
3) Real property shall be assessed on the basis of a uniform classification within 2. Assuming Joachin is a registered owner, will your answer be the same?
each local government unit; SUGGESTED ANSWER:
4) The appraisal, assessment, levy, and collection of real property tax shall not be Yes. The law requires that a notice of the auction sale must
let to any private person; and be properly sent to Joachin and not merely through publication (Tan v.
5) The appraisal and assessment of real property shall be equitable. Bantegui,,October24, 2005; Estate of Mercedes Jacob v. CA, Dec. 22, 1997).
Real Property Taxation; Exempted Properties (2006)
What properties are exempt from the real property tax?
• Extend not only to the provisions of the Tariff and Customs Code
but to all other laws as well as Central Bank Circulars, the
TARIFF AND CUSTOMS CODE enforcement of which is entrusted to the Bureau of Customs.
IN GENERAL
Division of the Tariff and Customs Code
• Book I – Tariff laws
CUSTOMS LAW – does not refer only to the provisions of Tariff and
• Book II – Customs laws
Customs Code. It also includes other laws and regulations subject to
enforcement by the Bureau of Customs.
Customs duties
• Customs duties are duties which are charged upon commodities
Other laws subject to enforcement by the Bureau of Customs:
on their being imported in or exported out of a country
1. NIRC – Sec. 107. Importation of goods or articles subject to VAT. The
• Garcia v. Executive Secretary: Customs duties, which are
assessed at the prescribed tariff rates, are very much like taxes,
VAT must be paid before these goods are released from Customs
which are frequently imposed for both revenue raising and for
regulatory purposes. This, it has been held that “Customs duties”
Custody.
is “the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise
2. NIRC – Sec. 131. Importation of Articles subject to excise taxes. The imported from, or exported to, a foreign country.”
payment of excise tax must be made before the goods are released from
Customs custody. Flexible tariff clause (Flexible Power of the President)
• Section 28(2), Article VI, Constitution: The Congress may,
3. Regulations that may be issued by the CB, the implementation of such by law, authorize the President to fix within specified limits, and
regulation is vested in the Bureau of Customs. subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues,
CUSTOMS DUTIES – are duties which are charged upon commodities and other duties or imposts within the framework of the national
on their being imported in or exported out of a country. development program of the Government.
TARIFF – means a book of rates; a table or catalogue drawn usually in • Section 401, Tariff and Customs Code: In the interest of
alphabetical order containing the names of several states that hold national economy, general welfare and/or national security, the
commerce together. President upon recommendation of the National Economic and
Development Authority, is empowered:
Scope of tariff and customs laws
• Section 3514 of the Tariff and Customs Code provides that tariff 1. To increase, reduce, or remove existing protective rates of
and customs laws include not only the provisions of the Code import duty, provided that the increase should not be higher
itself and regulations pursuant thereto but all other laws and that 100% ad valorem;
regulations which are subject to enforcement by the Bureau of 2. To establish import quota or to ban imports or any
Customs or otherwise within its jurisdiction. commodity; and
3. To impose additional duty on all imports not exceeding 10%
ad valorem
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TARIFF AND CUSTOMS CODE (VITUG – AQUINO) LEONUM FRATERNITAS TARIFF AND CUSTOMS LAWS. Page 1 of 16
• Additional notes: bought and sold like a commodity. Money orders, also considered
1. An order issued by the President pursuant to the flexible tariff as bills of exchange of limited negotiability, possess the same
clause shall take effect thirty (30) days after promulgation, attributes as other negotiable instruments. Thus, they may also
except in the imposition of additional duty not exceeding ten be bought and sold like checks.
percent (10%) ad valorem which shall take effect at the
discretion of the President. Kinds of goods/merchandise
2. In the case of imposition of additional duty, the investigation of 1. articles subject to duty
the Tariff Commission and recommendation of NEDA are needed. 2. prohibited importations
3. conditionally-free importations
ARTICLES SUBJECT TO CUSTOMS DUTIES
Articles subject to duty
Goods for customs duty purposes • As a general rule, all articles when imported from a foreign
country including those previously exported from the Philippines
• All articles, when imported from any foreign country into the are subject to duty unless otherwise specifically provided in the
Philippines, shall be subject to duty upon each importation, even Code.
though previously exported from the Philippines, except as
otherwise specifically provided for in this Code or in other laws Prohibited importations
[Section 100, Tariff and Customs Code]
1. Dynamite, ammunitions and other explosives, firearms and
• The Code also imposes export tariff and premium duty or certain weapons, except when authorized by law.
articles.
2. Written or printed articles containing any matter advocating of
• Whether subject to duty or not, all imported articles shall be inciting treason, rebellion or subversion against the Philippine
entered through a custom house at the port of entry. Government, or forcible resistance to any law of the Philippines.
Articles, goods or merchandise 3. Written or printed articles, paintings, or other representations of

an obscene or immoral character.
• Articles when used with reference to importation or exportation
includes goods, wares, and merchandise and in general anything 4. Articles, instruments, drugs and substances designed and
that may be made the subject of importation or exportation. intended to produce unlawful abortion and printed materials
promoting unlawful abortion.
• Bastida v. Customs Collector: The Revised Administrative
Code defines merchandise, when used with reference to 5. Machines, apparatus or mechanical devices used in gambling
importation or exportation, to include goods, wares and, in
general, anything that may be made the subject of importation or 6. Lottery and sweepstakes tickets except those authorized by the
exportation. Checks, money orders and dollar bills properly fall Philippine Government
within the concept of merchandise as used in the Revised
Administrative Code. The U.S. dollar are merchandise. Checks, 7. Articles made of precious metals but actual fineness of quality not
as bills of exchange, are negotiable instruments and may be indicated.
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stones and other articles of luxury, which were formally declared

