TABLE OF CONTENTS PART I.
GENERAL PRINCIPLES AND LIMITATIONS ON THE POWER OF TAXATION
CHAPTER I: GENERAL PRINCIPLES !"#$%&%'$(')(&*+*&%'$ ............................................................................... Nature of the power of taxation .............................................................. Attribute of sovereignty ................................................................. Legislative in character ................................................................. Not delegated to executive or judicial department ...................... Subject to and constitutional inherent limitations....................... Aspects of Taxation ........................................................................ Theory or underlying basis of taxation ................................................... Lifeblood theory .............................................................................. ((((((( ,"$"#&-./0'&"1&%'$(&2"'03.............................................................. Power to tax involves the power to destroy ............................................ !"#$%&%'$(')(&*+"- .................................................................................... Attributes or characteristics of taxes ...................................................... Purposes and objectives of taxation ........................................................ Taxation, eminent domain, and police power ......................................... Tax vs. debt ............................................................................................. Tax vs. toll ............................................................................................... Tax vs. license fee .................................................................................... Tax vs. special assessment ...................................................................... Tax vs. penalty ......................................................................................... Double taxation ........................................................................................ Exemption from taxation ......................................................................... Tax laws.................................................................................................... Statutes are construed against the government .......................... Construction of statute by predecessor ......................................... Retroactive application .................................................................. Publication ...................................................................................... Special law prevails over general law ........................................... Tax evasion vs. Tax avoidance....................................................... vii
Page 1 1 2 2 2 3 4 5 5 6 6 7 7 10 11 13 14 14 15 15 16 20 22 22 23 23 25 26 26
CHAPTER II:
INHERENT AND CONSTITUTIONAL LIMITATIONS
Inherent Limitations ............................................................................... Public purpose ................................................................................ Non-delegation of legislative power to tax .................................... Exemption of government entities ................................................ International comity....................................................................... Territorial jurisdiction ................................................................... Constitutional Limitations ...................................................................... Due process of law .......................................................................... Equal protection of the laws .......................................................... Taxation shall be uniform and equitable ...................................... Obligation of contracts ................................................................... Non-infringement of religious freedom ......................................... Freedom of the press ...................................................................... Exemption of properties for religious, charitable and educational purposes ............................................................ Revenue bills shall originate from the House of Representatives .................................................................... No law granting tax exemption shall be passed without concurrence of majority of all members of Congress .......... Every bill passed by Congress shall embrace only one Subject, which shall be expressed in the title thereof ........
31 31 33 34 35 36 37 37 39 43 50 52 53 54 59 62 64
PART II: INCOME AND WITHHOLDING TAXES CHAPTER III: INTRODUCTION Income tax ............................................................................................... Income tax systems .................................................................................. Global system ................................................................................. Schedular system ........................................................................... Semi-schedular or semi-global system .......................................... Features of income tax law ...................................................................... Criteria in imposing income tax .............................................................. Citizenship ...................................................................................... Residence ........................................................................................ Source .............................................................................................. When is income taxable? .........................................................................
viii
66 67 67 68 69 71 73 73 73 74 74
CHAPTER IV: KINDS OF TAXPAYERS Citizens ..................................................................................................... Types of non-resident citizens ....................................................... Aliens ........................................................................................................ Residence ........................................................................................ Engaged in trade or business in the Philippines .......................... Not engaged in trade or business in the Phil................................ Employees entitled to preferential tax rates ................................ Filipino employees of multinational corporations ........................ Estates and trusts .................................................................................... Co-ownerships .......................................................................................... Co-ownership due to death of a decedent ............................................... Before partition of property ..................................................................... After partition of property ....................................................................... General professional partnerships .......................................................... Domestic corporations ............................................................................. Test in determining status of corporation .............................................. Doing Business ........................................................................................ Partnerships ............................................................................................. Joint ventures .......................................................................................... 3 Exempt joint ventures .................................................................. Taxable joint ventures ................................................................... Resident foreign corporations.................................................................. ( 42%56(70*$12(%-(8"0"53(*$("+&"$-%'$(')(2"*9(')#1" ....................... Types of resident foreign corporations ..........................................
76 79 80 80 81 82 82 83 83 84 85 85 85 89 91 92 92 92 9 93 95 96 96 97
CHAPTER V: GROSS INCOME !"#$%&%'$(')(:0'--(%$1'8" ....................................................................... !"#$%&%'$(')($"&(%$1'8" ........................................................................... To whom income is taxable? .................................................................... Source rules .............................................................................................. Interests .......................................................................................... Dividends ........................................................................................ Services ........................................................................................... International shipping line .................................................. International air carrier ....................................................... Rentals and royalties ..................................................................... Sale of real property ....................................................................... Sale of personal property ............................................................... Enumeration of source rules is not exclusive ......................................... ix
100 100 101 103 103 103 104 106 106 109 109 109 110
!"#$%&%'$(')(%$1'8" ................................................................................. Distinction between capital and income ................................................. Tests in determining income ................................................................... Realization test ............................................................................... Claim of right doctrine ................................................................... Income from whatever source ........................................................ (( ;1'$'8%1(7"$"#&(&"-& ..................................................................... <%:$%#1*$1"(')(=$'>%$:(&3/"(')(%$1'8" .................................................. Compensation income .............................................................................. Items not included as compensation income .......................................... ?0%$:"(7"$"#&- ......................................................................................... Trade or business income ........................................................................ Gross income from business........................................................... Lease of real property .................................................................... Sale or exchange of real property .................................................. Professional income ................................................................................. Capital assets ........................................................................................... Shares of stock of a domestic corporation ..................................... Selling price of share of stock ............................................... Real property .................................................................................. Other capital assets........................................................................ Holding period....................................................................... Capital loss can be offset only against capital gain ............ Passive income ........................................................................................ Interest income .............................................................................. Dividend income ............................................................................. Distinction between cash and property dividends .............. 7 3 Stock dividend ....................................................................... Rules on taxation of dividends ............................................. Royalty income ............................................................................... Treatment of royalty under RP-China Tax Treaty ............. Rental income ................................................................................. Other income .................................................................................. Income from any source whatever ....................................... Prizes and awards.................................................................
110 113 113 113 113 114 114 115 115 115 119 121 122 123 124 125 125 125 125 127 131 131 131 132 132 136 1 137 139 143 145 146 147 147 147
CHAPTER VI: EXCLUSIONS FROM GROSS INCOME !"#$%&%'$(')("+15@-%'$- ............................................................................ Exclusions under the Tax Code ..................................................... Exempt corporations ................................................................................ Government-owned or controlled corporations ............................. ( A'$.-&'1=B($'$./0'#&(/0%C*&"("9@1*&%'$*5(%$-&%&@&%'$( ................. x
159 159 174 174 188
CHAPTER VII:
RETURN OF CAPITAL AND DEDUCTIONS
Return of capital ...................................................................................... !"#$%&%'$(')("+15@-%'$- ............................................................................ Deductions are strictly construed against taxpayers............................. Types of deductions from gross income................................................... Itemized deductions ....................................................................... Business expenses ................................................................ Interests ................................................................................ Taxes...................................................................................... Losses .................................................................................... Bad debts ............................................................................... Depreciation .......................................................................... Charitable contributions ...................................................... Optional standard deduction ......................................................... Personal exemptions ...................................................................... Basic personal exemption ..................................................... Additional exemptions .......................................................... Dependent.................................................................... Status-at-the-end-of-the-year rule ................................................ Non-deductible expenses ................................................................
190 192 192 193 193 193 200 203 204 206 208 210 212 213 213 214 214 217 218
CHAPTER VIII: TAX BASES AND RATES Categories of tax bases ............................................................................ Compensation, business and professional income ................................. Individuals ...................................................................................... Domestic Corporations ............................................................................ Resident foreign corporations.................................................................. ,0*$12(/0'#&(0"8%&&*$1"(&*+ ................................................................... Non-resident foreign corporations .......................................................... Preferential tax rates ..................................................................... Gain from sale propert ............................................................................. Nature of asset or property ..................................................................... Passive Investments incomes ..................................................................