8. Any adulterated or misbranded drug in violation of the Food and and listed before departure.
Drugs Act.
• Returning residents should have stayed out of the
9. Marijuana, opium poppies, or any other narcotic or synthetic country for at least 6 months.
drugs declared habit-forming, or preparation thereof, except
when authorized by the Philippine Government, and opium pipes • OCW’s may bring in used home appliances, limited to one
and parts thereof. of every kinds, once a year, within 60 days from their
return. However, when the amount of the articles have
10. All other articles and parts thereof, the importation of which is exceeded P10, 000 the excess shall be subject to tax.
prohibited by the law or rules and regulations issued by
competent authority. 6. Personal and household effects and vehicles belonging to foreign
consultants and experts hired by, and/or rendering service to, the
Conditionally-free importations government and their staff or personal and families.
• Conditionally-free importations are articles which are exempt
from import duties upon compliance with the formalities 7. Professional instruments and implements, tools of trade,
prescribed in or with regulations promulgated by the occupation or employment, wearing apparel, domestic animals,
Commissioner of Customs with the approval of the Secretary of and personal and household effects belonging to persons coming
Finance. to settle in the Philippines or Filipinos and/or their families and
descendants who are now residents or citizens of other countries,
Enumerate several conditionally-free importations such parties hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or
1. Aquatic products caught or gathered by fishing vessels of position of the person importing them, for their own use and not
Philippine registry for barter or sale, accompanying such persons, or arriving after
within a reasonable time.
2. Equipment for use in the salvage of vessels or aircraft, not
available locally, and cost of repairs excluding the value of the 8. Importation for the use of foreign embassies, legations, and
article used, made in foreign countries upon vessels or aircraft other agencies of foreign governments which accord the same
documented, registered or licensed in the Philippines. privilege to the corresponding agencies of the Philippines in their
3. Articles brought into the Philippines for repair, processing or countries.
reconditioning to be re-exported upon completion of the repair,
processing or reconditioning. 9. Imported articles donated to, or for the account of, any duly
registered relief organization, not operated for profit, for free
4. Medals, badges, cups, and other small articles bestowed as distribution among the needy, upon certification by the DSWD or
trophies or prizes or those received or accepted as honorary DECS as the case may be.
distinction.
10. Animals (except race horses) and plants for scientific,
5. Personal and household effects belonging to residents of the experimental, propagation, botanical, breeding, zoological and
Philippines returning from abroad, including jewelry, precious national defense purposes.
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KINDS OF DUTIES royalties and license fees; cost of transport; loading, unloading
and handling charges; and cost of insurance.
Classification of custom duties
EXPORT VALUE
1. Ordinary or regular customs duties • Export value is that which, at the time of exportation, the same
> Imposed and collected merely as a source of revenue. or identical, like or similar article is freely offered for sale in the
principal export markets of the exporting country for exportation
2. Special customs duties to the Philippines, in the usual wholesale quantities and in the
> Imposed and collected in addition to ordinary customs duties ordinary course of trade (excluding internal excise taxes to be
usually protect local industries against foreign competition. remitted or rebated).
Kinds of ordinary or regular customs duties • Wholesale price in principal export markets of the exporting
country.
1. Ad valorem
> The duty is based on the market value of the price of the HOME CONSUMPTION VALUE
imported article. • Wholesale price of goods in market of exporting country.
2. Specific Procedure for determination of dutiable value

> The duty is based on the weight or volume of the imported 1. Determined by the declared value of the imported goods by the
article. importer.
Basis of dutiable value 2. If Commissioner of Customs has reason to doubt the truth or
• The dutiable value of an imported article subject to an Ad accuracy of the declaration or documents provided in support of
Valorem rate of duty shall be the transaction value. the declared value of importation, he may require the importer to
give further explanation and submit additional documents.
• Republic Act No. 8181 mandated the change of basis of the
dutiable value from the home consumption value to the 3. If Commissioner still has reasonable doubt as to the accuracy of
transaction value by January 1, 2000. Before such date, export the declared value after the explanation and additional
value was used as the basis for the determination of the dutiable documents are given, he may apply two alternative methods, to
value as a transitional device. wit:
a. The dutiable value shall be the transaction value of
TRANSACTION VALUE identical goods sold for export to the Philippines at or
• Transaction value is the price actually paid or payable for the about the date of the exportation of the goods being
goods when sold for export to the Philippines. valued; or
• It is adjusted by adding certain expenses to the extent that they b. If the dutiable value cannot be determined under the
are incurred by the buyer but are not included in the price preceding method, it shall be the transaction value of
actually paid or payable for the imported goods, i.e. commissions similar goods sold for export to the Philippines at or
and brokerage fees; the value of the materials, components, about the date of exportation of the goods being valued.
parts and items incorporated in the imported goods; amount of
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4. If still not able to determine the dutiable value: reflected by the importer in his customs declaration, for valuation
a. The unit price at which the imported goods or identical or purposes.
similar goods are sold domestically, in the same condition as
when imported, in the greatest aggregate quantity, to • Such condition may include, but is not limited to, any of the
persons not related to the seller, at or about the time of the following conditions:
importation of the goods being valued;
1. If the sale or price is subject to some consideration for which a
b. The computed value; or value cannot be determined with respect to the goods being
valued; or
c. Any other reasonable means consistent with GATT.
2. If part of the proceeds of any subsequent resale, disposal or use
Reiteration of the sequence in determination of value of the goods by the buyer will accrue directly or indirectly to the
1st - Transaction value seller, unless an appropriate adjustment can be made; or
2nd - Transaction value of identical goods
3rd - Transaction value of similar goods 3. If the buyer and the seller are related to one another, and such
4th - Deductive value relationship influenced the price of the goods.
5th - Computed value
6th - Other reasonable means or fallback value RELATED SELLERS AND BUYERS
1. Officers or directors of one another’s businesses.
IDENTICAL GOODS 2. Legally recognized partners in business.
• Identical goods mean goods which are the same in all respects, 3. Employer and employee.
including physical characteristic, quality and reputation. 4. Any person who directly or indirectly owns, controls or holds 5 %
or more of the outstanding voting stock or shares of both seller
• Minor differences in appearances shall not preclude goods and buyer.
otherwise conforming to the definition from being regarded as 5. One of them directly or indirectly controls the other.
identical. 6. Both of them are directly or indirectly controlled by a third
person.
• Should be from the same country, and the same producer. 7. Together, they directly control a third person.
8. Members of the same family including brothers and sisters
SIMILAR GOODS (whether full or half-blood), spouse, ancestors, and lineal
• Similar goods mean goods which, although not alike in all descendants.
respects, have like characteristics and like component materials
which enable them to perform the same functions and to be Basis for dutiable weight for specific customs duties
commercially interchangeable. 1. Gross weight
2. Legal weight
Reasonable doubt 3. Net weight
• Reasonable doubt refers to any condition that creates a probable
cause to make the Commissioner of Customs believe in the
inaccuracy of the invoice value of the imported goods, as
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KINDS OF SPECIAL CUSTOMS DUTIES in the Phils. at lower than the prevailing price in the US because they are
1. Dumping duty saleable in the U.S.
2. Countervailing duty So, this will prejudice our local industries. In order to protect our
3. Marking duty local product or to discourage people from buying this imported product,
4. Retaliatory duty or discriminatory duty we should be impose special duties in addition to the regular duties.
5. Duties imposed under the Flexible Tariff Clause Dumping duties should be imposed.
DUMPING DUTY COUNTERVAILING DUTY

• Duty imposed on a specific kind or class of foreign article which is • Duty imposed on articles, upon the production, manufacture or
being imported into, or sold, or is likely to be sold for export to or export of which any bounty or subsidy is directly or indirectly
in the Philippines at a price less than the fair value, the granted in the country of origin and/or exportation, and the
importation or sale of which might injure or retard the exportation of which into the Philippines will likely injure an
establishment of an industry producing like goods in the industry in the Philippines or retard or considerably retard the
Philippines, [Sec. 301, Tariff and Customs Cods] establishment of such industry, [Sec. 302, Tariff and Customs
Code].
Dumping duty – duty levied on imported goods where it appears that a
specific kind or class of foreign article being imported into or sold is likely • Bounty is the cash award paid to an exporter or manufacturer
to be sold in the Phils. at a price less than its fair value. while subsidy refers to fiscal incentives, not in the form of direct
cash award, to encourage manufacturers; or
Ø Imposed on specific kind or class of foreign article which
is being imported into, or sold or is likely to be sold for • The duty is equal to the ascertained or estimated amount to the
exportation to or in the Phils. at a price less than its fair bounty or subsidy
value, the importation or sale of which is likely to injure
an industry imposing like goods in the Philippines. Countervailing duty – duty equal to the ascertained or estimated amount
of the subdsidy or bounty or subvention granted by the foreign country
Ø The duty is equal to the difference between the actual on the production, manufacture, or exportation into the Phils. of any
purchase price and the fair value of the articles in article likely to injure an industry in the Phils. or retard or considerably
question in the country or exportation as determined by retard the establishment of such industry.
the Sec. of Finance.
Ø Imposed on articles, upon the production, manufacture
These are special duties imposed on imported articles. This may or export of which any bounty or subsidy is directly or
be imposed subject to the ff. requisites: indirectly, granted in the country of origin
1. There must be a deliberate and continuous sale of imported article in and/exportation. No need to show proof that the imports
the Philippines as price lower than the prices in the exporting country. cause injuries to domestic industries producing the same
2. This must prejudice or cause or likely to cause injury to our local products. The duty is equal to the ascertained or
industry. estimated amount of the bounty or subsidy given.
Situation: There are articles of foreign origin the prevailing price of Situation: Sometimes imported products enjoys certain subsidy
which in the US is equivalent to P100. These articles are sold or dumped from their government. So, they have an advantage. Our local products
for example, does not enjoy similar subsidy. We should counter that
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advantage by imposing countervailing duties. The purpose there is to to place it at a disadvantage compared with the commerce of any foreign
protect our local products against unfair competition. country.
This represents the inland excise tax on locally manufactured
articles of the same kind to off-set this advantage. Ø The amount may be increased in an amount not
As regards dumping duties, the extent of the special duty is the exceeding 100% ad valorem when the President finds
amount that represents under-pricing. the public interest may be served thereby.
As regards countervailing duties, the extent is the excise inland
tax or the amount of advantage enjoyed by that imported article. Ø This may be imposed by the President of the Philippines
when our goods are discriminated against.
MARKING DUTY Ø As regards dumping, countervailing and marking duties,

• Duty imposed on imported articles or containers which have not it is the Sec of Finance, upon recommendation of the
been property marked in any official language of the Philippines Tariff Commission, who may impose these duties.
as to indicate the name of the country or origin of the article. The
purpose is to prevent the deception of consumers. [Sec. 303, Question: What is the extent of the flexible power of the President
Tariff and Customs Code]. of the Phils. under the TCC?
• The rate is 5% ad valorem. Answer: That includes the power to impose discriminatory duties.
The President upon recommendation of the Tariff Commission may
• The articles shall be deemed abandoned upon failure to mark increase the tariff rates by not more than 5x or meaning 500x of the tariff
them within 30 days from notice. rates. He may also decrease the tariff rates by not less than 50%.
Marking duty – duty on ad valorem basis imposed for improperly marked He can only exercise these powers in the interest of the national
articles. The requirement that foreign importation must be marked in any economy, national security and general welfare of the people.
official language of the Phils., the name of the country of origin of the
article. DRAWBACKS
• A drawback is a device resorted to for enabling a commodity
Ø The purpose is to prevent deception of consumers. affected by taxes to be exported and sold in foreign markets
Ø The articles must be properly marked, otherwise a special upon the same terms as if it had not been taxed at all. It may be
duty of 5% of the value shall be imposed. full or partial.
RETALIATORY DUTY • The return of 99% of customs paid on imported articles when
• Duty imposed upon articles of a foreign country which they are re-exported forming part of domestically produced
discriminates against Philippine commerce in such a manner as to articles.
place it at a disadvantage compared with the commerce of
another foreign country, [Sec. 304, Tariff and Customs Code]. • The refund of 99% duty on imported fund when used for
propulsion vessels engaged in the foreign or coastwise trade.
Retaliatory or Discriminatory duty – duty imposed on imported
goods whenever it is found as a fact that the country of origin
discriminates against the commerce of the Philippines in such manner as
LEX
When drawbacks allowed Tonnage dues