221 221 222 223 225 227 228 228 229 232 233
CHAPTER IX: ORDINARY ASSETS AND CAPITAL ASSETS Importance of knowing nature of asset .................................................. Sale or exchange ...................................................................................... Capital assets ...........................................................................................
xi
234 234 236
CHAPTER X:
TAX-FREE EXCHANGES
Tax-free exchanges .................................................................................. Merger or consolidation ........................................................................... Exchange of property ..................................................................... Original basis of property ....................................................................... Sale of principal residence ....................................................................... Requisites for exemption................................................................
241 241 243 247 248 249
CHAPTER XI: ACCOUNTING METHODS AND PERIODS D"&2'9-(&2*&(15"*053(0"E"1&(%$1'8" ........................................................ No uniform method of accounting prescribed for all taxpayers ... Methods of accounting.................................................................... Cash receipts and disbursements method .................................... Accrual method ............................................................................... Income is recognized ................................................................................ Expense is recognized .............................................................................. Installment method ................................................................................. Percentage of completion method ........................................................... Long-term contract .................................................................................. When included in gross income? ............................................................. Income constructively received ............................................................... When expense is claimed as deduction? ................................................. Filing of tax returns ................................................................................ Individuals deriving purely compensation income ....................... Individuals deriving business or mixed income............................ Domestic corporations and resident foreign corporations ........... Cumulative computation of income and deductions ........... Capital gains .................................................................................. Passive investment income ............................................................
251 251 251 252 252 253 253 253 254 254 255 256 257 258 258 260 261 261 262 263
CHAPTER XII: WITHHOLDING TAXES Importance of withholding taxes............................................................. Final withholding tax .............................................................................. Creditable withholding tax ...................................................................... Expanded withholding tax ...................................................................... Persons exempt from withholding tax ................................................... F$1'8"(%-(#+"9('0(9"&"08%$*75"(*&(&%8"(')(/*38"$&.............................. Withholding agent ................................................................................... Time to withhold tax ................................................................................ Bases of withholding tax ......................................................................... xii
264 264 266 266 267 267 268 269 270
On gross income.............................................................................. On gross selling price or fair market value, whichever is higher...... Withholding tax rates .............................................................................. G"$@"()'0(#5%$:(&*+(0"&@0$-(*$9(&%8"()'0(/*38"$&(')(&*+......................
PART III:
270 271 272 273
TRANSFER TAXES
CHAPTER XIII: ESTATE TAX Transfer taxes .......................................................................................... ( !"#$%&%'$(')("-&*&"(&*+ ................................................................... ( !"#$%&%'$(')(9'$'0H-(&*+ ................................................................. Distinctions between donation inter vivos and donation mortis causa .................................................................................... Estate tax ................................................................................................. Nature of estate tax ................................................................................. Rates of estate tax .................................................................................... I@-&%#1*&%'$(')("-&*&"(&*+ ........................................................................ Reasons for taxability of transfers of property ....................................... Death is the generating source of power ................................................ Law at time of death is applicable .......................................................... Residence .................................................................................................. Gross estate .............................................................................................. J%$9-(')(/0'/"0&3("870*1"9(@$9"0(9"1"9"$&H-(%$&"0"-& ......................... Intangible personal property ................................................................... Reciprocal tax exemption ............................................................... Transfer in contemplation of death......................................................... Circumstances taken into account ................................................ Motives associated with life ........................................................... Revocable transfers .................................................................................. Transfers of property under general power of appointment ................. Proceeds of life insurance ........................................................................ Exclusive property ................................................................................... Exemptions under special laws ............................................................... Funeral expenses ..................................................................................... Claims against the estate .............................................................. Claims against insolvent persons .................................................. Unpaid mortgages and taxes ......................................................... Losses .............................................................................................. Family home ................................................................................... Standard deduction ........................................................................ xiii
274 274 274 274 276 276 276 277 277 277 278 278 278 279 281 282 283 283 284 284 285 286 287 288 289 290 291 291 291 292 292
Medical expenses ............................................................................ Vanishing deduction....................................................................... Requisites .............................................................................. Limitations as to amount deductible ................................... Valuation of property ...............................................................................