• Drawbacks are allowed on the following commodities: • Tonnage dues are paid by the owner, agent, operator or master
1. Fuel used on propulsion vessels; of a vessel engaged in foreign trade based on the net tonnage of
2. Petroleum oils and oils obtained from bituminous the vessel or weight of the articles discharged or laden.
minerals, etc., eventually used for generation of electric
power and manufacture of city gas; and Other fees and charges
3. Articles made of imported materials upon the exportation • Charged and collected for services rendered and documents
of articles manufactured or produced in the Philippines issued by the Bureau of Customs.
subject to certain conditions.
REQUIREMENTS OF IMPORTATION UNDER THE TARIFF AND
Other customs fees, dues, or charges payable CUSTOMS CODE
1. Harbor fees
2. Wharfage dues Liability of importer of duties
3. Berthing fees • The Code provides that all articles imported into the Philippines
4. Storage charges shall be held to be the property of the person to whom the same
5. Arrastre charges are consigned; and the holder of a boll of lading duly endorsed
6. Tonnage dues by the consignee therein named, or if consigned to order by the
7. Other fees and charges consignor, shall be deemed the consignee thereof. The
underwriters of abandoned articles and the salvors of articles
Harbor fees saved from a wreck at sea, along a coast, or in any area of the
• Harbor fees are imposed on vessels entering into or departing Philippines, may be regarded as the consignees, [Sec. 1203,
from a port of entry of the Philippines. Tariff and Customs Code].
Wharfage dues • Unless otherwise relieved by laws or regulations, the liability for
• Wharfage dues are assessed against the cargo of a vessel duties, taxes, fees and other charges attaching on importation
engaged in foreign or coastwise trade, based in the quantity constitutes a personal debt due from the importer to the
weight or measure received and/or discharged by such vessel. government which can be discharged only by payment in full of
said duties and charges.
Berthing fees
• Berthing fees are assessed against a vessel for mooring or • It also constitutes a lien upon the articles imported which may be
berthing at a pier, wharf, or river at any port in the Philippines. enforced which such articles are in custody or subject to the
control of the government.
Storage charges
• Storage charges are assessed on articles for storage in customs GOVERNMENT IMPORTATIONS
premises, cargo sheds and warehouses. • All importations by the government for its own use or that of its
subordinate branches or instrumentalities, or corporations,
Arrastre charges agencies or instrumentalities owned or controlled by the
• Arrastre charges are imposed on all imported and exported government shall be subject to the duties, taxes, and other
articles and baggage of passengers for their handling, receiving charges provided in the Tariff and Customs Code, [Sec. 1205
and custody. Tariff and Customs Code].
LEX
When importation begins and when deemed terminated customs duties and internal revenue taxes due on the
• Importation begins when carrying vessel or aircraft enters the importation.
jurisdiction of the Philippines with an intent to unload.
Person authorized to make an import entry
• Importation terminates upon payment of the duties and other 1. Importer, being the holder of the bill of lading
charges due upon the articles, or secured to be paid, at the port 2. A duly licensed customs broker, acting under authority from
of entry and the legal permit for withdrawal shall have been the holder of a bill of lading
granted. 3. A duly empowered agent or attorney in fact for each holder
of a bill of lading
• In the case of articles that are free of duties, taxes and other
charges, importation is deemed terminated from the time they Import entry filed by person other than importer
have legally left the jurisdiction of the customs. • If filed by a party other than the importer, the importer himself is
required to declare under oath and under penalties of falsification
Entry through customhouse or perjury that the declarations and statements contained in the
• All articles imported into the Philippines, whether subject to duty entry are true and correct. Such statements constitute prima
or note, shall be entered through a customhouse at a port of facie evidence of knowledge and consent of the importer.
entry. [Section 1201, Tariff and Customs Code]
Period for filing of import entry
• A “port of entry” means a domestic port open to both foreign and • Within thirty (30) days from the date of discharge of the last
coastwise trade, including “airport of entry.” [Section 3514, package from the vessel.
Tariff and Customs Code]
ABANDONMENT
Cargo manifest • Abandonment is the renunciation by an importer of all his
• All cargo, exported or imported, shall be included in the cargo interests and property rights in the imported article.
manifest, except the ship’s stores.
• It may be express or implied.
• Commissioner v. Delgado: The evident purpose of the
provision requiring vessels to declare the correct weight of their Express abandonment
cargo is to curb smuggling due to underdeclarations. Hence, • When the owner, importer or consignee of the imported article
imposing the maximum fine on vessels which grossly fail to expressly signifies in writing and under oath to the Collector of
comply with the obligation to declare the correct weight of their Customs his intention to abandon his shipment in favor of the
cargo truly promotes the spirit and purpose of the law, since government, within ten days after filing of the import entry, he
imposing a minimum fine would only embolden would be shall be relieved from payment of duties, taxes and other charges
smugglers and foster negligence on the part of the master of the and expenses.
vessel in checking the true weight of the cargo.
• Article shall be delivered by the owner, importer or consignee at
Import entry such place which the Collector designates; failure to comply shall
• A declaration to the Bureau of Customs showing the description, make him liable for expenses that may be incurred in connection
value, tariff classification and other particulars of the imported with the disposition thereof.
article to enable the customs authorities to determine the correct
LEX
Implied abandonment Fraudulent practices against customs revenue under Section