293 293 293 294 296
CHAPTER XIV: !KAKLH<(MNO !"#$%&%'$(')(9'$*&%'$ .............................................................................. Nature of gift tax...................................................................................... 4@0/'-"-(')(9'$'0H-(&*+ ............................................................................ Taxable transfers ..................................................................................... Essentials of taxable donation ................................................................ Donative intent ............................................................................... Consideration.................................................................................. Donation of conjugal property ................................................................. M0*$-)"0()'0(%$-@)#1%"$&(1'$-%9"0*&%'$ ................................................... Exemptions under special laws ............................................................... Procedure for computing net gifts ...........................................................
301 301 301 303 304 305 305 305 307 307 310
PART IV: VALUE ADDED TAX CHAPTER XV: INTRODUCTION Characteristics of value added tax .......................................................... Tax on value added......................................................................... Value added........................................................................... Output tax ............................................................................. Input tax ................................................................................ Tax credit method........................................................................... Sales tax .......................................................................................... Taxable transactions ...................................................................... Broad-based tax on consumption in the Phils. ............................. Destination principle ...................................................................... Situs-of-service principle ...................................................... Indirect tax ..................................................................................... Cumulative through chain of distribution of goods and services .................................................................................. Tax-inclusive method ..................................................................... VAT does not cascade ..................................................................... Principle of recoupment of tax .......................................................
xiv
314 314 314 315 315 315 316 317 317 317 318 318 319 319 319 320
CHAPTER XVI: PERSONS LIABLE TO TAX Taxable persons ....................................................................................... Husband and wife........................................................................... Joint venture .................................................................................. Government .................................................................................... ( A'$.-&'1=B($'$./0'#&(*--'1%*&%'$ .................................................. Importer .......................................................................................... CHAPTER XVII:
321 321 321 322 322 324
OUTPUT TAX ON SALE OF GOODS OR PROPERTIES
Elements of taxable sale of goods or properties ..................................... Sale of goods or properties ............................................................. Types of sales ........................................................................ Goods or properties ............................................................... For valuable consideration............................................................. In the course of trade or business.................................................. Incidental transaction .......................................................... Goods are consumed in the Philippines ........................................
325 325 326 328 328 329 329 329
CHAPTER XVIII: OUTPUT TAX ON SALE OF SERVICES Sale or exchange of services .................................................................... Categories of services............................................................................... Requisites for taxability of services ........................................................ Sale of services................................................................................ In the course of trade or business.................................................. Situs-of-service principle................................................................ Incidental .............................................................................. Lease of property by non-residents ...................................... Actual or constructive receipt ........................................................ Dealer in securities ............................................................... Franchise grantees ............................................................... Lending investor ................................................................... Categories of exemptions...................................................... Transactions with exempt persons ...................................... Scope of exemption ...............................................................
332 333 334 334 334 335 335 335 336 336 337 337 339 339 340
CHAPTER XIX: TAX BASES !"#$%&%'$(')(&*+(7*-" ............................................................................... xv
343
Sale of goods ............................................................................................. Sale of real property ....................................................................... Sales discounts, returns and allowances ...................................... Transactions deemed sale........................................................................ Sale of services ......................................................................................... Basis is income received................................................................. Advance rental payments .............................................................. Reimbursement of expenses .......................................................... Customs broker ........................................................................................ Media advertising .................................................................................... Travel agency ........................................................................................... Hotel, restaurant and caterer ................................................................. Non-life insurance company .................................................................... Dealer in securities .................................................................................. Security agencies ..................................................................................... Movie and cinema houses ........................................................................