1. When the owner, importer, consignee or interested party, after 3602
due notice, fails to file an entry within thirty (30) days, which 1. Entry of imported or exported articles by means of any false or
shall not be extendible, from the date of discharge of the last fraudulent invoice
package from the vessel or aircraft; OR
2. Entry of goods at less than the true weight or measure.
2. Having filed an entry for his shipment, the owner, importer or
consignee, or other interested party fails to claim his importation 3. Filing of any false or fraudulent entry for the payment of
within fifteen (15) days, which shall not be extendible, from the drawbacks or refund of duties.
date of posting of the notice to claim such importation.
Three meanings of term “entry”
Effects of abandonment 1. Documents filed at the Customs House
1. Owner, importer, consignee or other interested party deemed to 2. Submission and acceptance of the documents
have renounced all of his interests and property rights over the 3. Procedure of passing the goods through the Customs House
articles.
ADMINISTRATION
2. Abandoned article shall be ipso facto deemed the property of the Who is in charge?
government and shall be disposed of in accordance with the • The offices charged with the administration and enforcement of
provisions of the Code. the law are the Tariff Commission and the Bureau of Customs.
3. It does not relieve owner or importer from any criminal liability Functions of the Tariff Commission
which may arise from any violation of law committed in • The Commission shall investigate:
connection with the importation of the abandoned article. 1. The administration of and the fiscal and industrial effects of
the country’s tariff and customs laws;
Smuggling or unlawful importation
• Any person who shall fraudulently import or bring into the 2. The relations between the rates of duty on raw materials
Philippines, or assist in doing so, any article, contrary to law, or and finished or partly finished goods;
shall receive, conceal, buy, sell, or in any manner facilitate the
transportation, concealment, or sale of such article after 3. The effects of ad valorem and specific duties and of
importation, knowing the same to have been imported contrary compound specific and ad valorem duties;
to law, shall be guilty of smuggling.
4. All questions relative to the arrangement of schedules and
• After importation, the act of facilitating the transportation, classifications of articles under the tariff law;
concealment or sale of the unlawfully imported article must be
with the knowledge that the article was smuggled. However, 5. The tariff relations between the Philippines and foreign
upon trial, if the defendant is found to have been in possession of countries, commercial treaties, etc.
such article, this shall be sufficient to authorize the conviction
unless the defendant explains his possession to the satisfaction of 6. The volume of importations compared with domestic
the court. production and consumption;
LEX
7. Conditions, causes and effects relating to competition of TAX REMEDIES

foreign industries with those of the Philippines;
IN GENERAL
8. In general, to investigate the operation of customs and
tariff laws and to submit report of its investigations; and Remedies available to the government
1. Seizure and forfeiture of goods and commodities
9. The nature, composition, and classification of articles for 2. Judicial action against the taxpayer
customs revenue and other related purposes which shall be
furnished no NEDA, Board of Investments, Central Bank Tax Remedies under the Tariff and Customs Code:
and the Secretary of Finance.
Duties, powers and jurisdiction of the Bureau of Customs