343 343 344 345 345 348 349 349 350 350 351 351 354 354 354 355
CHAPTER XX: RATES OF VAT Output tax ................................................................................................ Input tax ................................................................................................... Sales of goods ........................................................................................... Sale of services .........................................................................................
357 357 357 365
CHAPTER XXI: EXEMPT TRANSACTIONS Transactions exempt form value-added tax ...........................................
371
CHAPTER XXII: INPUT TAXES Types of input taxes ................................................................................. Sources of input taxes .............................................................................. Allocation of input tax ............................................................................. Requirements for claims for refund or tax credits ................................. Transitional input tax.............................................................................. Input taxes that may be refunded or credited ........................................ Claims for refund or tax credit ................................................................
376 376 381 381 383 383 385
CHAPTER XXIII: COMPLIANCE REQUIREMENTS Registration as a VAT taxpayer .............................................................. Books of accounts and their equivalents ................................................ Invoices and receipts................................................................................ xvi
386 388 388
Filing of tax return and payment of tax ................................................. VAT returns and declarations ....................................................... Payment of tax ................................................................................ Final witholding tax .......................................................................
391 391 391 393
PART V: TAX REMEDIES CHAPTER XXIV: INTRODUCTION BIR organizational structure .................................................................. Agents in the collection of taxes .............................................................. Powers and duties of BIR ............................................................... Power to interpret tax laws and to decide tax cases .................... Power to examine books and other accounting records and to obtain information ............................................................ Power to inquire into bank deposits of taxpayers ........................ Power to assess and collect correct amount of tax........................ !"#$%&%'$(')(0"8"9%"- .............................................................................. Types of remedies under the Tax Code ................................................... Substantive remedies .............................................................................. Imposition of withholding tax on certain income ......................... Issuance of revenue regulations .................................................... Failure to obey summons ............................................................... Declaration of penalties under perjury ......................................... Administrative interpretations ............................................................... Principle of legislative approval by reenactment ................................... CHAPTER XXV:
395 395 396 396 398 400 402 404 404 405 405 405 406 406 407 407
ADMINISTRATIVE REMEDIES OF GOVERNMENT
Power to assess ........................................................................................ Presumption of correctness ..................................................................... Basis of assessment ................................................................................. Question of fact ............................................................................... Question of law ............................................................................... Assessment process .................................................................................. Examination of books of accounts ................................................. Best evidence obtainable ................................................................ Networth method of investigation ................................................. 40"/*0*&%'$(')(&"$&*&%C"(#$9%$:- ............................................................ Principle of estoppel ....................................................................... Power to allocate income and deductions...................................... xvii
408 408 409 409 409 410 410 411 411 412 412 413
Issuance of preliminary assessment notice................................... ( F--@*$1"(')(#$*5(*--"--8"$&($'&%1"(*$9(9"8*$9(5"&&"0 ............... Power to collect tax .................................................................................. !"#$%&%'$(')(9"5%$P@"$13(&*+ .................................................................. !"#$%&%'$(')(9"#1%"$13(&*+ ...................................................................... Filing of administrative protest against assessment ............................. Submission of documentary evidence and arguments ........................... Denial of protest by the Commissioner................................................... Appeal of decision of Commissioner to CTA ........................................... Administrative remedies of the government .......................................... Tax lien ........................................................................................... Distraint ......................................................................................... Levy ............................................................................................... Sale of property .............................................................................. Forfeiture ........................................................................................ Compromise and abatement .......................................................... Power to compromise is not absolute ................................... Abatement ...................................................................................... ( 4"$*5&%"-(*$9(#$"- .........................................................................
413 415 417 417 417 418 419 419 420 420 420 422 423 425 426 426 430 432 432
CHAPTER XXVI: JUDICIAL REMEDIES OF GOVERNMENT CTA can issue injunction to restrain collection of tax ........................... Civil action ............................................................................................... Jurisdiction of Civil actions ..................................................................... When tax liability becomes collectible? .................................................. When to go to court? ................................................................................ Q2'(*//0'C"-(&2"(#5%$:(')(1%C%5(*1&%'$R .................................................. Respondents in civil action for collection of tax ..................................... Criminal action ........................................................................................ Common crimes punishable under the Tax Code ......................... Important principles on criminal action ....................................... Filing of criminal action during the pendency of protest ...................... Persons liable for criminal prosecution ..................................................