1. The assessment and collection of the lawful revenues from Remedies Government Importer
imported articles and all other dues, fees, charges, fines and
penalties accruing under the tariff and customs laws. (1) Administrative (a) Enforcement of tax (a) Tax refund
or lien (b) Abandonement
2. The prevention and suppression of smuggling and other frauds extra-judicial (b) Seizure (c) Protest
upon the customs.
(2) Judicial (a) Filing of civil action (a) Appeal to CTA, CA,
3. The supervision and control over the entrance and clearance of (b) Filing of criminal SC
vessels and aircraft engaged in foreign commerce. action (b) Filing of criminal
if there is fraud and it action against
4. The enforcement of tariff and customs laws and all other laws, must be serious erring
rules and regulations relating to tariff and customs Customs
administration. officials
5. The supervision and control over the handling of foreign mails Cases arising under the tariff and customs code
arriving in the Philippines, for the purpose of the collection of the 1. Customs protest cases or those where the importer questions the
lawful duty on the dutiable articles thus imported and the legality of the assessment and collection of customs duties and
prevention of smuggling through the medium of such mails. other fees or charges. The issue involved in these cases
generally relates to the correctness of the appraisal and/or
6. Supervision and control over all import and export cargoes, classification of imported goods.
landed or stored in piers, airports, terminal facilities, including
container yards and freight stations, for the protection of 2. Seizure and forfeiture cases or those where goods or
government revenue. merchandise are ordered seized by customs authorities and made
subject to the penalty of forfeiture or fine for violation of the
7. Exclusive original jurisdiction over seizure and forfeiture cases customs laws. Here, the issue involved is the legality of the
under the tariff and customs laws. importation of goods either because the goods are in themselves
prohibited importations or their importation of effected contrary
to law.
LEX
CUSTOMS PROTEST CASES 6. When a protest in form is presented, the Collector shall issue an
order for hearing within fifteen (15) days from receipt of the
Procedure on customs protest cases protest and hear the matter thus presented. Upon the
1. Firs of all, the Collector shall cause all articles entering the termination of the hearing, the Collector shall render a decision
jurisdiction of his district and destined for importation through his within thirty (30) days, and if the protest is sustained in whole or
port to be entered at the customhouse. He shall cause all such in part, he shall make the appropriate order, the entry re-
articles to be appraised and classified, and shall assess and liquidated if necessary.
collect the duties, taxes, and other charges thereon, and shall
hold possession of all imported articles, upon which duties, taxes, 7. The person aggrieved by the decision or action of the Collector in
and other charges have not been paid or secured to be paid, any matter presented upon protest may within fifteen (15) days
disposing of the same according to law. [Section 1206, Tariff after notification in writing by the Collector of his action or
and Customs Code] decision, give written notice to the Collector and one copy
furnished to the Commissioner of his desire to have the matter
2. The party adversely affected by the ruling or decision of the reviewed by the Commissioner. Thereupon, the Collector shall
Collector whereby liability for duties, taxes, fees or other charges forthwith transmit all records of the proceedings to the
are determined, may protest such ruling or decision. [Section Commissioner, who shall approve, modify, or reverse the action
2308, Tariff and Customs Code] or decision of the Collector and take such steps and make such
orders as may be necessary to give effect to his decision.
3. The protest, which must be in writing, is filed with the Collector [Section 2313, Tariff and Customs Code]
within fifteen (15) days. No protest shall be considered unless
payment of the amount due after final liquidation (i.e. 8. If in any case involving the assessment of duties, the Collector
computation of the liability) has first been made and the renders a decision adverse to the Government, such decision
corresponding docket fee actually paid. shall automatically be elevated to, and reviewed by the
Commissioner; and if the Collector’s decision would be affirmed
4. Every protest shall be filed in accordance with rules and by the Commissioner, such decision shall automatically be
regulations promulgated for the purpose, and shall point out the elevated to, and be finally reviewed by, the Secretary of Finance.
particular decision or ruling of the Collector to which exception is However, if within thirty (30) days form the receipt of the record
taken or objection made, and shall indicate with reasonable of the case by the Commissioner or by the Secretary of Finance,
precision the particular ground or grounds upon which the as the case may be, no decision is rendered by either of them,
protesting party bases his claim for relief. [Section 2310, Tariff the decision under review shall become final and executory. Any
and Customs Code] party aggrieved by either the decision of the Commissioner or the
Secretary of Finance may appeal to the Court of Tax Appeals
5. The scope of a protest shall be limited to the subject matter of a within thirty (30) days from receipt of a copy of such decision.
single adjustment or other independent transaction; but any [Section 2315, Tariff and Customs Code]
number of issues may be raised in a protest with reference to the
particular item or items constituting the subject matter of the Incidentally, in case of appeals to the Court of Tax Appeals from
protest. Single adjustment refers to the entire content of one the decisions of the Secretary of Finance as a consequence of the
liquidation, including all duties, fees, surcharges or fines incident automatic review by the Secretary of Finance of decisions emanating
thereto. [Section 2310, Tariff and Customs Code] form Customs, the thirty-day period of appeal under Republic Act No.
LEX
1125 will necessarily be counted from the receipt of the decision of the However, if within thirty (30) days form receipt of the record of
Secretary of Finance. the case by the Commissioner or the Secretary of Finance, as the case
may be, no decision is rendered by either or them, the decision under
PROCEDURE IN PROTEST review shall become final and executory.
Remedy Where [Issues which Prescriptive Any party aggrieved by either the decision of the Commissioner
to file may be raised] Period or the Secretary of Finance may appeal to the Court of Tax Appeals
(1) File a protest Collector (a) Validity if the 15 days from within thirty (30) days from receipt of a copy of such decision.
of assessment or the payment of
Customs collection Customs duties Except as provided above, the supervisory authority of the
(b) Validity of Secretary of Finance over the Bureau of Customs does not extend to the
classification of administrative review of the ruling of the Commissioner in matters
articles appealed to the Court of Tax Appeals.
(2) If protest is Customs Within 15 days
denied, Appeal Commiss Questions of fact or from receipt of • Automatic review is intended to protect the interest of the
collector’s ruling ioner Question of law the Collector’s government in the collection of taxes and customs duties in
(CC) ruling seizure and protest cases which, without such review, neither the
(3) If CC affirm Question of fact or Within 30 days Commissioner nor the Secretary of Finance would probably know
collector’s ruling, Question of law from receipt of about.
Appeal CTA the decision of
the CC. • Automatic review as a procedural rule applies to both customs
(4) If CTA affirm Question of fact or Within 15 days cases and seizure and forfeiture cases incident to smuggling or
collector’s ruling, Question of law from receipt of unlawful importation or exportation.
Appeal CA CTA decision
(5) If CA affirm Within 15 days • Likewise, supervisory authority is exercised by the Commissioner
CTA, Appeal Question of law from receipt of on seizure and forfeiture cases while the case is still pending in
SC CA decision the Office of the Collector of Customs and before the decision of
the Collector becomes final.
Automatic review and supervisory authority of Commissioner
and Customs and Secretary of Finance Burden of proof in protest cases
• If in any case involving the assessment of duties, the Collector • In protest cases, the protestant has the burden of proving the
renders a decision adverse to the government; such decision correctness of his contention for the issue is not whether the
shall automatically be elevated to, and reviewed, by the Collector was wrong but whether the importer is right.
Commissioner.
If the Collector’s decision would be affirmed by the