434 434 435 435 439 440 440 441 441 443 448 451
CHAPTER XXVII: CIVIL PENALTIES Civil penalties .......................................................................................... Surcharges ................................................................................................ !"#1%"$13(%$&"0"-& ................................................................................... Delinquency interest ................................................................................ Compromise penalties ............................................................................. xviii
452 452 455 456 457
CHAPTER XXVIII:
REMEDIES OF TAXPAYERS
Administrative remedies ......................................................................... Before payment of assessed tax ..................................................... After payment of assessed tax ....................................................... Judicial remedies ..................................................................................... Substantive remedies .............................................................................. Constitutionality or validity of tax statute or regulation ............ Non-retroactivity of rulings ........................................................... Information on legal and factual bases of assessment ................. Preservation of books of accounts .................................................. Publication of circulars and orders................................................ Procedural remedies ................................................................................ Notice of informal conference ........................................................ Post-reporting notice ...................................................................... Preliminary assessment notice ...................................................... Formal assessment notice .............................................................. Protest letter ................................................................................... Reinvestigation or reconsideration of assessment........................ Administrative appeal to Commissioner....................................... Types of taxes ........................................................................................... Self-assessing taxes which do not require assessment ................ Taxes which assessment to establish liability .............................. Tax period of taxpayer is terminated .................................. ( ( !"#1%"$13(&*+(*0%-%$:()0'8(*@9%& ......................................... Tax lien .................................................................................. Dissolving corporation ..........................................................
459 459 459 459 460 460 460 461 461 462 462 462 463 463 464 465 465 465 467 467 467 468 468 469 469
CHAPTER XXIX: ASSESSMENT AND PROTEST !"#$%&%'$(')(*--"--8"$& .......................................................................... Forms of assessment ................................................................................ Formal assessment notice ............................................................. Informal written notice .................................................................. <%:$%#1*$1"(')(*--"--8"$& ...................................................................... Mandamus does not lie against the discretionary powers of the Commissioners ............................................................................... When must an assessment be made?...................................................... When is a tax assessment made or deemed made? ................................ Issue date ........................................................................................ Date of service or mailing .............................................................. xix
470 473 473 474 474 475 475 476 476 476
Date of receipt................................................................................. Who may sign an assessment notice? ..................................................... Forms of protest ....................................................................................... Q2"$(&'(#5"(*98%$%-&0*&%C"(/0'&"-&R ...................................................... Denial of protest ...................................................................................... Direct denial ................................................................................... Indirect denial ................................................................................
478 478 478 480 482 482 483
CHAPTER XXX: PRESCRIPTION !"#$%&%'$(')(/0"-10%/&%'$ ......................................................................... Purpose of Statute of Limitations ........................................................... Tax Code provisions prevail over Civil Code provisions on prescription ..................................................................................... Construction of law on prescription ........................................................ Prescriptive periods under the Tax Code ............................................... Period to assess the tax .................................................................. Revised assessment .............................................................. Burden of proof ..................................................................... Period to collect the assessed tax ............................................................ What is a tax return? ..................................................................... ( ;))"1&(')(#5%$:(*8"$9"9(0"&@0$...................................................... False or fraudulent return ............................................................. When must fraud be raised by government? ................................ Consequence of failure to prove fraud? ......................................... When must issue on prescription be raised?................................. Waiver of the defense of prescription ............................................ Prescription in relation to acts or delays of taxpayer................... ( ;))"1&(')()0*@9(*--"--8"$&-(>2%12(*0"(#$*5(*$9("+"1@&'03 ......... Extension of prescriptive period .................................................... Rules in cases of more than one waiver signed ...................................... Interruption of prescriptive period ......................................................... 4"0%'9(&'(#5"(10%8%$*5(*1&%'$ ...................................................................