Commissioner, such decision shall be automatically elevated to, and
finally reviewed, by the Secretary of Finance.
LEX
SEIZURE AND FORFEITURE CASES • When a vessel becomes subject to seizure by reason of an act
done in Philippine waters in violation of the tariff and customs
Nature of seizure and forfeiture proceedings laws, a pursuit of such vessel begun within the jurisdictional
• Proceedings in seizure cases are actions in rem directed against waters may continue beyond the maritime zone, and the vessel
the property seized, against the owner thereof. may be seized on the high seas. [Section 603, Tariff and
• Forfeiture proceedings are civil and are not criminal in nature. Customs Code]
• Proof beyond reasonable doubt is not required to warrant • Imported articles which may be subject to seizure for violation of
forfeiture. tariff and customs laws may be pursued in their transportation in
• A customs seizure and forfeiture case is administrative and civil in the Philippines by land, water, or air, and such jurisdiction
nature and is directed against the res or imported articles and exerted over them at any place therein as may be necessary for
entails a determination of the legality of their importation. the due enforcement of the law.
[Commissioner of Customs v. Makasiar, GR No. 79307, • In Asaali v. Commissioner [27 SCRA 312], the Supreme Court
August 29, 1989] held as valid the interception and seizure of a vessel on the high
• Forfeiture is in the nature of proceedings in rem and is directed seas, saying that the authority of a nation within its territory is
against the res. The fact that the owner of the vessel had no absolute and exclusive. The power to secure itself form injury
actual knowledge that the vessel was illegally used does not may certainly be exercised beyond the limits of its territory.
render the vessel immune from forfeiture. This is so because
forfeiture action is against the vessel itself. [Vierneza v. Places where searches and seizures may be conducted
Commissioner, 24 SCRA 294] 1. Right of police officer to enter enclosure without a warrant,
except a dwelling house
Doctrine of primary jurisdiction over seizure and forfeiture cases 2. Search of dwelling house must be with proper warrant
[Rallos v. Gako Doctrine 344 SCRA 178] 3. Right to search vehicles or aircrafts and persons or articles
• The prevailing doctrine is that the exclusive jurisdiction in seizure conveyed therein
and forfeiture cases vested in the Collector of Customs precludes 4. Right to search vehicles, beasts and persons
a regular court from assuming cognizance of such matter. 5. Search of persons arriving from foreign countries
• It is the settled rule that the Bureau of Customs acquires
exclusive jurisdiction over imported goods, for the purpose of Right of police officer to enter enclosure without a warrant
enforcement of the customs laws, from the moment the goods • Any person exercising the police powers conferred under said
are actually in its possession or control, even if no warrant of Code may at any time enter, pass through, or search any land or
seizure or detention had previously been issued by the Collector enclosure or any warehouse, store or other building, not being a
of Customs in connection with seizure and forfeiture proceedings. dwelling house.
• A warehouse, store or other building or enclosure used for the
Jurisdiction of the Bureau of Customs keeping or storage of articles does not become a dwelling house
• The Bureau of Customs has the right of supervision and police within the meaning hereof by reason of the fact that a person
authority over all seas within the jurisdiction of the Philippines employed as watchman lives in the place, nor will the fact that
and over all coasts, ports, airports, harbors, bays, rivers and his family stays therein with him alter the case.
inland waters whether navigable from the sea or not. [Section
603, Tariff and Customs Code]
LEX
Search of dwelling house reasonably suspected of holding or conveying such articles as

• A dwelling house may be entered and searched only upon aforesaid.
warrant issued by a judge of the court, upon sworn application
showing probably cause and particularly describing the place to Search of persons arriving from foreign countries
be searched and person or thing to be seized. • All persons coming into the Philippines from foreign countries
shall be liable to detention and search by the customs authorities
Right to search vessels or aircraft and persons or articles under such regulations as may be prescribed relative thereto.
conveyed therein
• It shall be lawful for any official or person exercising police Procedure governing seizure and forfeiture cases
authority under the Tariff and Customs Code to go aboard any 1. Warrant for detention of property. Bond.
vessel or aircraft within the limits of any collection district, and to Upon making any seizure, the Collector shall issue a warrant for
inspect, search and examine said vessel or aircraft and any trunk, the detention of the property; and if the owner or importer desires to
package, box or envelope on board and to search any person on secure the release of the property for legitimate use, the Collector may
board the said vessel or aircraft if under way, to use all necessary surrender it upon the filing of a sufficient bond, in an amount to be fixed
force to compel compliance. by him, conditioned for the payment of the appraised value of the article
• If it shall appear that any breach or violation of the customs and and/or any fine, expenses and costs which may be adjudged in the case:
tariff laws of the Philippines has been committed, whereby or in Provided that articles the importation of which is prohibited by law shall
consequence of which such vessels or aircraft, or the article, or not be released under bond.
any part thereof, on board of or imported by such vessels or 2. Report seizure to Commissioner and Chairman, Commission on
aircraft is liable to forfeiture to make seizure of the same or any Audit
part thereof. 3. Notification to owner or importer
• The power of search hereinabove given shall extend to the 4. Notification to unknown owner
removal of any false bottom, partition, bulkhead or other 5. Description, appraisal and classification of seized property
obstruction, so far as may be necessary to enable the officer to 6. Proceedings in case of property belonging to unknown parties
discover whether any dutiable of forfeiture articles may be 7. Settlement of case by payment of fine or redemption of forfeited
concealed therein. property
• No proceeding herein shall give rise to any claim for the damage Subject to approval of the Commissioner, the district collector
thereby caused to article or vessel or aircraft. may, while the case is still pending, except when there is fraud, accept
• It is not necessary that the vessel or aircraft is actually carrying the settlement of any seizure case provided that the owner, importer,
contraband. exporter, or consignee or his agent shall offer to pay to the collector a
• It is not also essential that the vessel or aircraft come from a fine imposed by him upon the property, or in case of forfeiture, the
foreign country. owner, exporter, importer or consignee or his agent shall offer to pay the
domestic market value of the seized article. The Commissioner may
Right to search vehicles, beasts and persons accept the settlement of any seizure case on appeal in the same manner.
• It shall also be lawful for a person exercising authority as Settlement of any seizure case by payment of the fine or
aforesaid to open and examine any box, trunk, envelope or other redemption of forfeited property shall not be allowed in any case where
container, wherever found when he has reasonable cause to the importation is absolutely prohibited or where the release of the
suspect the presence therein of dutiable or prohibited article or property would be contrary to law.
article introduced in the Philippines contrary to law, and likewise 8. Decision or action by collector in protests and seizure cases
to stop, search and examine any vehicle, beast of person 9. Review by Commissioner
LEX
The person aggrieved by the decision or action of the Collector in Burden of proof in seizure and/or forfeiture
any matter presented upon protest or by his action in any case of seizure • In all proceedings taken for the seizure and/or forfeiture of any
may, within fifteen (15) days after notification in writing by the Collector vessel, vehicle, aircraft, beast or articles under the provisions of
of his action or decision, give written notice to the Collector and one copy the tariff and customs laws, the burden of proof shall lie upon the
furnished to the Commissioner of his desire to have the matter reviewed claimant. Provided that probable cause shall be first shown for
by the Commissioner. Thereupon, the Collector shall forthwith transmit the institution of such proceedings and that seizure and/or
all the records of the proceedings to the Commissioner, who shall forfeiture was property made.
approve, modify or reverse the action or decision of the Collector and
take such steps and make such orders as may be necessary to give effect Commissioner of Customs v. Manila Star Ferry GR# L – 31776-78
to his decision. • It is not a defense that the owner of the vessel sough to be
10. Notice of decision of Commissioner forfeited had no actual knowledge that his property was used
Decision of the Commissioner of Customs shall be appealed to illegaly
the Court of Tax Appeals within thirty (30) days after receipt of the
decision. In case of automatic reviews, the decision of the Secretary of Seizure of other articles
Finance shall be appealed within the same period after receipt of the • The Commissioner of Customs and Collector of Customs and/or
decision of the Secretary. any other customs office, with the prior authorization in writing
11. Supervisory authority of Commissioner and of Secretary of by the Commissioner, may demand evidence of payment of
Finance in certain cases. Automatic review by the Commissioner duties and taxes on foreign articles openly offered for sale or
and Secretary on certain cases. kept in storage, an dif no such evidence can be produced, such
12. Authority of Commissioner to make compromise articles may be seized and subjected to forfeiture proceedings.
Subject to the approval of the Secretary of Finance, the • Provided that during such proceedings, the person or entity for
Commissioner of Customs may compromise any case arising under the whom such articles have been seized shall be given the
Code or other laws or part of laws enforced by the Bureau of Customs opportunity to prove or show the source of such articles and the
involving the imposition of fines, surcharges and forfeitures unless payment of duties and taxes thereon.
otherwise specified by law.
Redemption of forfeited property
Property not subject to forfeiture • As a means of settlement, redemption of forfeited property is not
• The forfeiture of the vehicle, vessel, or aircraft shall not be available when:
effected if it is established that the owner thereof or his agent in a. When there is fraud.
charge of the means of conveyance used as aforesaid has no b. When the importation is absolutely prohibited
knowledge of or participation in the unlawful act. c. When the release of property would be contrary to law.
• However, a prima facie presumption shall exist against the
vessel, vehicle or aircraft under any of the following Extent of Importer’s liability
circumstances: • The liability of an importer is limited to the value of the imported
1. If the conveyance has been used for smuggling at least merchandise
twice before; • In case of forfeiture of the seized merchandise, the maximum
2. If the owner is not in the business for which the civil penalty is the forfeiture itself.
conveyance is generally used; and
3. It the owner is not financially in a position to own such
conveyance.
LEX