489 489 490 490 491 492 494 495 495 496 498 499 504 505 505 506 507 508 509 511 514 519
CHAPTER XXXI: TAX CREDIT OR REFUND !"#$%&%'$(')(&*+(10"9%&(*$9(0")@$9.......................................................... Tax credit vs. tax deduction .................................................................... Principle of exhaustion of administrative remedies .............................. Inaction of the Commissioner is deemed a denial .................................. Starting date for counting the two-year period ...................................... Corporate income tax ..................................................................... xx
521 523 530 531 531 532
Income tax paid in installments .................................................... Withholding tax .............................................................................. Value added tax .............................................................................. Interpretation of phrase “regardless of any supervening cause that may have arisen after payment” ................................................... Filing of written claim is mandatory ...................................................... Proper person to claim refund or tax credit ........................................... Procedural laws can be applied retrospectively .....................................
532 533 534 536 536 539 540
CHAPTER XXXII: TAX COURT AND ORDINARY COURTS CTA ......................................................................................................... Jurisdiction of CTA under R.A. 9282 ...................................................... Jurisdiction of CTA under R.A. 1125 ...................................................... S'$E%1&(7"&>""$(L6N6(TTUV(*$9(46!6(UWU ............................................... Other matters ........................................................................................... Regional Trial Courts ..............................................................................
542 542 545 546 548 557
PART VI: LOCAL GOVERNMENT CODE CHAPTER XXXIII: LOCAL BUSINESS TAXES Constitutional basis ................................................................................. Local Government Code (R.A. 7160) ....................................................... Scope of taxing power of LGUs................................................................ Fundamental principles........................................................................... Common limitations................................................................................. Taxes that may be imposed by provinces ............................................... Taxes that may be imposed by municipalities and cities ...................... Accrual and payment of tax..................................................................... Review of tax ordinances ......................................................................... Remedies for the collection of tax............................................................ Prescriptive periods ................................................................................. Remedies of taxpayers ............................................................................. Protest ............................................................................................. Claim for refund .............................................................................
559 560 561 562 563 565 566 568 568 571 572 572 573 574
CHAPTER XXXIV: REAL PROPERTY TAX Nature of real property tax ..................................................................... Accrual and payment of tax..................................................................... Types of real property tax........................................................................ xxi
575 575 576
Annual ad valorem tax ................................................................... Special levies .................................................................................. Real property subject to tax .................................................................... Machinery ...................................................................................... Improvements ................................................................................. Fundamental principles........................................................................... Fair market value .................................................................................... Actual use ................................................................................................. Classes of real property ........................................................................... Exemptions from real property tax ......................................................... Civil remedies for collection .................................................................... Prescriptive periods ................................................................................. M*+/*3"0H-(0"8"9%"- ................................................................................ Payment of tax under protest ..................................................................
576 576 578 578 579 581 582 582 584 585 587 590 591 595
PART VII: TARIFF AND CUSTOMS CODE CHAPTER XXXV: FUNDAMENTAL PRINCIPLES !"#$%&%'$(')(1@-&'8-(9@&%"- .................................................................... Imported articles subject to duty ............................................................ Prohibited importations........................................................................... Conditionally free importations .............................................................. When importation begins and ends ........................................................ Bases of assessment of duty .................................................................... Entry, withdrawal from warehouse, for consumption ........................... Due process............................................................................................... Automatic review ..................................................................................... Publication ............................................................................................... Claim for refund ....................................................................................... Jurisdiction over seizure and forfeiture proceedings ............................. Remedies under the Tariff and Customs Code.......................................
xxii
599 599 599 600 611 611 612 614 614 615 616 617 621
1
PART I GENERAL PRINCIPLES AND LIMITATIONS ON THE POWER OF TAXATION CHAPTER I
GENERAL PRINCIPLES !"#$%&%'$(')(*+,+&%'$ “Taxation” is the power by which the sovereign raises revenue to defray the expenses of government. It is a way of apportioning the cost of government among those who in some measure are privileged !"# $%&"'# (!)# *$%$+!)# ,%-# ./)!# *$,0# (!)# */0-$%# (51 Am. Jur. 34). Taxation is described as a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government (Paseo Realty & Development Corporation vs. Court of Appeals, G.R. No. 119286, Oct. 13, 2004).