Benjamin Aban - Basic Law On Taxation Summary

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LEX LEONUM FRATERNITAS

Chapter 1: GENERAL PRINCIPLES Thus:

LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 1 of 8

LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 3 of 8

LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 4 of 8

License fee v. Tax TAXES CLASSIFIED

LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 5 of 8

LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 6 of 8

LEX LEONUM FRATERNITAS Chapter 1: GENERAL PRINCIPLES. Page 8 of 8

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

MEANS OF AVOIDING OR MINIMIZING THE BURDEN OF 3. Onward shifting

LEX LEONUM FRATERNITAS

Elements of tax evasion TAX AVOIDANCE

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITASChapter 4: TAX LAWS AND REGULATIONS. Page 1 of 4

PUB LICATION REQUIREMENT Requisites for validity of rules and regulations]

LEX LEONUM FRATERNITAS

LEX LEONUM FRATERNITAS

When pre-assessment notice not required Civil penalty or surcharge

LEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

Chapter 7: TAXLEX LEONUM FRATERNITAS

REMEDIES OF THE TAXPAYER PROTEST OF ASSESSMENT

LEX LEONUM FRATERNITAS Chapter 8: TAXPAYER’S REMEDIES. Page 1 of 4

Why is a written claim for refund is necessary? Taxes payable in installments

Two things to be established before refund or credit is granted Corporate dissolution

LEX LEONUM FRATERNITAS Chapter 8: TAXPAYER’S REMEDIES. Page 3 of 4

Legal capacity of withholding agents to claim a tax refund

LEX LEONUM FRATERNITAS Chapter 8: TAXPAYER’S REMEDIES. Page 4 of 4

LEX LEONUM FRATERNITAS Chapter 9: COURT OF TAX APPEALS. Page 2 of 3

IN GENERAL Fees and charges

• On the grant of tax incentives • Limitations:

1. Provinces and municipalities;

LEX LEONUM FRATERNITAS Chapter 10: LOCAL TAXATION. Page 2 of 10

4. They shall not be unjust, excessive, oppressive or confiscatory.

5. They shall not be contrary to law, public policy, national

LEX LEONUM FRATERNITAS Chapter 10: LOCAL TAXATION. Page 4 of 10

Common limitations on the taxing powers of LGUs

6. Amusement tax – 30% of gross receipts Scope of taxing power of barangays

Business • The barangay may levy reasonable fees and charges:

LEX LEONUM FRATERNITAS Chapter 10: LOCAL TAXATION. Page 6 of 10

Common revenue-raising powers of LGUs

General Rule: Tax shall accrue and shall be paid to the

Exception: To the municipality of the principal office if there is

COMMUNITY TAX Juridical persons liable to community tax

Community tax • Every corporation, no matter how created or organized, whether

4. who is required by law to file an income tax return.

LEX LEONUM FRATERNITAS Chapter 10: LOCAL TAXATION. Page 8 of 10