Nature of the power of taxation -+.(/0"1&%'$(234456 Describe the power of taxation. May a legislative body enact laws to raise revenues in the absence of a constitutional provision granting said body the power to tax? Explain. Suggested answer: The power of taxation is inherent in the State, being an attribute of sovereignty. As an incident of sovereignty, the power to tax has been described as unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it (Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667[1996]). 1
2
REVIEWER ON TAXATION
Being an inherent power, the legislature can enact laws to raise revenues even without the grant of said power in the Constitution. It must be noted that Constitutional provisions relating to the power of taxation do not operate as grants of power to the Government, but instead merely constitute as limitations upon a power which would otherwise be practically without limit (Cooley, Constitutional Limitations, 1927 8th ed., p. 787).
-+.(/0"1&%'$(278896 1.
It is an attribute of sovereignty
The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people (PepsiCola Bottling Company of the Phil. vs. Mun. of Tanauan, Leyte, 69 SCRA 460).
-+.(/0"1&%'$(2344:6 Why is the power to tax considered inherent in a sovereign State? Suggested answer: It is considered inherent in a sovereign State because it is a necessary attribute of sovereignty. Without this power, no sovereign State can exist nor endure. The power to tax proceeds upon the theory that the existence of a government is a necessity. The power to tax is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent State. No sovereign State can continue to exist without the means to pay its expenses, and for those means, it has the right to compel all citizens and property within its limits to contribute; hence, the emergence of the power to tax. 2.
It is legislative in character
The power of taxation is essentially a legislative function. The power to tax includes the authority to: (1) determine the (a) nature (kind); (b) object (purpose); (c) extent (amount or rate); (d) coverage (subjects and objects); (e) apportionment of the tax (general or limited application); (f) situs (place) of the imposition; and (g) method of collection; (2) grant tax exemptions or condonations; and (3) specify or provide for the administrative as well as judicial remedies that
GENERAL PRINCIPLES AND LIMITATIONS ON THE POWER OF TAXATION General Principles
3
either the government or the taxpayers may avail themselves in the proper implementation of the tax measure (Petron vs. Pililla, 198 SCRA 82). 3.
It is generally not delegated to executive or judicial department
The power to tax is purely legislative, and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers (Pepsi-Cola Bottling Company of the Phil. vs. Mun. of Tanauan, Leyte, supra). Delegation of the power to tax is, however, allowed in the following cases: a.
To local governments in respect of matters of local concern to be exercised by the local legislative bodies thereof (Sec. 5, Art. X, 1987 Constitution);
b.
When allowed by the Constitution. Thus, the Congress .,'1#*'#2,31#,/!4"0(5$#!4$#60$)(-$%!#!"#+7#3(!4(%#)8$9(+$-# limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government (Sec. 28[2], Art. VI, 1987 Constitution);
c.
When the delegation relates merely to administrative implementation that may call for some degree of -()90$!("%,0'# 8"3$0)# /%-$0# ,# )$!# ":# )/:+9($%!# )!,%-,0-)# expressed by law (Cervantes vs. Auditor General, 91 Phil. 359), or implied from the policy and purpose of the Act (Maceda vs. Macaraig, 197 SCRA 771).
-+.(/0"1&%'$(2344:6 May Congress, under the 1987 Constitution, abolish the power to tax of local governments? Suggested answer: No, Congress cannot abolish what is expressly granted by the fundamental law. The only authority conferred to Congress is to provide the guidelines and limitations on the local government’s exercise of the power to tax (Sec. 5, Art. X, 1987 Constitution).
